Tag: FDI

Govt may block Chinese investment in LIC IPO as company a ‘strategic asset’, BFSI News, ET BFSI

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The government wants to block Chinese investors from buying shares in Life Insurance Corp (LIC), underscoring tensions between the two nations.

State-owned LIC is considered a strategic asset, commanding more than 60% of India’s life insurance market with assets of more than $500 billion.

India has sought to limit Chinese investment in sensitive companies and sectors, banned a raft of Chinese mobile apps and subjected imports of Chinese goods to extra scrutiny.

“With China after the border clashes it cannot be business as usual. The trust deficit has significantly widen(ed),” a government official said, adding that Chinese investment in companies like LIC could pose risks, according to a report.

FDI in IPO

Meanwhile, the government is mulling allowing foreign direct investment (FDI) in LIC, a move that would help overseas investors take part in the company’s proposed mega IPO, sources said.

The proposal is under discussion between the Department of Financial Services and the Department of Investment and Public Asset Management (DIPAM).

According to the current FDI policy, 74 per cent foreign investment is permitted under the automatic route in the insurance sector. However, these rules do not apply to the Life Insurance Corporation of India (LIC), which is administered through a separate LIC Act.

Change of rules

Govt may block Chinese investment in LIC IPO as company a 'strategic asset'

As per Sebi rules, both FPI and FDI are permitted under public offer. However, sources said since LIC Act has no provision for foreign investments, there is a need to align the proposed LIC IPO with Sebi norms regarding foreign investor participation.

The Cabinet had in July approved the initial public offering (IPO) of LIC.

The DIPAM had in January appointed actuarial firm Milliman Advisors LLP India to assess the embedded value of LIC ahead of the IPO, which is touted to be the biggest public issue in Indian corporate history.

The government expects to come out with the LIC IPO by the end of the current fiscal. Up to 10 per cent of the issue size would be reserved for policyholders.

The government has already brought in the required legislative amendments in the LIC Act for the proposed IPO.

Deloitte and SBI Caps have been appointed as pre-IPO transaction advisors.



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Enforcement Directorate seizes Rs 107 crore from Chinese loan app firm, BFSI News, ET BFSI

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HYDERABAD: A Chinese-controlled instant loan app firm, PC Financial Services Private Limited (PCFS), was booked by the Enforcement Directorate (ED) for violating the Foreign Exchange Management Act (FEMA) and Rs 107 crore lying in its bank accounts seized on Thursday.

PCFS runs an instant mobile loan app ‘Cashbean’ and is accused of remitting money abroad for non-existent software and marketing services. ED is probing several NBFCs for money-laundering via instant micro loans on mobile apps. “PCFS is a wholly-owned subsidiary (WOS)of Oplay Digital Services, SA de CV, Mexico, which isa WOS of TenspotPesa Limited, Hong Kong, owned by Opera Limited (Cayman Islands) and Wisdom Connection | Holding Inc(Cayman Islands). The ultimate owner is Zhou Yahui, a Chinese. The original Indian company PCFS was incorporated in 1995, got NBFC licence in 2002 and after RBI nod in 2018 ownership moved to Chinese controlled firm,” the ED said.

While the foreign parent firms of PCFS brought in Rs 173 crore as FDI for lending business, within a short time the company made foreign remittances of Rs 429 crore for fake software services received from related foreign companies.

“PCFS also showed high domestic expenditure of Rs 941 crore. Most of its foreign payments were made to companies related/owned by Chinese who run the Opera group. The Chinese picked the foreign service providers and price,” the ED said.

According to ED officials, all PCFS payments were as ordered by country head Zhang Hong who directly reports to Zhou. PCFS sent Rs 429 crore to 13 foreign companies in Hong Kong, China, Taiwan, US and Singapore in the guise of payments for license fee for Cashbean mobile app (Rs 245 crore/ annum), software technical fee (about Rs 110 crore) and online marketing & advertisement fee (about Rs 66 Crore).

“All these services are available in India at a fraction of the cost incurred by PCFS. All its clientele are in India but huge payments were made abroad without proof of receipt. During the same period, PCFS also booked domestic expenditure of similar amount under the same heads. PCFS management failed to give any justification for these expenses and admitted all remittances were done to move money out of India to accounts of group companies controlled by the Chinese promoter,” the ED said.



