The Indian insurance industry has seen a remarkable transformation following the introduction of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025. This pivotal legislation, along with Press Note 1 of 2026, has ushered in significant reforms in foreign direct investment (FDI) policies. Notably, as per the Ministry of Finance’s Notification No. S.O. 2186(E) dated May 2, 2026, amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) now permit 100% FDI in the insurance sector via the automatic route.
Before this notification, foreign investments in Indian insurance companies were restricted to a maximum of 74% under the automatic route. The recent changes now allow foreign investors, including foreign portfolio investors, to own up to 100% of the paid-up equity capital of an Indian insurance company. This is subject to the Insurance Regulatory and Development Authority of India (IRDAI) verification and compliance with sector-specific conditions.
Importantly, the requirement for IRDAI’s approval is not a new regulation. According to Section 6A(4)(b)(ii) of the Insurance Act, 1938, any transfer of shares leading to an aggregate shareholding exceeding 5% of the paid-up capital requires prior IRDAI approval. Additionally, Rule 5 of the Indian Insurance Companies (Foreign Investment) Rules, 2015 mandates prior IRDAI verification for foreign investments allowed under the automatic route as per the NDI Rules.
Alongside raising the foreign investment cap, the notification eliminates certain previous conditions for insurance companies with foreign investments. These include the requirement for a majority of directors and key managerial persons to be resident Indians. Now, only one of the Chairperson of the Board, the Managing Director, or the Chief Executive Officer must be an Indian resident.
The notification further relaxes conditions for insurance intermediaries with significant foreign shareholding. It removes the need for IRDAI’s prior approval for dividend repatriation and relaxes restrictions on payments to foreign group companies beyond what is deemed necessary by the IRDAI. Additionally, it eases requirements regarding the composition of the Board of Directors and Key Managerial Personnel as stipulated by relevant regulators.
Nonetheless, insurance intermediaries with foreign investment must adhere to conditions such as incorporation as a limited company and having a resident Indian citizen in a key leadership position. They must also disclose payments to group or associated entities to the IRDAI and incorporate advanced technological and managerial skills.
This amendment represents a significant liberalization of the foreign investment regime within the insurance sector. By permitting 100% foreign ownership under the automatic route, the government has eliminated the necessity for foreign insurers to maintain Indian joint venture partners solely for compliance with foreign ownership limits. The policy shift is expected to encourage increased foreign participation, attract fresh capital, and allow greater flexibility in restructuring joint ventures.
Despite the relaxation of foreign investment restrictions, the sector remains under IRDAI’s vigilant oversight, ensuring regulatory safeguards and compliance with licensing requirements are maintained.
About the authors: Dipak Rao is a Senior Partner and Nishita Arora is an Associate at Singhania & Partners.
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