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Exide Life, Magma may not seek FDI despite govt nod

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Exide Life Insurance Co Ltd and Magma HDI General Insurance Co are unlikely to see any foreign direct investment (FDI) flowing into their companies anytime soon.

"We are well-capitalised and not looking at partnership with any foreign player in the short term. In the long term, however, Exide Industries intend to induct a new foreign shareholder," Kshitij Jain, managing director and chief executive officer of Exide Life Insurance told dna when asked if the company would now look for a foreign financial partner.

Magma HDI said it is willing to have its foreign partner raising its stake in the company to the maximum 49% following the budget announcement, but the foreign partner is keen to see the implementation of the insurance amendment law.

"HDI-Gerling is keen to raise its stake but I think there has to be greater clarity before that materialises. Also, the insurance laws (amendment) bill needs to get passed," Swaraj Krishnan, chief executive officer of Magma HDI, said.

Conditions that permission to the foreign partner would be given only through the time-consuming FIPB route and that there has to be full Indian management and control are some of the strictures which may act as turn-offs.

Last Thursday, finance minister Arun Jaitley proposed in his budget speech to raise FDI in the insurance sector to 49% from the present 26%, a step widely hailed as a big reform measure that would kick off overseas investment.

While Exide Life is fully Indian with 100% stake owned by Rahejas-controlled battery maker Exide Industries, Magma HDI is 74% owned by Magma Fincorp with balance 26% being held by foreign partner HDI-Gerling Industries Versicherung of Germany.

The Bangalore-based Exide Life has a solvency margin of 239% as of March this year which, Jain said, indicated that in the short to medium-term, Exide Life does not require any fresh capital to fund either its growth or its expansion.

Exide Life incidentally saw the reverse of FDI flow when Dutch financial major ING exited ING Vysya Life Insurance in 2013 as part of its strategy to get out of insurance and investment businesses in Asia.
Jain, however, said FDI in insurance would help domestic industry starved of funds and expertise.

"Easing of the FDI cap to 49%, the insurance industry expects to get not only the capital but gain from the experience of foreign partners. FDI in insurance would therefore help increase the penetration of insurance in India, where the penetration of insurance is still very abysmally low. The industry at this stage needs long-term capital for growth and expansion, which only FDI can bring in," Exide Life MD said.

The industry over the last 12 years has attracted over Rs 30,000 crore of capital across all the private life insurance companies, and over the next five to ten years the industry requires as much if not more in terms of fresh capital to fund its growth and expansion, he said.

Magma HDI has a capital base of Rs 208 crore, and going by its current business strategy to raising its gross written premium to Rs 600 crore in fiscal 2015 from Rs 425 crore in the last fiscal, the company would require additional capital infusion only in fiscal 2016.

"But if FDI becomes indeed possible, then we might infuse capital by giving our foreign partner 49% ahead of schedule and scale up our business faster," Krishnan said.

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