Executive Summary:
This notification, issued by the Reserve Bank of India, amends the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000. It focuses on revising regulations related to foreign investment in the insurance sector and related intermediaries. The amendment, titled the Fifth Amendment Regulations, 2016, comes into effect from the date of its publication in the Official Gazette which is March 30, 2016.
Key Points / Main Content:
* **Amendment Scope**: Amends Schedule 1 of Notification No. FEMA 20/2000-RB dated May 3, 2000, specifically Annex B, replacing entry F.7, F.7.1 and F.7.2.
* **Insurance Sector FDI Cap**:
* The total foreign investment in Indian Insurance Companies cannot exceed 49% of paid-up equity capital.
* Foreign investment up to 49% is allowed under the automatic route, subject to IRDAI approval/verification.
* Companies receiving FDI must comply with the Insurance Act, 1938, and obtain necessary licenses/approvals from IRDAI.
* **Ownership and Control**: Indian Insurance companies must ensure ownership and control remains with resident Indian entities, as determined by the Department of Financial Services/IRDAI.
* **Foreign Portfolio Investment**: Foreign portfolio investment is governed by specific sub-regulations of Regulation 5 of FEMA Regulations, 2000, and SEBI regulations for Foreign Portfolio Investors, 2014.
* **Pricing Guidelines**: Any increase in foreign investment must follow pricing guidelines specified by the Reserve Bank of India under FEMA regulations.
* **Applicability to Intermediaries**: The 49% foreign equity investment cap applies to Insurance Brokers, Third Party Administrators, Surveyors and Loss Assessors, and Other Insurance Intermediaries under the IRDA Act, 1999.
* **Entities with Primary Non-Insurance Business**: For entities like banks functioning as insurance intermediaries, foreign equity investment caps applicable to their primary sector apply, provided their non-insurance revenues remain above 50% of total revenues.
* **Bank-Promoted Insurance Companies**: Provisions related to Banking-Private Sector apply to bank-promoted insurance companies.
* **Definition of Terms**: Terms like "Control", "Equity Share Capital", "Foreign Direct Investment FDI", and others, will have the same meaning as provided in Notification No. G.S.R 115 E, dated 19th February, 2015 issued by Department of Financial Services and regulations issued by Insurance Regulatory and Development Authority of India from time to time.
Impact Analysis:
* **Indian Insurance Companies**:
* Impact: Must comply with the revised FDI cap and ownership/control requirements.
* Action Required: Ensure foreign investment does not exceed 49%, maintain Indian ownership/control, and obtain necessary approvals from IRDAI.
* **Foreign Investors**:
* Impact: Subject to the 49% FDI cap and specific regulations for portfolio investments.
* Action Required: Comply with investment limits and relevant FEMA/SEBI regulations.
* **Insurance Brokers, Third Party Administrators, Surveyors and Loss Assessors, and Other Insurance Intermediaries**:
* Impact: Subject to the 49% FDI cap.
* Action Required: Ensure foreign investment does not exceed 49% and comply with IRDAI regulations.
* **Banks acting as Insurance Intermediaries**:
* Impact: Foreign equity investment caps applicable to their primary sector will apply, contingent on revenue composition.
* Action Required: Maintain non-insurance revenues above 50% of total revenues and adhere to relevant sector-specific investment caps.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the foreign exchange market.
Foreign Exchange Management Act, 1999: An Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India Regulations, 2000: Regulations issued by the Reserve Bank of India under the Foreign Exchange Management Act, 1999, governing the transfer or issue of security by a person resident outside India.
Mumbai, Maharashtra: The location of the Central Office of the Reserve Bank of India's Foreign Exchange Department.
Insurance Regulatory and Development Authority of India: Regulatory body for the insurance industry in India.
Insurance Act, 1938: An act to consolidate and amend the law relating to the business of insurance.
Department of Financial Services: A department under the Ministry of Finance in the Government of India, responsible for overseeing the financial sector.
Securities and Exchange Board of India: The regulator of the securities market in India.