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India considers allowing foreign direct investment in Life Insurance Corp

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India is considering allowing foreign direct investment in Life Insurance Corporation, according to a person familiar with the matter, which could enable a single overseas investor to buy a large stake in the firm that’s headed for a mega-IPO.

Any strategic investment would be subject to a cap, though it’s unclear at what level that would be set, the person said, asking not to be identified as the deliberations are private. Participants at a meeting earlier this month noted a 20 per cent FDI limit on State-run banks, the person said.

Allowing FDI in LIC would permit so-called strategic investors such as massive pension funds or insurance firms to participate in the initial public offering, which is slated to be India’s largest ever. The Reserve Bank of India defines FDI as purchase of a stake that’s 10% or larger by an individual or entity based abroad.

Bankers seeking to arrange LIC’s IPO are due to make presentations to the government Thursday. Prime Minister Narendra Modi’s administration — which owns 100 per cent of LIC — is looking at the sale to help narrow its budget gap to 6.8 per cent of gross domestic product in the year through March 2022.

The listing could value LIC at as much as $261 billion, based on its assets under management and using private sector insurers as a benchmark, analysts at Jefferies India wrote in a February note.

While FDI of as much as 74 per cent is permitted in most Indian insurers, the rules don’t apply to LIC because it is a special entity created by an act of parliament, the person said, adding that the discussions regarding FDI are at an early stage and no final decision has been reached yet. A spokesperson for the finance ministry couldn’t be immediately reached for comment.

BNP Paribas SA, Citigroup Inc. and Goldman Sachs Group are among seven foreign banks vying to manage the IPO. Nine Indian firms include HDFC Bank Ltd. and Axis Capital.

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PFRDA throws FDI door wide open for Pension Funds

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The legal decks have now been cleared for foreign companies to hold — directly or indirectly — up to 74 per cent stake in pension funds with the pension regulator PFRDA notifying the new revised limit. Foreign investment limit in pension funds was earlier capped at 49 per cent.

The Pension Fund Regulatory and Development Authority (PFRDA) has for this purpose amended the Pension Fund regulations. This latest move comes on the heels of the pension regulator opening from June 30 an “on tap” window for grant of licences for pension fund managers. Such a window allows applicants to seek licence at any time, thereby quickening the entire process on setting up business.

In India, pension funds would have to necessarily operate as corporate entities.

With the latest move, the FDI limit in pension funds are aligned with that of insurance sector. In March this year, Parliament had given its approval for raising FDI limit in insurance sector to 74 per cent from 49 per cent. Finance Minister Nirmala Sitharaman had, in her Budget speech this year, announced an increase in FDI limit in insurance sector to 74 per cent from 49 per cent earlier.

It maybe recalled that the PFRDA Act links the FDI ceiling for the pension sector to the ceiling level prescribed for the insurance sector.

Prior to the latest PFRDA move, the regulations stipulated in the eligibility criteria mentioned that an applicant, for being a sponsor of a pension fund, cannot hold more than 49 per cent stake in the pension fund.

The FDI limit hike in pension funds comes at a time when India’s pension assets under management (AUM) are growing at a frenetic pace and touched ₹6.2-lakh crore, as of July 10 this year.

PFRDA Chairman Supratim Bandyopadhyay had in May this year said that PFRDA was now looking at an AUM target of ₹7.5-lakh crore by the end of March 2022.

In the last two years, PFRDA has been taking several steps to enhance the number of players in the pension sector. It had revamped the fee structure for pension fund managers and revised the capital requirement criteria for sponsors so that both of them are strong enough to ride the current growth wave in the pension sector.

A sponsor — individually or jointly — should now have atleast ₹25 crore in paid-up capital on the date of making application as a sponsor and positive tangible net worth of atleast ₹50 crore on the last date of each of the preceding five financial years.

There are now eight Pension Fund managers for the National Pension System in the country — SBI Pension Fund, LIC Pension Fund, UTI Retirement Solutions, HDFC Pension Management, ICICI Prudential Pension Fund, Kotak Mahindra Pension Fund Aditya Birla Sun Life Pension Management and Axis asset management (the most recent entrant and whose pension fund is yet to be operationalised).

