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Speedbreakers on Insurance Highway - Views on News from Equitymaster
 
 
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  • Apr 6, 2000

    Speedbreakers on Insurance Highway

    According to a recent notification by the Finance Ministry, the ceiling of 26% investment by Foreign Investors would include the stake held by the FIIís in the Indian companies that are planning to diversify into the insurance sector.

    Insurance business requires huge investments. There is also a substantial gestation period involved. Very few companies would have the necessary resources to make such investments. Even the few financial services powerhouses such as HDFC and ICICI that are contemplating foraying into the insurance sector will be bogged down, as FIIís have a stake of nearly 48% and 18% respectively.

    This effectively means that HDFC will not be able to enlist any FII participation for its insurance sector and ICICI will be able to raise only 8% of the total proposed equity.

    Apart from the funds crunch, these companies will also be hampered on account of not being able to obtain the expertise and experience, these foreign investors would have been able to bring to the new venture.

    Most of the prospective insurance venturers were already of the opinion that the 26% stake was too low. This had already put off foreign investors who were keen only on obtaining a controlling stake in the joint ventures.

    The present move seems to be aimed at pacifying the government owned insurance companies who have been at loggerheads with the government over the privatization of the insurance sector.

    Most of these new ventures will be put on the back burner and expectations of more efficient and more variety of services by the Indian consumer would be deferred for some time.

     

     

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