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India relaxes stake sale curb on insurance firms

India has freed Indian promoters of insurance companies to cut equity stakes to 26 percent within less than the decade previously required, a senior finance ministry official said on Thursday, marking a step set to hasten industry consolidation.

“An Indian promoter can scale down its equity up to a level of 26 percent at any time after registration under the Act,” S.K. Mohanty, an official of the finance ministry's department of financial services, said in a letter, a copy of which was obtained by Reuters.

When contacted, Mohanty confirmed the letter, but declined further comment.

The move, long sought by industry, could clear the way for a deal by Reliance Life Insurance, a unit of Reliance Capital, to sell a stake of 26 percent to Japan's Nippon Life Insurance Company for $680 million.

The deal had hit a hurdle as Reliance Life had not yet completed the 10 years necessary for its promoters to dilute their stake.

Current rules allow insurers to offer a stake of 26 percent to a foreign partner at the time a joint venture is incorporated. But an insurance firm wholly-owned by an Indian promoter had to wait 10 years to induct a foreign partner.

The foreign direct investment limit would remain at 26 percent in Indian insurance firms, the ministry circular said, adding that the decision was made after talks with the Ministry of Law and the insurance regulator.

“The Indian promoter shall reduce its equity to a level of 26 percent after 10 years, if not done earlier, in a phased manner, for which rules are being issued,” it added

Source: Reuters

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