Insurance FDI – sector specific conditions

RBI has issued a circular dated 8th April, 2015 which is basically reiterating the DIPP Press Note no. 3(2015) series. The sector specific conditions are as follows:

RBI circular is available at this link i.e. http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9652&Mode=0

The extant FDI policy for Insurance sector has since been reviewed and further liberalized. Accordingly, with immediate effect, FDI in Insurance sector shall be permitted up to 49% subject to the revised conditions specified in the Press Note 3 (2015 Series) dated March 2, 2015. Also, a new activity viz. “Other Insurance Intermediaries appointed under the provisions of Insurance Regulatory and Development Authority Act, 1999 (41 of 1999)” has been included within the definition of ‘Insurance’.

3. Besides, the salient changes over the existing regime include:

1. Foreign investment in Indian insurance company shall be limited up to forty-nine percent of the paid up equity capital;
2. Foreign direct investment up to 26 percent shall be under automatic route and beyond 26 percent and up to 49 percent shall be with Government approval;
3. Foreign investment in the sector is subject to compliance of the provisions of the Insurance Act, 1938 and the condition that companies bringing in FDI shall obtain necessary license from the Insurance Regulatory & Development Authority of India for undertaking insurance activities.
4. An Indian insurance company shall ensure that its ownership and control remains at all times in the hands of resident Indian entities;
5. Foreign portfolio investment in an Indian insurance company shall be governed by the provisions of Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 and provisions of the Securities Exchange Board of India (Foreign Portfolio Investors) Regulations.
6. Any increase of foreign investment of an Indian insurance company shall be in accordance with the pricing guidelines specified by Reserve Bank of India under the Foreign Exchange Management Act, 1999.
7. Terms ‘Control’, ‘Equity Share Capital’, ‘Foreign Direct Investment’ (FDI), ‘Foreign Investors’, ‘Foreign Portfolio Investment’, ‘Indian Insurance Company’, ‘Indian Company’, ‘Indian Control of an Indian Insurance Company’, ‘Indian Ownership’, ‘Non-resident Entity’, ‘Public Financial Institution’, ‘Resident Indian Citizen’, ‘Total Foreign Investment’ will have the same meaning as provided in Notification No. G.S.R 115 (E), dated 19th February, 2015

FDI in defence sector –

RBI has issued a circular dated 8th December, 2014 wherein certain sector specific conditions have been laid for the FDI in defence sector. The gist of the conditions are as follows:

The extant FDI policy for defence sector has since been reviewed. Department of Industrial Policy and Promotion (DIPP) has now provided a list of defence items as finalised by Department of Defence Production, Ministry of Defence and has clarified that items not in the list would not require industrial license for defence purposes. Dual use items, having military as well as civilian applications, other than those specially mentioned in the list, would also not require Industrial License from Defence angle. Department of Defence Production, Ministry of Defence, has finalised the ‘Security Manual for Licensed Defence Industry’.

Further, on a review, effective from August 26, 2014, foreign investment i.e. FDI, FIIs, RFPIs, NRIs, FVCIs and QFIs upto 49% under government route shall be permitted in defence sector subject to the conditions specified in the Press Note 7 (2014 Series) dated August 26, 2014. Portfolio investment (RFPI/FII/NRI/QFI) and FVCI investment will not exceed 24% of the total equity of the investee company. Portfolio investment will be under automatic route.

The listed investee company engaged in defence sector, in accordance with the guidance provided by the Press Note 7 (2014 Series) , shall immediately allocate limits for portfolio investment for RFPI (including QFI and FII), NRI (not exceeding 10%) and FVCI within the default portfolio investment limit of 24% being permitted now and approach Reserve Bank, Central Office, Foreign Investment Division, Mumbai so that allocated limits can be monitored by the Reserve Bank.

A copy of the RBI circular is found here i.e. http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9391&Mode=0

FDI rules in construction development sector

The Department of Industrial Policy & Promotion has formalised the new FDI rules in construction development sector vide their PRess Note no. 10/2014 dated 3rd December, 2014.

