The government?s ambivalence towards private life insurance?brought on by the Left?s opposition to further opening up of the sector to foreign investment?could result in a serious cash crunch that would adversely impact small to mid-sized domestic players.
According to analysts, India?s private life insurance companies will require around Rs 10,000 crore in additional capital over the next two years to fund their expansion plans in the country, while simultaneously sustaining a growth rate of about 70%.
Given the current policy regime, though, which caps foreign direct investment (FDI) in the sector at 26%, the Indian partners in these ventures will have to cough up a massive Rs 7,400 crore. Current FDI in the sector is estimated at a mere Rs 2,836 crore.
Though large players like ICICI Prudential and HDFC Standard Life may be in a position to hit the market to raise additional funds, Sharmila Karve, leader, insurance practice, PricewaterhouseCoopers, told FE that small to mid-sized insurers would be the worst affected.
?The insurance sector is capital intensive and needs further infusion of capital. However, a host of Indian partners in the insurance ventures are not very keen to pump in any more funds given the current ambiguous policy,? added an industry insider.
The UPA government had earlier said the FDI limit in the sector would be raised to 49% from the current 26%. However, its feet-dragging over the issue has ensured that most foreign partners are now reluctant to launch initial public offers. The reason? The 26% FDI cap restricts their say in decision-making.
Under existing insurance guidelines, an insurer is required to float an initial public offer within ten years of launching operations. However, the Insurance Development & Regulatory Authority and the government are yet to take a final call on the matter. Moreover, an insurance player needs to register profits for at least three years straight before an IPO.
After protests from Left parties, increasing the FDI limit was referred to a group of ministers, which is yet to submit its report. But with elections looming, industry players believe the issue may not be taken up before the next fiscal.