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Home / IRDA Update 

IRDA stand allows greater flexibility for new entrants

The move by the Insurance Regulatory & Development Authority to segregate FII holdings from the calculation of 26 percent foreign equity cap in the insurance joint ventures will allow greater maneuverability to a number of Indian companies.

However, the condition that this facility will be extended only to those FIIs whose subsidiaries do not have any interest in insurance business would make it difficult for companies like HDFC to enter the insurance sector with a JV partner.

The Mumbai-based premier housing finance company, HDFC, at the end of June, 2000, had as much as 31.7 percent of its equity being held by different Foreign Institutional Investors. Three months prior to that, the FII stake in HDFC was limited to 30 percent.

HDFC along with ICICI are among the very few Indian companies that have a large number of FIIs as its stakeholder through market operations. The top five FII stake holders in HDFC include Morgan Stanley, Warburg Pincus, Emerging Markets (Growth Fund), Templeton and Rowe Price. These five together have a majority of the FII holdings in HDFC.

However, with the IRDA considering a segregation of FII stake from foreign equity cap, the issue has opened a separate debate as far as insurance joint ventures are concerned. As of now, as much as 24.6 percent of the equity holdings in HDFC are by way of direct investment from the foreign investors.

This is over and above the FII holdings in HDFC through market operations. According to sources, while FDI has a 15 percent stake, Warburg (Property Fund) has a 4.6 percent stake in HDFC. Another 5 percent is held directly by Standard Life.

It is this aspect of Standard Life holding direct equity stake in HDFC that has been a cause of concern for the HDFC management since the company has evinced interest in entering the insurance sector in India. It has a standing memorandum of understanding with Standard Life for insurance business in India.

If one is to go by the statement of the IRDA chairman, then Standard Life’s stake in the JV will have to be reduced by the proportionate percentage while calculating the foreign equity cap of 26 percent in the new JV. Even if some concession is provided, it will be an uphill task for the HDFC management to convince IRDA that Standard Life be given 26 per cent stake in the JV for insurance business.

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