The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Strange Unrest in Insurance FDI

The new Private Sector Insurance guidelines raising FDI limit to 49% have really scared the Indian partners in these firms. The norms now require the public holding after the inevitable IPO to be a minimum 25% and thus the Indian promoter is likely to end up with 26%. However, in the IPO both partners have to sell equally proportions of shares into the market thus leaving ramping up of FDI intuitively to post IPO capital ‘additions’ as the Indian promoters’ equity is actually capped at 26%

In all, this is a simple enough reform as mandated by the market conditions, capital is relatively expensive in our market as also PPP mandates here that we use USD or EUR (or CHF) from abroad Some quick IPOs hitting the market will raise Capital base of these Insurance companies to 3-4 times its current values by a good 2500-3000 Crores from IPOs and the same amount from FDI later

LIC’s equity market investments of INR 40000 crores are also likely to shore up now, given strengthening market conditions and the boo of INR 300000 Crores is now likely to be well capitalised after the IPO brings in a public stake and govt ownership is reduced by the (yet to be public ) 10-15%


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