Saturday, May 11, 2013

Insurance Bill retains proposal to raise FDI cap to 49% 

Despite a parliamentary standing committee’s firm stand against hiking the 26% foreign direct investment cap in insurance, the government has decided to approach Parliament with its original proposal to hike the limit to 49%, considering the sector’s huge capital needs. Sources told FE that the Insurance Bill, listed for consideration and passing in the ongoing Budget session, proposes a composite foreign investment ceiling of 49%.
This means the government even negated a compromise formula that came up during informal discussions between the government and the Opposition to carve out a 23% window for equity holding by foreign institutional investors or overseas corporate bodies, while retaining the FDI cap at 26%. Of course, it remains to be seen if the government would be able to get the Bill passed, given that the BJP is unconvinced about the need to raise the FDI cap in insurance.
Finance ministry sources told FE that the composite cap of 49% foreign investment (including both FDI and FII components) was retained as the aim now is to get up to 49% FDI in the sector, which needs around $12 billion worth of capital by 2020.
“The sector, which is burdened with losses, urgently needs long-term capital for expansion and increasing penetration,” an official said.
“We cannot afford any provision restricting FDI to less than 49%, especially when the Indian companies are finding it difficult to raise capital,” the official said.
The compromise formula was considered following opposition from members of the parliamentary standing committee on finance, including
its chairman and BJP leader Yashwant Sinha, against any move to increase FDI in the sector from the present limit of 26%. In an interview to FE later, Sinha indicated his willingness to discuss the 26% FDI plus 23% FDI formula.
What has reaffirmed the government’s conviction regarding its move to permit up to 49% FDI in the sector is the large number of representations it received from foreign investors and insurance companies requesting not to reduce the FDI limit from the proposed 49% in the Insurance Bill, the sources added.
These representations said lowering the FDI limit from 49% for a political compromise would complicate matters and adversely affect the ability of the sector to raise long-term foreign capital. The Insurance Regulatory and Development Authority also backed the move to allow 49% FDI.
Those who argue that FDI and FII should be separate have concerns over the possibility of a single foreign investor getting a 49% stake in an insurance company, and at the same time two or more Indian entities being in the minority by sharing the remaining 51%.
However, Gautam Mehra, executive director, PwC, said, “If you give a 49% stake to foreign investors, they will be more comfortable and will get serious long-term investments.” Currently, even with 26% FDI, the foreign joint venture partners anyway have the ability to control the company through the power to appoint people to key positions such as the chief risk officer and the chief financial officer, he pointed out.
The advantage of the  composite foreign investment cap over separate boxes for FDI and FII is the flexibility the former offers.
an companies would prefer long-term foreign investment, which is FDI.

LIC selected as default NPS annuity service provider

Pension fund regulator PFRDA has chosen state-run LIC as the default annuity service provider for subscribers exiting from New Pension System (NPS) and seeking withdrawal of accumulated pension wealth.
PFRDA has empanelled seven Annuity Service Providers (ASPs) for providing annuity services to NPS subscribers.
While subscribers are required to select an empanelled ASP along with an annuity scheme from those offered by the chosen ASP at the time of exiting from NPS, PFRDA has now decided to assist subscribers by providing a default option.
"LIC has been chosen as the default ASP and is applicable for all variants of NPS. The default option is being purely provided in the subscribers' interest and to avoid any delay in claim processing," said a PFRDA official.
The default scheme offers annuity -- a policy by an insurer designed to provide payments to the holder at specified intervals -- for life with a provision of 100 per
cent of the annuity payable to spouse during his/her life on death of annuitant.
Besides LIC, other ASPs include SBI Life, ICICI Prudential Life, Bajaj Allianz Life, Star Union Dai-Ichi Life and Reliance Life Insurance.
Under the provisions of NPS, a maximum of 60 per cent of corpus accumulated at the time of exit, which is normally on the attainment of 60 years of age, can be withdrawn but a minimum 40 per cent of corpus has to be utilised for purchasing an annuity from one of the empanelled ASPs.
The NPS was introduced for the new recruits who join government service
on or after January 1, 2004. At the end of 2012, over 42 lakh subscriptions were enrolled with a corpus of over Rs 26,000 crore.
From May 2009, the NPS was opened up for all citizens in India to join on a voluntary basis.

ICICI Prudential Life Insurance barred for 3 yrs by Haryana govt

The Haryana government has barred ICICI Prudential Life Insurance for three years from doing any further business with it or any of its departments for "intentionally delaying" the process of distribution of annuity to land owners and failure to carry out commitments.
"ICICI Prudential Life Insurance Company needed to be blacklisted," the state's Finance Department said in a statement.
When contacted, the company declined to comment on the matter.
"The noticee can, however, opt to pay compounding fee in lieu of entire or a part of the black listing period within one month from the date of this order.
"...this is by paying penal interest at a rate of one per cent for every six months or part thereof of the blacklisting period proposed to be compounded, by making a request to the government in this regard," the statement said.
Such enhanced rate of interest would be payable on the amount advanced to noticee for the period from date of receipt of advance till the date of repayment of advance and interest at SBI base rate to the Department, it said.
Necessary orders for allowing compounding of the black listing period will be passed after receipt of the requisite compounding fee, it added.
An Expression of Interest was issued in February, 2011 inviting bids from insurance companies and banks for the purpose of providing services for disbursement of annuity to the land owners under the R and R Policy of the state government.
The bid-cum-tender document were submitted by ICICI Prudential on March 31, 2011.
Thereafter, several rounds of discussions were held between the noticee and the state government with respect to various stipulations and condition stated in the draft Services Level Agreement, it said.
This included the obligation of the noticee as the Service Provider with respect to collection and validation of data of the beneficiaries under the scheme of annuity, it added.

