The Union Cabinet has recently decided to cap foreign equity in the new private sector insurance companies to 26 per cent, while the additional 14 per cent stake for NRIs and OCBs, as proposed by the Insurance Regulatory Authority, has been scrapped.

The NRI lobby has proposed that individual NRIs be allowed equity contribution of up to three per cent in insurance companies. A lock-in period of five to seven years could also be stipulated before the shares held by NRIs can be sold, transferred or assigned, they have suggested to Prime Minister AB Vajpayee in a letter dated March 30.

It has also been proposed that a clear distinction be made between individual NRIs and overseas corporate bodies (OCBs) so as to avoid backdoor entry of foreign insurance companies, or foreign institutionalinvestors (FIIs).

By definition, OCBs are companies in which 60 per cent of the equity is held by NRIs, and could easily be used by FIIs or transnational insurance companies to hike their stake in their Indian ventures. This is believed to be the primary reason why the Cabinet decided on scrapping the 14 per cent cap for NRIs and OCBs.

The revised IRA Bill, now thrown open in the Parliament for discussion, will allow the new companies to only enter one of the three areas of life, general or reinsurance, while no new companies would be allowed to enter into the composite insurance business.

It has also been made mandatory for the new entrants to offer health insurance cover.

While the 74 per cent stake for Indian partners is being viewed as high, with some foreign companies indicating that they are not averse to taking multiple Indian partners, the time period fixed for Indian promoters to bring their stake down to 26 per cent has been extended to 10 per cent from six per cent proposedearlier.

Indian companies which are looking at setting up insurance ventures with foreign partners say that if the IRA Bill is cleared in the Budget session, it will take another six months by the government to issue license after which they can kick off operations.

The letter to the Prime Minister, which has been signed by Srichand Hinduja, indicates that NRIs have taken strong exception to the fact that by capping foreign investment in insurance to 26 per cent, the NRIs have been accorded the same status as foreign investors.

The letter also points out that NRI funds have accounted for about 18 per cent of the total foreign investment of around $20 billion upto March 1998, and accounts for 21 per cent of India's outstanding external debt, and 70 per cent of India's foreign exchange reserves.

The overseas Indian community has also made a contribution of $4.2 billion to the Resurgent India Bond.