With a view to ensure that the local investors do not use the liberal foreign investment and listing policy to dilute accountability, IRDAI has issued a guideline mandating local promoters to hold a minimum of 26% equity in any insurance joint venture.
According to the regulator, this move will ensure that there is accountability and that the management does not rest with the foreign company alone in the event of a single block of stake falling below 25% – paid up equity share capital limit, when a company goes for listing.
Furthermore, IRDAI said that Indian investors jointly shall not hold above 25% of paid up equity share capital of the insurance firm. Through this move, the regulator aims at controlling transfer and dilution of ownership in insurance firm as RBI does with banks, to prevent investors from flipping funds for short term gains that may hurt long term interests.
Also, the regulator has mandated that no single entity or group of investors can hold more than 10% of paid-up equity capital in an insurance firm.
However, there is a mixed reaction from industry experts to the regulator’s move. Some term restricting a single Indian investor’s shareholding to 10 per cent – illogical; especially when a foreign investor is allowed to own 26% stake under the automatic route and 49% under government approval route in any insurance joint venture.