Reserve Bank of India
Foreign Exchange Department
Central Office
Mumbai – 400 001
Notification No.FEMA.366/ 2016-RB March 30, 2016
Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) (Fifth Amendment) Regulations, 2016
In exercise of the powers conferred by clause (b) of sub-section (3) of Section 6 and Section 47 of the Foreign
Exchange Management Act, 1999 (42 of 1999), the Reserve Bank of India hereby makes the following amendments in
the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000
(Notification No. FEMA. 20/2000-RB dated 3rd May 2000) namely:-
1. Short Title & Commencement
(i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) (Fifth Amendment) Regulations, 2016.
(ii) They shall come into force from the date of their publication in the Official Gazette.
2. Amendment of the Schedule 1
In the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations,
2000, (Notification No. FEMA 20/2000-RB dated 3rd May 2000), in Schedule 1, in the existing Annex B,
i. The existing entry F.7, F.7.1 and F.7.2 shall be substituted by the following:
F.7. Insurance % of equity/FDI Cap Entry route
F.7.1 Insurance 49% Automatic
(i) Insurance Company
(ii) Insurance Brokers
(iii) Third Party Administrators
(iv) Surveyors and Loss Assessors
(v) Other Insurance Intermediaries appointed
under the provisions of Insurance Regulatory
and Development Authority Act, 1999 (41 of
1999)
F.7.2 Other Conditions
a) 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 forty-nine percent of the
paid up equity capital of such Indian Insurance company.
b) The foreign investment up to forty-nine percent of the total paid-up equity of the Indian Insurance
Company shall be allowed on the automatic route subject to approval/verification by the Insurance
Regulatory and Development Authority of India.
c) Foreign investment in this sector shall be subject to compliance with the provisions of the Insurance Act,
1938 and the condition that Companies receiving FDI shall obtain necessary license /approval from the
Insurance Regulatory & Development Authority of India for undertaking insurance and related
activities.
d) An Indian Insurance company shall ensure that its ownership and control remains at all times in the
hands of resident Indian entities as determined by Department of Financial Services/ Insurance
Regulatory and Development Authority of India as per the rules/regulation issued by them from time to
time
e) Foreign portfolio investment in an Indian Insurance company shall be governed by the provisions
contained in sub-regulations (2), (2A), (3) and (8) of Regulation 5 of FEMA Regulations, 2000 andprovisions of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations,
2014.
f) Any increase in foreign investment in an Indian Insurance company shall be in accordance with the
pricing guidelines specified by Reserve Bank of India under the FEMA Regulations.
g) The foreign equity investment cap of 49 percent shall apply on the same terms as above to Insurance
Brokers, Third Party Administrators, Surveyors and Loss Assessors and Other Insurance Intermediaries
appointed under the provisions of the Insurance Regulatory and Development Authority Act,1999 (41 of
1999).
h) Provided that where an entity like a bank, whose primary business is outside the insurance area, is
allowed by the Insurance Regulatory and Development Authority of India to function as an insurance
intermediary, the foreign equity investment caps applicable in that sector shall continue to apply, subject
to the condition that the revenues of such entities from their primary (i.e., non-insurance related)
business must remain above 50 percent of their total revenues in any financial year.
i) The provisions of paragraphs F.2.2 (4) (i) (b) & (d), relating to ‘Banking-Private Sector’, shall be
applicable in respect of bank promoted insurance companies.
j) 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 issued by Department of Financial Services
and regulations issued by Insurance Regulatory and Development Authority of India from time to time.