PFRDA expects India’s pension sector assets to grow to ₹30 lakh crore by 2030 and this could be a good reason why more foreign pension fund management players could look “more seriously” at entering India in next few years, say pension industry observers. Also the fact that foreign companies can now have controlling interest in the pension funds in India will encourage them to enter this market, they added.

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Can FDI investor also be an FPI, Zomato IPO will answer, BFSI News, ET BFSI

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Investors in Zomato want more of it as the company heads for an IPO.

Several foreign investors who have pumped in money in Zomato are keen to subscribe to the company’s upcoming Rs Rs 8,250 crore initial public offering.

However, they may not be able to invest according to a 2019 rule which debars investment in a company through both FDI and FPI routes.

“A person resident outside India may hold foreign investment either as FDI or as FPI in any particular Indian company,” according to Foreign Exchange Management (Non-debt Instruments) Rules of October 2019.

Investors have now approached Reserve Bank of India (RBI) and Securities and Exchange Board of India (Sebi) to figure out whether existing foreign investors in the company can participate in the maiden equity offering.

FDI

Foreign direct investment or FDI pertains to international investment in which the investor buys a lasting interest in an enterprise in another country. It may take the form of buying or constructing a factory in a foreign country or adding improvements to such a facility, in the form of property, plants, or equipment. FDI is a cross-border investment, by a resident or a company domiciled in a country, to a company based in another country, with an objective of establishing a lasting interest in the economy.

FPI

Foreign Portfolio Investment or FPI refers to the investment made in the financial assets of an enterprise, based in one country, by foreign investors. FPI involves the purchase of securities that can be easily bought or sold. The intent with FPI is generally to invest money into another country’s stock market with the hope of generating a quick return. Such an investment is made with the aim of making short-term financial gain and not for obtaining significant control over the managerial operations of the enterprise.

Zomato IPO

Zomato has filed preliminary papers with Sebi to raise Rs 8,250 crore through an initial share sale.

The IPO comprises fresh issue of equity shares worth Rs 7,500 crore and offer for sale to the tune of Rs 750 crore by Info Edge (India) Ltd, draft red herring prospectus filed with Sebi showed on Wednesday.

Proceeds from the fresh issue would be used towards funding organic and inorganic growth initiatives; and general corporate purposes.



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Insurance cos getting FDI up to 74% to get 1 year time fulfil conditions for key managerial positions

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The Finance Ministry has notified draft rules for increased foreign direct investment (FDI) ceiling in the insurance sector. These rules prescribe one year time frame for compliance of requirements related with appointment of Resident Indian Citizens on key management posts. Also, total investment will mean sum of direct and indirect foreign investments, it states.

After announcement in the Budget this year, Parliament approved amendment in the Bill for raising FDI limit to 74 per cent from 49 per cent. According to the Ministry, persons ‘likely to be affected’ can give their suggestions within 15 days from now to the draft rules.

According to the draft, in an Indian Insurance Company having foreign investment, a majority of its directors, a majority of its key management persons, and at least one among the chairperson of its Board, its managing director and its Chief Executive Officer, will be Resident Indian Citizen.

Also read: Government may hike FDI limit in pension sector to 74 per cent

The rules also stipulate that at least 50 per cent of directors in the board will be independent directors. However, if the chairperson is an independent director then at-least one third of its Board shall comprise independent directors, it clarifies.

“Every Indian Insurance Company having foreign investment, existing on or before the date of commencement of the Indian Insurance Companies (Foreign Investment) (Amendment) Rules, 2021, shall within one year from such commencement comply with the requirements of the provisions,” rules said.

Direct foreign investment

It also envisages that total foreign investment in an Indian Insurance Company will mean the sum total of direct and indirect foreign investment by foreign investors in such a company. Investment by foreigner (non-resident) in an Indian entity is considered as Direct Foreign Investment. Investment by an Indian company (which is owned or controlled by foreigners) into another Indian entity is considered as Indirect Foreign Investment. It is also known as downstream investment.

The foreign investment in insurance sector was permitted in the year 2000 by allowing the same up to 26 per cent in an Indian insurance company. Later, in 2015, this limit was raised to 49 per cent. According to an analysis by State Bank of India, in the last 20 years, private insurance companies have explored many new innovations to boost business. However, due to the nature of this business, the sector needs more capital for growth and regulatory needs. The Covid-19 pandemic has shown that further penetration of insurance in India is needed and for that capital infusion is required.

