Tag: foreign investment

PFRDA throws FDI door wide open for Pension Funds

Banking & Finance

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

Banking & Finance

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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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Experts, BFSI News, ET BFSI

Personal Finance

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Cryptocurrency is currently directionless in India. The uncertainty has left investors, traders, stock exchanges and also start-ups working in the blockchain space puzzled. The government has formed an inter-ministerial group and there is a talk that the government will ban cryptocurrencies. Experts believe India will lose a big chunk of foreign investments if the government passes the cryptocurrency bill.

Cryptocurrency status in India

India has a total of seven exchanges for crypto trading and more than seven million people have invested in it. Also, around 200-250 startups are working in blockchain associated with the cryptocurrency segment. Currently, digital assets and cryptocurrencies have a global market capitalization of $ 1.5 trillion. People are finding cryptocurrency exciting due to the gigantic returns and also because it is an emerging asset class.
But the Reserve Bank of India and the government have clarified that they are not in favour of cryptocurrencies or any private digital currency. But the Supreme Court quashing the RBI appeal have given new hope to cryptocurrencies. While the government is in the process of making a cryptocurrency decision very soon, experts believe India will lose foreign funds if it disallows the new currency.

Uncertainty over the fate of cryptocurrency industry continues as the Government is yet to take a final call on the banning and regulation of cryptocurrency.

Foreign investors

“The foreign investors from the US want to invest in India and not China. And if the government bans crypto, they will not come. This will see India losing large funds. Many other countries have passed cryptocurrency bills. Many countries have already added rules and regulations and allowed the cryptocurrency,” said Sankalp Shangari, an Angel Investor.
In India, cryptocurrency stock exchanges have raised $5 million and the startups in this space are gaining interest from investors.

“Some of the largest global brands like Tesla Motors, BNY Mellon or even investors like Tim Draper maintain a portfolio of their wealth in crypto assets. They are also investors in India. If the Indian government takes a positive decision on crypto, FDI by global brands into India will increase. However, if the decision is negative, the same brands will pull out of India and go with countries that have friendly regulations. This will lead to massive job losses for India’s emerging economy and young population,” said, Atul Khekade, Co-founder, XinFin, XDC Network, which is building a platform for global trade finance.
Cryptocurrency in other countries

Many countries including the US, Singapore, Malaysia, Indonesia, South Korea have framed regulations around cryptocurrency and allowed it. Foreign investors have pumped in funds in these countries as the prices of cryptocurrencies like Bitcoin and Ethereum are skyrocketing.

“Finding a balance and fair regulation around crypto-assets can make India’s economy and rupee stronger. It is not the other way. After the Covid catastrophe, the global economy needs more connectedness through digital trust. If one wants to make their country economically stronger, one has to connect to this new layer of trust and not disconnect itself from it. A disconnect from a new form of trust would be disastrous,” Khekade said.

“By banning cryptocurrencies, India may go backwards. We should understand that cryptocurrency and blockchain as technology have made huge progress in the last five years. Maybe even I would have said no to crypto then. But now the world is moving forward and India should stay behind,” Shangari said.

In India, cryptocurrency stock exchanges have raised $5 million and the startups in this space are gaining interest from investors.
In India, cryptocurrency stock exchanges have raised $5 million and the startups in this space are gaining interest from investors.

Regulations over cryptocurrency

Cryptocurrency experts believe that banning cryptocurrency is very easy, but the government should think of regulating it. They also claim that cryptocurrency transactions are very transparent.

“Cryptocurrency transactions can be tracked online since they use blockchain technology, which is very transparent and practical for such usage. There have been various research reports that have data that unlawful activities are still funded through traditional cash. All cryptocurrency transactions can be tracked online. It is practically impossible for unlawful activities to be carried out using cryptocurrencies without getting caught,” Khekade added.

Being a regulator RBI wants to protect the interest of the large audience. The challenge with cryptocurrency is its volatility. It has been rising significantly compared to any asset class. While many have made money, there is always a fear, what if customers lose money.

Sovereign digital currency

“A sovereign digital currency wouldn’t solve India’s problem of sustaining its imports and exports to support India’s population. Digital assets and cryptocurrency technology can be used to act as payment obligation and cover collateral risk for millions of Atmanirbhar MSMEs entrepreneurs so that they can be more competitive in the global marketplace,” Khekade said.

Regulators across different jurisdictions are exploring how a central bank digital currency can be adopted.
Regulators across different jurisdictions are exploring how a central bank digital currency can be adopted.

Experts believe India already has the best payment system in the world. UPI is widely used by people in India. It is not clear why the government would want conflict with its own very successful system, they say. In terms of applications like global trade and finance, export funding that can support the Atmanirbhar Bharat initiative, the government should look at working with existing digital asset players and bring them under regulation. A sovereign digital currency wouldn’t solve India’s collateral problem to sustain its imports and exports to support India’s population.

In 1991, India had to physically transport half of India’s gold Reserves Bank of England to provide collateral to cover the risk for India’s import and exports. Digital assets and cryptocurrency technology can be used to act as payment obligation and cover collateral risk for millions of Atmanirbhar MSMEs entrepreneurs so that they can be more competitive in the global marketplace.



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