Union Budget 2021 | Finance Minister announces increase in FDI limit on insurance, PSB recapitalisation, Asset Reconstruction and more

Union Budget 2021

Union Finance Minister Nirmala Sitharaman today tabled her third and India’s first paperless budget, doing away with the ‘Bahi Khata’ and opting for ‘Made in India’ tablet. The budget announcement is termed crucial keeping the current economic condition of the country in mind post the covid outbreak.

Srividya Kannan, Founder, Director – Avaali Solutions Pvt Ltd said, “The first time paperless budget presented in ‘made in India’ tablet brought in much cheer to speed up the economy. Sharp increase in capital expenditure, massive investments in infrastructure, roads and railways and customs duty reduction on certain components to promote domestic manufacturing are very encouraging to further boost the economy and create a self-reliant India.”

While tabling the budget she said ,” Other than IDBI Bank, we propose to take up the privatization of two Public Sector Banks and one General Insurance company in the year 2021-22. This would require legislative amendments and I propose to introduce the amendments in this Session itself.”

She also announced an increase in the Foreign Direct Investment (FDI) limit in insurance from 49% to 74%.

Parimal Heda, Chief Investment Officer, Digit Insurance said, “The centre has proposed to increase FDI cap in the insurance sector to 74% and that is in line with our expectations from the budget. The FDI limit increase will provide access to fresh capital to some of the Insurance companies, which are struggling to raise capital from their existing promoters. This would not only increase the solvency position for some Insurers who are very close to the regulatory level of 150% but would provide long term growth capital for other companies to invest in newer technologies. These technologies would not only help in managing their losses but also in customer acquisition and thus increase insurance penetration.

Further, the foreign partner would be more willing to transfer its technology once it becomes a major shareholder. The additional funds could be used to invest into technology to adapt to the evolving customer needs like responsive service through digital platforms.”

Also Read: Union Budget 2021: Finance Minister proposes Rs 1,500 Crore-Scheme to boost Digital Payments

Rakesh Goyal, Director, Probus Insurance, Insurtech Broking Company on the Insurance Sector said, “The announcement of hiking the permissible FDI limit from 49% to 74% in Insurance Companies and allowing foreign ownership and control with safeguards are the welcome move by the Finance Minister. While increasing the FDI limit was much awaited, but we must get more clarity on revised framework in relation to the control and management of insurance companies. Also, government’s commitment to come out with the initial public offering (IPO) of LIC will be keenly watched by the country in the next financial year. Government has also proposed to privatize one more general insurance company. All these steps announced by the government will provide capital for growth for the insurers and improve the insurance penetration and financial inclusion in the economy.”

Vishal Wagh, Research Head, BONANZA PORTFOLIO LTD said, “Insurance stocks have rallied 3 to 4% after finance minister announces government purpose to amend insurance act to up FDI to 74% from 49% and this will help the insurance company to raise fund to ensure their solvency position is continued in line with growing business model good for companies such as SBI life, HDFC life, new India insurance and ICICI prudential life.”

Raj Ramachandran, Partner J. Sagar Associates said, “FDI in insurance from 49% to 74% is a key change, and this will help bring in more investments to scale up business in India. Prior to this change, insurance companies had to be Indian owned and controlled, and with the change foreign ownership and control will now be permitted with safeguards. There is also a proposal to have sufficient number of independent directors, given the sensitivity of the sector. Will help boost the sector particularly given the pandemic and the likely inclination for more insurance cover. FDI in insurance intermediaries has already been permitted upto 100%, so this was an expected next step to provide effective stimulus for the sector.”

Also Read: Live: Union Budget 2021 Live Updates

Furthermore, she proposed to amend the Insurance Act, 1938 and announced the launch a new investor charter for investor protection. She said that the centre launch a securities market code which will include the SEBI Act, the government Securities Act and the Depositories Act.

Arka Mookerjee, Partner, J, Sagar Associates said, “The consolidation of securities laws, existing decriminalisation of offences under the Companies Act and the proposed decriminalisation under the LLP Act marks an important move towards making Indian corporate legal framework, simpler, business friendly and ultimately (hopefully) reducing compliance costs.  The securities market code is in line with previous discussions on the NFRA. It marks a step towards streamlining the multiple laws, ordinances, guidelines and regulations. If drafted and executed in a proper manner, it will be helpful to market participants and remove any possible conflicts in the regulatory framework and will provide clarity in policymaking to investors and stakeholders”

In a bid to improve the credit discipline while continuing to protect the interest of small borrowers, for NBFCs with minimum asset size of `100 crores, the minimum loan size eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 has been proposed to be brought down from the existing level of `50 lakhs to `20 lakhs.

 HP Singh, Chairman & Managing Director, Satin Creditcare Network Limited said “At a time when India is recovering from the Covid-19 crisis, the budget focuses on revival rather than survival, accelerating growth, amplifying the digital rush by bringing in stability in business operations. Measures such as the introduction of tax-efficient zero-coupon bonds for infra debt funds, setup of a professional managed ‘Development Finance Institution’ with have a strong lending portfolio, statutory backing, and Rs 27,000 crore capital as well as the development of a world-class fintech hub will act as a catalyst in the growth of the NBFC sector and likely unplug potential for last-mile lenders. The setup of an Asset Reconstruction and Management Company for stressed assets to take over bad loans will significant bring down NPAs, easing the woes of the NBFC sector. The strengthening of the NCLT framework will ensure the resolution of bad loans where the clients can avoid losing their business while continuing to pay the debt.  The proposed to extend the Rs 1.5 lakh benefit on interest paid on affordable housing loans by one year to March 31, 2022 combined with tax exemption for affordable rental housing projects will give a boost to the housing sector and home-buyers as well.  These provisions will act as a provider, enabler and catalyst for the overall financing sector.”

Also Read: Budget 2021 is going to be Paperless

Seema Prem, CEO and Co-Founder, FIA Global said, “The budget this year has given a significant support to startup ecosystem that will help turbocharge their growth. The concept of OPCs with an option to convert into any other type of company at any time, reducing residency limit for an Indian citizen to set up an OPC from 182 days to 120 days, and allow also non-resident Indians to incorporate OPCs in India will certainly boost innovation.  Collateral free loans and fund of funds for MSMEs will stimulate growth and provide solace to MSMEs hit by the pandemic.”

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