In a big boost for the insurance sector, the Cabinet has approved 49 percent foreign investment in insurance companies. This will be allowed through the FIPB route , ensuring management control in the hands of Indian promoters.
Welcoming the move, Prashant Sharma, CIO, Max Life Insurance said that foreign investors are looking to invest in insurance companies in India.
Sandeep Batra, Executive Director, ICICI Prudential Life Insurance added that insurance industry current requires nearly Rs 25,000 crore of capital. However, ICICI Prudential Life is adequately capitalized and doesn't need funds immediately, he said.
Below is the verbatim transcript of Sandeep Batra and Prashant Sharma's interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy. For the complete discussion watch the accompanying videos.
Latha: What have you heard from the promoters, are they looking in more foreign investment, are they getting a lot of foreign interest at this juncture?
Sharma: Given the attractiveness of the industry there would be lot of interest from the foreigners, generally speaking but having said that whether the promoters or the management want this to happen at a certain point, is their prerogative and that may happen at some point in time in the future if the conditions are attractive and desirable for everybody concerned.
Latha: Has the parent spoken to foreign partner or spoken to other people. What is the kind of interest at current levels from foreigners because the rules do not allow foreign control, it is little more money that they can put in, they will not get control and it has to go through the approval route?
Sharma: We will have to see what exactly the guidelines are but it will depend on both the parties when they will discuss the offer at hand. Having said that it is a welcome move for the industry in general, it brings in a lot of long-term capital, the capital which is required for not only the insurance sector but for the country in general. Insurance companies are long-term investors of capital, be the bond market, be it equity markets.
This is a welcome move from the industry and country's perspective. However, whether it makes sense for two promoters - will be seen at a particular point in time when both of them sit down. On the exact guidelines we will have to probably read as to whether they are conducive in the current environment or they will be more appropriate at a future point in time. So it will get evolved over a period of time, it is not something which will get decided in the next couple of weeks is what my sense is.
Sonia: What is your take – the fact that foreign insurers will have to come through only after they get the Foreign Investment Promotion Board (FIPB) nod? In that sense an extra layer has been added before they come in. Do you think that would be any hurdle and how much of a positive would this be for the industry as a whole?
Batra: This is a very welcome move and a long awaited move. In the life insurance industry about Rs 35,000 crore of capital has been invested over the last decade or so and 15 percent growth of assets under management (AUM) from here. We will require a capital of Rs 25,000 crore odd. Therefore, any increase in avenues and which capital can be raised is certainly welcome and foreign capital is welcome for the industry, so that is both for the life and general side.
Latha: You have spoken with the Prudential management, are they enthused enough to bring in the capital anytime soon, should we expect capital changes in the current year?
Batra: As far as ICICI Prudential is concerned, we are very adequately capitalised. We have a solvency ratio of 370 percent which is more than double the regulatory requirement. We as a company do not need capital immediately because as growth happens - that's a completely different matter but what happens between the promoters is for them to decide and they will take a decision at an appropriate period of time.
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