The Ministry of Finance Liberalises FDI Regime for Insurance Companies

• Author(s): Dipak Rao, Nishita Arora
• Date: 22-Jun-2026
• Post in: Foreign Direct Investment

Following the enactment of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, which brought about significant reforms to the insurance law framework, and the corresponding amendment to the FDI Policy through Press Note 1 of 2026, the Ministry of Finance, vide Notification No. S.O. 2186(E) dated May 02, 2026 (Notification), amended the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) to permit 100% Foreign Direct Investment (FDI) in the insurance sector under the automatic route.

Prior to the Notification, foreign investment in an Indian insurance company was permitted only up to 74% under the automatic route. Pursuant to the Notification, foreign investors, including foreign portfolio investors, are now permitted to hold up to 100% of the paid-up equity capital of an Indian insurance company, subject to verification and approval by the Insurance Regulatory and Development Authority of India (IRDAI) and compliance with the applicable sector-specific conditions.

Notably, the requirement to obtain approval and verification from the IRDAI is not a new regulatory requirement introduced by the Notification. Under Section 6A(4)(b)(ii) of the Insurance Act, 1938, prior approval of the IRDAI is required for the registration of any transfer of shares that would result in the transferee's aggregate shareholding exceeding 5% of the paid-up capital of the insurance company. Further, Rule 5 of the Indian Insurance Companies (Foreign Investment) Rules, 2015 requires prior verification by the IRDAI for foreign investment proposals permitted under the automatic route in accordance with the NDI Rules.

In addition to increasing the foreign investment cap, the Notification removes certain conditions that were previously applicable to insurance companies having foreign investment, including requirements relating to:

1. maintaining a majority of directors as resident Indians; and
2. maintaining a majority of Key Managerial Persons as resident Indian citizens.

The amended rule now only requires that at least one among the Chairperson of the Board of Directors, the Managing Director, or the Chief Executive Officer of the Indian insurance company must be a resident Indian citizen.

The Notification also relaxes certain conditions applicable to insurance intermediaries having majority foreign shareholding. In particular, it dispenses with requirements relating to:

1. obtaining prior approval from the IRDAI for dividend repatriation;
2. restrictions on payments to foreign group companies, promoters, subsidiaries, interconnected entities or associate entities beyond what was considered necessary or permitted by the IRDAI; and
3. aligning the composition of the Board of Directors and Key Managerial Persons in accordance with requirements prescribed by the relevant regulators.

However, insurance intermediaries with foreign investment will continue to be subject to other applicable conditions, including the requirement to be incorporated as a limited company; to have a resident Indian citizen serving as either the Chairperson of the Board of Directors, the Chief Executive Officer, the Principal Officer, or the Managing Director; to make such disclosures to the IRDAI as may be required in relation to payments made to group, promoter, subsidiary, interconnected, or associate entities; and to bring in the latest technological, managerial, and other relevant skills and expertise.

The amendment marks a significant liberalisation of the foreign investment regime for the insurance sector. By permitting 100% foreign ownership under the automatic route, the Government has removed the need for foreign insurers to retain an Indian joint venture partner solely to satisfy foreign ownership restrictions. This is expected to facilitate greater foreign participation in the Indian insurance market, encourage fresh capital inflows and provide greater flexibility for restructuring existing joint venture arrangements.

At the same time, the sector continues to remain subject to IRDAI oversight, licensing requirements and other regulatory safeguards, ensuring continued regulatory supervision notwithstanding the relaxation of foreign investment restrictions.