India's insurance regulator will issue rules for private equity firms promoting insurers after several such investors picked up stakes in insurance companies over the past few months.
“There are two categories, one where there is an investor in an insurance company holding less than a 10% stake and the other is a promoter. We are looking at these investments and their feasibility and we will come to a decision in a month or so,” Mr TS Vijayan, IRDAI Chairman said.
Private equity firms have bought stakes in insurance companies as investors expect more domestic savings to shift from physical assets like gold and real estate to financial instruments like mutual funds and insurance, reported Bloomberg. Last year’s demonetisation exercise and the subsequent cap on cash transactions have increased the pace of the investment shift, according to an RBI study.
Mr Nidhesh Jain, insurance analyst at broking firm Investec Bank said: “A direction from the insurance regulator would be to decide the ‘fit and proper promoter’ criteria for private equity funds looking to pick up majority stakes in insurance startups in India.” These guidelines may curb premature exits by investors to ensure that the capital is invested to support the long-term growth of insurance companies and for safeguarding the interests of policyholders, he said.