Indian insurance promoters can dilute stake anytime: ministry

The government has clarified that there is no restriction on when Indian promoters of insurance companies can dilute their stake to 26 per cent.
 
Though this will have to be done after 10 years of operation, the promoters can do so earlier or in phases, the finance ministry said in a circular on Thursday.

In the a circular, the ministry has clarified that under section 6AA of the Insurance Act 1938, an Indian promoter can scale down equity to 26 per cent at any time after registration under the Act.

''The Indian promoter can reduce its equity to a level of 26 per cent after 10 years if it is not done already in a phased manner, for which rules are being issued separately. The limit of FDI will be 26 per cent,'' it said.

This paves the way for Reliance Life to issue shares to Japan's Nippon Life. The Anil Dhirubai Ambani Group company had struck a deal with the Japanese insurer to offload a 26-per cent stake in March this year.
 
The Insurance Regulatory and Development Authority of India (IRDA) had sought clarification on whether promoters could dilute stake through issue of fresh shares to a new partner.

"The circular makes it clear that an insurance company can divest anytime. We were planning to sell 26 per cent to Nippon Life through a combination of primary issuance of shares amounting to 2.55 per cent of capital and the balance through stake sale," said Sam Ghosh, managing director of, Reliance Life Insurance. The government circular clears the way for IRDA and Reserve Bank of India (RBI) to approve the deal.

Ghosh said the deal would be a positive for Reliance Capital. "The deal is worth Rs3,000 crore, which gives the company a valuation of Rs11,500 crore," he said, adding that Reliance Life was evaluating selling further stake to banks.

Promoters of private life insurance companies have invested Rs31,437 crore in more than two dozen companies over the past decade.
 
The total market value of all these companies put together is estimated around Rs1,00,000 crore. Diluting the Indian promoters stake to 26 per cent would mean that the industry would have to find investors to put in around a total of Rs48,000 crore.