FDIs in private insurers

The report, using March 2019 data, said that the average FDI investments in the 23 private life insurer is only 35.5 per cent, 30 per cent for 21 non-life private insurers and 31.7 per cent for the 7-specialised health insurance. “In our view, the increase in FDI limit in the insurance may receive ₹5,000-6,000 crore of foreign investment in the sector in the next 1-2 years and ₹15,000-16,000 crore in the next 5-years, apart from deeper product expertise and better underwriting skills,” the report said.

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IDBI Bank to focus on retail loans in life out of PCA, BFSI News, ET BFSI

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After its exit from Reserve Bank’s stringent prompt corrective action (PCA) framework, IDBI Bank is looking to return to the growth league as the government looks to sell it to a strategic investor and current promoter LIC seeks attractive valuations in its upcoming IPO.

The bank’s capital adequacy ratio is 14.77 per cent and has earned profit continuously for the last five quarters while its other ratios such as liquidity coverage ratio are much above the RBI’s norms.

Under PCA

Under the PCA imposed by RBI in 2017, the bank’s balance-sheet shrank as it could not extend loans to corporates and was not allowed to open branches.

It used the four years of PCA to restructure its business, cut exposure to large loans and bulk deposits and create verticals for various lending businesses to speed up turnaround time.

The bank has worked for the last four years on various parameters, done recoveries and raised its provision coverage ratio to 97%.

The lender is looking at Rs 4,000 crore of recoveries in the next fiscal.

Retail loans

The share of corporate loans, which was about 67% four years back when it went under PCR, has shrunk to 40% now with 60% loans being retail. The bank is now targeting 55% loan book as retail and rest corporate. It wants to maintain low costs retail deposits at 48% of total deposits.

As a result, the institution has transformed from a project financier to a retail lender.

The company is looking to target the mid-corporate segment and will now avoid overexposure to certain industries and grow the business in a calibrated manner.

It sees over 12% growth in retail loans and 8-10% rise in corporate loans.

Growth

IDBI Bank plans to ramp up growth, regain lost corporate customers and sell stakes in its insurance, capital markets and technology arms. The lender plans to grow the loan book at 8-10% in the next fiscal and raise net interest margin beyond 3%.

The bank will focus on lending to manufacturing and maintain selective exposure to infrastructure.

The lender is looking to bring down the cost to income ratio to below 50% by pushing up income.

Stake sales

It willing to sell a 25% stake in Ageas Federal Life to the foreign partner if they wanted to acquire the stake after the increase in foreign direct investment (FDI) is allowed and also in other subsidiaries.

IDBI Fintech is a 100% subsidiary of the bank, which provides end-to-end IT services to IDBI Bank, its group companies, its ultimate parent company LIC, as well as other external clients in the BFSI sector. The company was currently in the process of appointing merchant bankers to help identify a strategic joint venture partner. IDBI Capital Markets is the merchant banking arm of IDBI Bank and the lender is looking for a strategic partner in this company as well.

Borrowings

Earlier this month, IDBI Bank’s board approved borrowing up to Rs 8,000 crore through rupee-denominated bonds in one or two tranches for FY2021-22.

Of the total, the bank will borrow up to Rs 3,000 crore via additional tier-I (AT1) bonds in one or more tranches, and up to Rs 1,000 crore in senior/infrastructure bonds by way of private placement.



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Parliament passes Insurance Bill to hike FDI limit to 74 per cent

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Parliament has passed a Bill to raise the Foreign Direct Investment ( FDI) limit in insurance sector to 74 per cent from the current 49 per cent, with the Lok Sabha giving its nod for this legislation on Monday.

Replying to discussions on the Insurance (amendment) Bill 2021 in the Lok Sabha, Finance Minister Nirmala Sitharaman asserted that the FDI limit hike is intended only to strengthen the insurance sector and should not be seen as government selling the family silver.

“By the enhancement in FDI from 49 to 74 per cent, private sector is going to be able to raise resources. We are not talking about the public sector here. Private sector needs to raise money. This will give them window for raising money”, she said.

The Finance Minister highlighted that financial sector (banking, insurance) has been recognised as a “strategic sector” by the government and so the public sector presence will continue.

