Finance Minister Nirmala Sitharaman announced in the Rajya Sabha on Tuesday that raising the Foreign Direct Investment (FDI) limit in Indian insurance companies from 74% to 100%, as proposed in the Union Budget on February 1, 2025, will attract more global players and create significant employment opportunities. The policy shift aims to modernize the insurance sector, enhancing efficiency and service delivery for policyholders across India.
Sitharaman highlighted that increased FDI will drive technological advancements and automation, leading to faster underwriting and claim processing. “This will reduce costs and improve turnaround times, boosting the sector’s overall efficiency,” she said. The move is expected to draw international expertise and capital, fostering innovation and competition in India’s insurance market.
The Insurance Act, 1938, governs insurer investments, prioritizing safety, liquidity, and policyholder interests. It mandates that a specified percentage of funds be invested in government securities and IRDAI-approved instruments, with all funds required to remain within India. Sitharaman emphasized that these regulations ensure financial stability, with insurers mandated to maintain assets exceeding liabilities by at least 50% of the minimum capital amount and a solvency ratio of 150% as per IRDAI guidelines.
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To protect policyholders, the IRDAI can intervene if an insurer acts against their interests, including superseding the company’s board and appointing an administrator. The regulatory framework, coupled with the Companies Act, 2013, and the Indian Insurance Companies (Foreign Investment) Rules, 2015, ensures transparency, fair practices, and robust governance, including oversight of dividend payments and board composition.
Sitharaman also addressed a separate query, noting that amendments to the Banking Regulation Act, 1949, effective August 1, 2025, extend the maximum tenure of cooperative bank directors (excluding chairpersons and whole-time directors) from 8 to 10 years. This change aims to strengthen governance in cooperative banking.
The FDI announcement has sparked discussions on platforms like X, with users expressing optimism about job creation and concerns about foreign influence in the sector. As India opens its insurance market to global investors, the reforms signal a transformative phase, balancing growth with stringent safeguards to protect policyholders and ensure financial stability.
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