Union Budget 2021-22 Insurance Sector

July 21, 2021
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“Faith is the bird that feels the light and sings when the dawn is still dark” Finance Minister Nirmala Sitharaman presented Union Budget 2021-22, quoting great poet and philosopher Rabindranath Tagore.

This year’s Budget is considered one of the most crucial ones in modern India’s history, as the country attempts to recover from the aftereffects of the COVID-19 pandemic.

This is India’s first-ever paperless Union Budget also; the Budget is announced through the “Made in India” tablet wrapped in a velvety red cloth.

Important points related to the Insurance sector:

1. FDI Limit Increased

Finance Minister proposed to amend the Insurance Act 1938 to increase the permissible FDI limit from the existing 49% to 74% in Insurance companies and allow foreign ownership and control with safety.

Under the new structure, the majority of the Board of directors and Key management persons would be resident Indians, with at least 50% of the directors being independent directors and a specified percentage of profit being retained as General Reserves.

 

2. LIC Disinvestment

Finance Minister stated that the IPO of the Life Insurance Corporation of India would be carried out in FY 2021-22.

It will be one of the biggest IPO in the history of India in which 10% of LIC stakes will be sold out.

The government is trying to raise Rs. 1 lakh crores from it. LIC’s IPO is a part of the Government disinvestment plan to sell the shareholdings of state-owned companies, including BEML, Shipping Corporation of India, IDBI Bank Pawan Hans, BPCL, Air India, among others.

Finance Minister also added that the government is also looking to privatize two other public sector banks and one general insurance company this fiscal year.

 

3. Amendment in DICGC

Finance Minister Nirmala Sitharaman, in her Union Budget 2021-22 speech, announced that depositors would have an ‘easy and time-bound’ access to deposits if a bank gets liquidated.

The government will amend the Deposit Insurance and Credit Guarantee Corporation Act (DICGC), 1961.

DICGC, a wholly-owned subsidiary of the Reserve Bank of India (RBI), provides deposit insurance to bank depositors if a bank fails to pay them their deposits.

Last year, the amount of deposit insurance per individual had hiked to Rs 5 lakh from Rs 1 lakh.

The Rs. 5 lakh insurance includes both principal and interest amount held by each depositor in the same right and capacity as on the date of liquidation or cancellation of bank’s license or the date on which the scheme of amalgamation or merger or reconstruction come into force.

After the amendment, this may change.

So far, the claim on deposit insurance could be made only after the bank’s license was cancelled and its liquidation proceedings were started.

Now, as per the latest announcement, bank customers whose accounts are frozen can also expect to get access to their funds up to the insurance limit.

This is a positive development and protects bank customers from the kind of situations we had seen in the recent past.

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Insurance

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