Irda to keep tab on insurers IPOs to see FDI norms met

Written by Sitanshu Swain | Mumbai | Updated: Sep 24 2011, 06:50am hrs
The Insurance Regulatory and Development Authority (IRDA) will vet each of the IPO proposals of the life insurers to ensure that the overall FDI norms stipulated in the IRDA Act are met. The Insurance Act specifies that a foreign player can have only 26% stake in an insurance joint venture (JV) .

However, there is a possibility that a foreign players, after being allowed to hike their stake to 49% (a Bill to increase FDI in the insurance sector is being currently scrutinised by the standing committee on finance), may end up having a majority stake in an insurance JV in the post-IPO stage.

For example, if a domestic partner with 51% stake decides to dilute a larger portion of its stake, it may bring down its stake below than that of the foreign partner. This would be in contravention of the Act, which requires the domestic player to hold a majority stake.

Speaking to FE, J Harinarayan, chairman, Irda said , We will like to approve each of the IPO proposals from the insurers. The new IPO norms, to be announced shortly, will have provisions for this. We will see that Insurance Act is not violated,''

Effectively, the new IPO norms will make Irda the final authority on the issue of the new share-holding pattern of any insurance JV after the IPO and it wouldn't allow a situation where a foreign player ends up as the majority partner.

Though life insurers have no immediate plans to go public and many of them are eagerly waiting for the hike in FDI in the sector, the clarification by the Irda chairman will help them to plan things properly.

One of the biggest concerns among the domestic partners is how to structure the IPO after the FDI is increased without violating the Act, said life insurers. However with Irda to approve each of the IPO proposals, the new stakeholding pattern could be acceptable to both the domestic and foreign partners.