LIC books record profit of Rs 20,000 cr in 2012-13

The last financial year was among the best for LIC (Life Insurance Corporation) of India that booked a profit of Rs 20,000 crore — highest in around 7-8 years. The insurance behemoth now intends to invest Rs 2.15 lakh crore in the current fiscal out of which 10% or Rs 21,500 crore will be in equities.
According to LIC chairman D K Mehrotra, the insurance major got a lot of opportunities to book profits in FY13, which also saw the government-owned entity investing Rs 23,000 crore in equity. “The profit that we booked last year has been the highest in the last almost seven-eight years because we did get good opportunities” he told a leading business channel on Monday.
The head of LIC, who is due to retire next month, says the largest domestic institutional investor plans to invest about Rs 2.15 lakh crore in the market in the current financial year, of which 10-15% will be in equities. “This year we are proposing to put about Rs 2.15 lakh crore in the market and it will again depend on the opportunities when we get them... we have a thumb rule of putting 10-15% in equity and rest in other instruments,” he said.
Incidentally, LIC chief had told FE in March that FY14 should see LIC “having a total investment target of, say, Rs 2.25-2.3 lakh crore.”
“Of that, about 10% should go to equity. If something better comes, say, an IPO comes, we should raise it a bit. About Rs 25,000-30,000 crore,”
he had said when asked about the investment plans for the current financial year. It is widely believed LIC would be in focus once the divestment issues start hitting the market in the coming months. The government has set a target of Rs 40,000 crore by selling partial stake in listed PSUs. In FY13, LIC participated in seven divestment offerings - Hindustan Copper, NMDC, Oil India, NTPC, Rashtriya Chemicals and Fertilizers (RCF), Nalco, and SAIL.
Mehrotra, however, had denied being labelled the government’s “bailout agency” asserting that all of LIC’s investment decisions were based on its own assessment of market conditions and the fundamentals of the company.
“We are not in the business of bailing out. We take a very reasoned decision before entering the market and wherever we get a good opportunity, we participate. Only when somebody sells, somebody will buy and if that is called a bailout, then I can’t help it,” he had said last month.

ICICI prudential gets over Rs 130 crore tax notice

The Finance Ministry has asked private sector insurer ICICI Prudential to cough up over Rs 130 crore for alleged evasion through non-payment of service tax.
The Directorate General of Central Excise Intelligence (DGCEI) has issued a show-cause-cum-demand-notice recently to the firm alleging irregularities including fudging records of commission paid to field agents or channel partners in lieu of policies being sold by them among others, official sources said.
Officials of the DGCEI, an investigative arm of Revenue Department under the Ministry, verified the accounts book of the company for the last five years--2007-08 to 2011-12—and claimed to have found irregularities vis-a-vis adherence to service tax laws.
The officials found non-payment of appropriate service tax on the commission paid to their channel partners for the generation of life insurance business and collection of service tax from their corporate agents without any authority in law and not depositing the same to the government nexchequer, they said.
"The DGCEI has raised a demand for payment of about Rs 136 crore on account of alleged service tax evasion to ICICI prudential," a source said. An ICICI Prudential spokesperson said the company will respond to the notice issued to it.
"The department has followed procedure by issuing the showcause notice. We will respond to the notice within the stipulated time period," an official company spokesperson told PTI in an email response.
The officials alleged that the company was paying huge sums of money to their channel partners under different heads in lieu of commission, thereby not paying service tax on 
the correct amount paid.
In some instances, up to 80 per cent of the premium paid by the unsuspecting customers was given to the channel partners as commission for the sale of life insurance products in gross violation of Insurance Regulatory and Development
Authority (IRDA) norms.The DGCEI, which began probe last year to unearth alleged service tax evasion by various life insurance firms, is likely to issue show-cause-cum-demand notices to other firms also, the sources said. Investigations have found alleged service tax evasion of at least Rs 300 crore by private sector life insurance companies.
The insurance companies under probe are found to be allegedly maintaining wrong data of commission paid and not paying service tax being deducted from their corporate agents, they said.
All life insurance companies are required to pay service tax at the rate of 12.36 per cent on the total commission paid to the corporate agents and the individual agents under the reverse charge mechanism, where as brokers and referrals are individually liable to pay service tax at the rate of 12.36 per cent on the commission amount received from the insurance companies.
At present, there are 24 general insurance companies including the Export Credit Guarantee Corporation (ECGC) and Agriculture Insurance Corporation of India and 23 life insurance companies operating in the country.