(R L Sharma)
Chief General Manager
Foot Note:-
The Principal Regulations were published in the Official Gazette vide G.S.R. No.406 (E) dated May 8, 2000 in Part II,
Section 3, sub-Section (i) and subsequently amended as under:-
G.S.R.No. 158(E) dated 02.03.2001
G.S.R.No. 175(E) dated 13.03.2001
G.S.R.No. 182(E) dated 14.03.2001
G.S.R.No. 4(E) dated 02.01.2002
G.S.R.No. 574(E) dated 19.08.2002
G.S.R.No. 223(E) dated 18.03.2003
G.S.R.No. 225(E) dated 18.03.2003
G.S.R.No. 558(E) dated 22.07.2003
G.S.R.No. 835(E) dated 23.10.2003
G.S.R.No. 899(E) dated 22.11.2003
G.S.R.No. 12(E) dated 07.01.2004
G.S.R.No. 278(E) dated 23.04.2004G.S.R.No. 454(E) dated 16.07.2004
G.S.R.No. 625(E) dated 21.09.2004
G.S.R.No. 799(E) dated 08.12.2004
G.S.R.No. 201(E) dated 01.04.2005
G.S.R.No. 202(E) dated 01.04.2005
G.S.R.No. 504(E) dated 25.07.2005
G.S.R.No. 505(E) dated 25.07.2005
G.S.R.No. 513(E) dated 29.07.2005
G.S.R.No. 738(E) dated 22.12.2005
G.S.R.No. 29(E) dated 19.01.2006
G.S.R.No. 413(E) dated 11.07.2006
G.S.R.No. 712(E) dated 14.11.2007
G.S.R.No. 713(E) dated 14.11.2007
G.S.R.No. 737(E) dated 29.11.2007
G.S.R.No. 575(E) dated 05.08.2008
G.S.R.No. 896(E) dated 30.12.2008
G.S.R.No. 851(E) dated 01.12.2009
G.S.R.No. 341 (E) dated 21.04.2010
G.S.R.No. 821 (E) dated 10.11.2012
G.S.R.No. 606(E) dated 03.08.2012
G.S.R.No. 795(E) dated 30.10.2012
G.S.R.No. 796(E) dated 30.10.2012
G.S.R. No. 797(E) dated 30.10.2012
G.S.R.No. 945 (E) dated 31.12.2012
G.S.R. No.946(E) dated 31.12.2012
G.S.R. No.38(E) dated 22.01.2013
G.S.R.No.515(E) dated 30.07.2013
G.S.R.No.532(E) dated 05.08.2013
G.S.R. No.341(E) dated 28.05.2013
G.S.R.No.344(E) dated 29.05.2013
G.S.R. No.195(E) dated 01.04.2013
G.S.R.No.393(E) dated 21.06.2013
G.S.R.No.591(E) dated 04.09.2013
G.S.R.No.596(E) dated 06.09.2013
G.S.R.No.597(E) dated 06.09.2013
G.S.R.No.681(E) dated 11.10.2013
G.S.R.No.682(E) dated 11.10.2013
G.S.R. No.818(E) dated 31.12.2013
G.S.R. No.805(E) dated 30.12.2013G.S.R.No.683(E) dated 11.10.2013
G.S.R.No.189(E) dated 19.03.2014
G.S.R.No.190(E) dated 19.03.2014
G.S.R.No.270(E) dated 07.04.2014
G.S.R.No.361 (E) dated 27.05.2014
G.S.R.No.370(E) dated 30.05.2014
G.S.R.No. 371(E) dated 30.05.2014
G.S.R.No. 435 (E) dated 08.07.2014
G.S.R.No. 400 (E) dated 12.06.2014
G.S.R.No. 436 (E) dated 08.07.2014
G.S.R.No. 487 (E) dated 11.07.2014
G.S.R.No. 632 (E) dated 02.09.2014
G.S.R.No. 798 (E) dated 13.11.2014
G.S.R.No. 799 (E) dated 13.11.2014
G.S.R.No. 800 (E) dated 13.11.2014
G.S.R.No. 829 (E) dated 21.11.2014
G.S.R.No. 906(E) dated 22.12.2014
G.S.R.No. 914 (E) dated 24.12.2014
G.S.R.No. 30 (E) dated 14.01.2015
G.S.R.No. 183 (E) dated 12.03.2015
G.S.R.No. 284 (E) dated 13.04.2015
G.S.R.No. 484 (E) dated 11.06.2015
G.S.R.No. 745 (E) dated 30.09.2015
G.S.R.No. 759 (E) dated 06.10.2015
G.S.R.No. 823 (E) dated 30.10.2015
G.S.R.No. 858 (E) dated 16.11.2015
G.S.R.No. 165 (E) dated 15.02.2016
G.S.R.No. 166 (E) dated 15.02.2016
Published in the Official Gazette of
Government of India –
Extraordinary – Part-II, Section 3,
Sub-Section (i) dated 30.03.2016-
G.S.R.No.369(E)