Regulatory Insights
from India Tax & Regulatory Services
www.pwc.in
Liberalisation of foreign
investment norms in insurance intermediaries and other changes in Non-debt Rules
April 29, 2020
In brief
The Department of Economic Affairs has amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (Non-debt Rules), by introducing the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2020 (Amended Rules), vide its notification1 dated 27 April 2020. Key changes in the Amended Rules are as follows –
(i) Applicability of pricing guidelines on acquisition after renunciation of rights;
(ii) Sourcing norms under Single Brand Retail Trading;
(iii) Insurance companies and intermediaries or insurance intermediaries; and (iv) Divestment by foreign portfolio investor (FPI).
The above changes in the Amended Rules are summarised below.
In detail
A. Acquisition after renunciation of rights A new rule 7A has been introduced, which provides that a person resident outside India who has acquired a right from a person resident in India (who has renounced it), may acquire equity instruments (other than share warrants) against the said rights as per pricing guidelines specified under the Non-debt Rules.
1 Notification no - S.O. 1374(E) dated 27 April 2020
2 Press Note 1 issued by the Department for Promotion of Industry and Internal Trade on 21 February 2020
3 Indian Insurance Companies (Foreign Investment) Amendment Rules, 2019 issued vide Notification No. G.S.R. 619(E) dated 2 September 2019
B. Single brand retail trading
Currently, the sourcing norms are not applicable up to three years from the commencement of the business, wherein the term commencement of the business has been defined as opening of the first store. The said provision has been amended by adding the words
“or start of online retail, whichever is earlier”.
Accordingly, the three years would start from the opening of the first store or start of online retail, whichever is earlier.
C. Intermediaries or insurance
intermediaries
In line with Press Note 12 and the Indian Insurance
Companies (Foreign Investment) Amendment Rules, 20193, requisite changes have been made to the Non- debt Rules by prescribing foreign investment up to 100%
under the automatic route in intermediaries or insurance intermediaries, including insurance brokers, re- insurance brokers, insurance consultants, corporate agents, third party administrator,
Regulatory Insights
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surveyors and loss assessors and such other entities, as may be notified by the Insurance Regulatory and Development Authority of India (IRDAI) from time-to-time. Some of the key conditions prescribed in the Non- debt Rules are as follows:
• Under the automatic route, 100% foreign equity investment in insurance intermediaries; however, this is subject to verification/
approval by IRDAI.
• Insurance intermediaries with majority foreign shareholding are required to ensure compliance with the following provisions:
− Such intermediaries can be incorporated only as a limited company under the provisions of the Companies Act, 2013;
− At least one from
amongst the chairman of the board of directors or the chief executive officer or principal officer or managing director of the insurance intermediary is required to mandatorily be a resident Indian citizen;
− The composition of the board of directors and key management persons is required to be in line with the provisions specified by the
concerned regulators;
− Prior IRDAI approval required for repatriating dividend;
− Such insurance intermediaries are not permitted to make payments to a foreign group or promoter or subsidiary or
interconnected or associate entities beyond the limits prescribed by the IRDAI. The
intermediaries are to make relevant disclosures in the prescribed format;
and
− They are required to bring in the latest
technological, managerial and other skills.
• Foreign equity investment in entities such as a bank, whose primary business is outside the realm of insurance, and which are also allowed by the IRDAI to function as an insurance intermediary, continue to be subject to foreign equity investment caps applicable in that sector. However, this is subject to the condition that the revenues of such entities from the primary (non- insurance related) business must remain above 50% of their total revenues in any financial year.
Indian insurance company: In
addition to the above, the Amended Rules also prescribe that no Indian insurance company shall allow the
aggregate holdings by way of total foreign investment in its equity shares by foreign investors (including portfolio investors) to exceed 49% of the paid up capital of such company. Foreign investment up to 49% shall be allowed under automatic route subject to approval or verification by the IRDAI. Further,
investment by FPI’s continues to be governed by Non-debt Rules and the Securities Exchange Board of India (Foreign Portfolio Investors) Regulations. Any increase in foreign investment is required to be made in
accordance with the pricing guidelines prescribed by the Reserve Bank of India (RBI) in this respect.
D. Divestment by FPI In case of breach of investment limits by an FPI, the divestment of holdings by the FPI and the reclassification of FPI investment as foreign direct investment shall be subject to further conditions, if any, specified by the Securities and Exchange Board of India and RBI, in this regard.
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This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwCPL, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. Without prior permission of PwCPL, this publication may not be quoted in whole or in part or otherwise referred to in any documents.
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