India's insurance regulator may be attempting to override legal provisions while also seeking to prevent promoters from exiting ventures within 10 years of starting operations, experts feel.
- issuing capital under the inter-corporate deposit regulations;
- divesting equity through inter-corporate deposit regulations; and
- issuing capital or divesting through other means.
The catch lies in the fact that under the proposed norms, the 10-year operations clause may become mandatory for insurance companies proposing to raise capital through a public issue under inter-corporate deposit norms, or if a promoter intends to reduce stake. Experts maintain while the Insurance Act does not bar insurers from going public within 10 years of operations, the regulator may interpret the new norms as though the 10-year operations clause is mandatory, which could hit their future plans to raise money. The Insurance Act has two sections on transfer of shares. Section 6A requires prior nod for transfer of stakes above five percent and Section 6AA deals with public issue or divestment by promoters after 10 years to bring down their holding to 26 percent. "Section 6A of the act expressly provides for transfer of shares when the shareholding is below five percent, without the permission of the regulator. Any transfer in excess of five percent requires the regulator's permission," an insurance expert said. But the draft regulations, if they come into force, may restrict any stake transfer during the first 10 years of operations. "The ambit of Section 6A is entirely different. For all purposes, a lock-in period of 10 years as proposed by the insurance regulator as per norms can't be stipulated here," Varadarajan told IANS. He further said Section 6AA comes into play only when insurance companies go for public issues or when promoters have to dilute their holdings after 10 years of operations. Industry officials conceded as prudent the licensing regulation that bans promoters from transferring or diluting their stakes during first five years of operations to ensure that only serious players enter the business.