Concerned with uncertainties over management and capital controls in foreign direct investment (FDI) cap, insurance companies have sought detailed clarifications on valuation process from the Government to expedite the foreign investment initiative in the country. Many of them have written to the Foreign Investment Promotion Board (FIPB) to know about the foreign partners’ role of participating in the governance with their respective Indian counterparts in the sector.
FIPB is a Government agency which offers a single-window clearance for applications on the FDI in India that are under the approval route.
After the Government increased the FDI cap to 49 per cent from currently existing 26 per cent, various insurance companies are in talks with the shareholders of their respective foreign partners on the valuation process. Before finalising the deals with their respective foreign partners, insurers are waiting for certain clarifications to come from the Government on the issue.
According to the sources, HDFC Ergo General Insurance and Tata AIG General Insurance among others have already started seeking clarification from the Government and FIPB to know about the Indian management control, foreign partners’ role of participating in governance and other related issues as well.
“The valuation process of our company is already on and we have also written to the respective authorities on this issue for more clarification. Our shareholders are already in talks with the foreign partner who is ready to increase the FDI to 49 per cent into the company,” HDFC Ergo General Insurance Managing Director and Chief Executive Ritesh Kumar said.
“We are still uncertain about the management control post 49-per cent FDI cap for which we are waiting for certain clarification from the Government on the issue,” Kumar added.
On the other hand, valuation for the State Bank of India (SBI) general insurance arm, SBI General, is being done by two separate firms. “While the SBI has roped in PwC, its foreign partner Insurance Australia Group (IAG) has appointed Deloitte for the same purpose,” a senior official said on condition of anonymity.
However, Tata AIG General Insurance Chief Executive KK Mishra said, “We are waiting for various clarities on like what will happen to the FIPB route, how will the foreign partners be able to participate in governance and what will be happen to the shares which are already being held by the foreign partners.”
“I will not be able to talk anything from my company as it is upto the concerned partners to take a call on the issue,” he added.
Talking about valuation as a whole, Mishra further said, “Rather than merely growth of the industry, valuation will also depend on several other factors which include underwriting capability, profit, reserve reach, distribution and brand value the company was having.”
However, General Insurance Council believes that the valuation may be low for the general insurance companies as they have not been able to make profit until now. “The 49 per cent FDI will help insurance companies increase their penetration in the rural areas. I don’t know how much money will come to the industry post 49 per cent FDI hike,” General Insurance Council Secretary General R Chandrasekaran said.
“The only thing I know is that the valuation may be low as the industry has not been able to make profit as of now,” he added.
According to a senior Government official, foreign direct investment into India during October 2014-April 2015 period has gone up by 48 per cent year-on-year after the launch of ‘Make in India’ initiative. “In 2014-15, foreign institutional investors (FIIs) invested Rs1.11 lakh crore in the equity market as against Rs79,708 crore in 2013-14. I hope, post FDI cap of 49 per cent in insurance sector will help grow the numbers in future,” he said.
The data available with the Department of Industrial Policy and Promotion (DIPP) also said that during October 2014-April 2015, the country received $19.84 billion FDI, as against $13.4 billion in the same period last year.