“It is not right to say this (FDI limit increase) will close down and finish off public sector. Public sector enterprises will continue. The Public sector enterprises policy framed by the government is about right sizing the public sector and unlocking value and investment”, she added.

More resources for private sector

She highlighted that the aspiration of growing India cannot be met if more resources are not made available to private insurers.

“Insurance penetration can be improved only if greater resources are available to insurers. Government alone cannot do it all. We want to cover all Indian population. If we have to do this, then capital must be available and government also has a responsibility to look at the interests of employees working in private sector”, she said.

Sitharaman also asserted that this Bill had nothing to do with Life Insurance Corporation (LIC).

She highlighted that the number of persons working in the private sector stood at 24 lakh (both employees and agents), which is about seven lakh more than 17 lakh in public sector (employees and agents) insurers.

Sitharaman also assured the Lower House that adequate safeguards are in-built in the Bill so as to ensure that Indian policyholders’ funds remained within the country. Even one portion of the profits will have to be kept in India, she added.

Insurance penetration

She said insurance penetration rose to higher levels after 2015, when the FDI limit was earlier raised from 26 to 49 per cent. However, during 2011-14, in the absence of required resources, Indian penetration dropped from 4.1 to 3.3 per cent. “It (insurance penetration) actually comes down when enough liquidity is not available. So we have to open up. Insurance penetration is ratio between Premium and GDP. It can only increase when insurance sector grows at faster rate than GDP growth itself. During 2015-20, it grew at 74 per cent when GDP grew overall 64 per cent. This rapidity in growth has made a difference to insurance sector”, she added.

Sitharaman also noted that BJP had to oppose FDI hike in insurance sector in 2008-09 as no such safeguards — which are now being introduced in the latest Bill — were in that Bill.

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ED attaches over Rs 17-cr assets of Amnesty International India on money laundering charges, BFSI News, ET BFSI

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The Enforcement Directorate on Tuesday said it has attached over Rs 17 crore bank deposits in connection with its money laundering case against two entities of Amnesty International (India), the global human rights watchdog. The agency said in a statement that a provisional order has been issued under the Prevention of Money Laundering Act (PMLA) “attaching bank accounts of Amnesty International India Pvt Ltd (AIIPL) and Indians for Amnesty International Trust (IAIT)”.

It said “both the entities have acquired the proceeds of crime and layered the same in the form of various movable properties. The order involves attachment of movable properties worth of Rs 17.66 crore being proceeds of crime”.

This money laundering case of the ED is based on a Central Bureau of Investigation (CBI) FIR filed against AIIPL, IAIT, Amnesty International India Foundation Trust (AIIFT) and Amnesty International South Asia Foundation (AISAF) that was filed under various sections of the Foreign Contribution Regulation Act (FCRA) and the Indian Penal Code (120-B which denotes criminal conspiracy).

“Amnesty International India Foundation Trust (AIIFT) had been granted permission under the FCRA during 2011-12 for receiving foreign contribution from the Amnesty International UK,” it said.

However, the statement said the same was cancelled on the basis of the “adverse” inputs received.

“Since permission/registration has been denied to the said entity on the basis of adverse inputs received from security agencies during the year 2011-12, AIIPL and IAIT were formed in the year 2013-14 and 2012-13, respectively to escape the FCRA route and carried out NGO activities in the guise of service export and FDI,” the agency alleged.

A probe found, the ED said, that upon cancellation of the FCRA licence by the Union government, Amnesty International India Foundation Trust and Amnesty entities adopted “new method” to receive money from abroad.

The agency said Amnesty International, UK sent Rs 51.72 crore to AIIPL in the guise of export of services and the Foreign Direct Investment (FDI).

“For export proceeds/advances to Amnesty International UK there was no documentary proof, such as invoices and copies of agreement between AIIPL and Amnesty International UK, has been furnished by AIIPL to the authorised dealer (AD) banks.”

“It is prima facie found that Amnesty International India Pvt Ltd and others have obtained foreign remittances to the tune of Rs 51.72 crore in the guise export of services and the FDI from Amnesty International (UK) whose source is the donations from individual donors,” the ED alleged.

The agency has earlier attached some properties in this case and the total attachment value now stands at Rs 19.54 crore.



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