FDI is allowed upto 100% in automatic route in construction, development of townships, housing, built-up infrastructure and construction development projects (which would include but not be restricted to housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure).

Under the new Rules

1) Minimum area to be developed under each project of serviced housing plots has been done away with, so no minimum area requirement under this clause;

2) Minimum area for development of construction development projects has been brought down from 50,000 sq. mtrs to 20,000 sq. mtrs;

3) Minimum capitalization norms have been relaxed. The investee company will be required to bring in US$5 million within 6 months of the commencement of the project which is approval of the building / layout plan by the relevant authorities. The balance monies can be brought in tranches till a period of 10 years from the commencement of the project or before completion of the project, whichever is earlier. The earlier capitalization norms were US$10 million for wholly owned subsidiaries and US$5 million for joint ventures with Indian partners. That classification has also been done away with;

4) The investor is allowed to exit on completion of the project or after development of trunk infrastructure i.e. roads, drainage, sewerage, water supply, street lighting etc. Earlier the investor was locked in for a period of three years from the period of minimum capitalisation. Now the government may on a case by case basis allow repatriation of FDI or stake sale from one non resident investor to another non resident investor before completion of the project;

5) The requirement that 50% of each project must be developed within a period of 5 years from the date of obtaining all statutory clearances has been done away with.

6) FDI is not permitted in real estate business, construction of farm houses and trading in transferable development rights (TDRs);

7) The conditions regarding minimum area, capitalisation and exit norms are not applicable to hotels and tourist resorts, hospitals, special economic zones (SEZs), educational institutions, old age homes and investment by NRIs;

8) The conditions regarding minimum area and capitalisation norms are not applicable where the investee/ joint venture companies commit at least 30% of their project cost  to affordable low cost housing;

9) The Indian company which is the recipient of the FDI should procure a certificate from an architect empannelled by any Authority authorised to sanction building plan to the effect that the minimum area requirement has been complied with;

10) Completion of the projects will be determined by the local bye laws/ rules and other regulations of the state government;

11) 100% FDI under automatic route is allowed in completed projects for operation and management of townships, malls/ shopping complexes, and business centres.

The Press Note is available at http://dipp.nic.in/English/acts_rules/Press_Notes/pn10_2014.pdf

Industrial Licence

The Ministry of Commerce and Industry vide its Department of Industrial Policy and Promotion has issued a Press Note no. 9 dated 20th October, 2014 wherein

1) the validity period of an industrial licence has been increased to 7 years;
2) annual capacity requirement in the Industrial Licence for defence items is being done away with; and
3) the licencee is allowed to sell defence items to govenment entities under the Ministry of Home Affairs without need of a prior approval from the Ministry of Defence. However for sale of such defence items to other entities shall require prior approval.

The Press Note can be found at this link http://dipp.nic.in/English/acts_rules/Press_Notes/pn9_2014.pdf

FDI in insurance sector – revised guidelines

The Department of Industrial Policy & Promotion, New Delhi (DIPP) has vide its press release no. 2/2014 dated 4/2/2014 revised the FDI limits in the insurance sector in the country. Hitherto, FDI in insurance was allowed upto 26% in the automatic route, subject however to the conditions that the companies bringing in FDI will obtain the necessary license from the sector regular i.e. IRDA. Under the old guidelines, only FDI was allowed in the insurance sector. FII and NRI investment was not allowed. 

The revised guidelines allows 26% by way of FDI or FII or NRI investment on automatic route. Further the guidelines are relaxed not only for insurance companies, but also for insurance brokers, Third Party Administrators (TPAs) and Surveyors & Loss Assessors. The other conditions of obtaining license from IRDA still continues. Bank promoted insurance companies also need to comply with sectoral guidelines in the FDI policy related to the banking sector. 

The revised guidelines can be found at this link viz. http://dipp.nic.in/English/acts_rules/Press_Notes/pn2_2014.pdf