FM to ICICI Bank's rescue

ICICI Bank may still obtain permission to induct foreign equity in the holding company for its insurance subsidiaries despite the reservations of the Foreign Investment Promotion Board (FIPB). With heavy pressure building up on clearing the bank’s proposal, finance minister P Chidambaram is likely to look into the details. The FIPB may be asked to reconsider the proposal, top government sources said.

ICICI Bank proposes to set up the wholly-owned subsidiary —ICICI Financial Services Ltd—to hold investments in insurance and mutual fund business and offer 24% stake to foreign investors.

The finance minister has the authority to direct FIPB to reconsider a proposal. In fact, the Board only recommends proposals to the FM for taking a final call. The finance minister is free to ask for clarifications before approving or rejecting the Board’s view.

There are instances of the finance minister seeking a review of the FIPB’s rejection. The recent one pertains to Hari Sundar Tobacco, which was ultimately rejected after a review. In such instances, a ‘review’ is carried out on file and there is no need to go through elaborate inter-ministerial discussions.

As for ICICI’s case, it seems that the final decision on FIPB’s recommendation on the bank’s move will now rest with Mr Chidambaram. Officials say the the FM himself should decide as the FIPB was extra-cautious on the issue in view of the political opposition to easing FDI in insurance.

ICICI’s plans to create a subsidiary to hold its investments in various insurance joint ventures and infuse FDI in it would, in effect, dilute direct and indirect Indian equity holding in the insurance arms, though control would stay intact.

FIPB turned down the proposal because as per Section 2 (g) of the Insurance Regulatory and Development Authority regulation on registration of insurance companies, the promoter company of an insurance venture cannot be a subsidiary. As such, there was no provision allowing induction of foreign capital in a such a case, a government source said.

Investments of ICICI Bank in ICICI Prudential Life Insurance Company, ICICI Lombard General Insurance Company, ICICI Prudential Asset Management Company Ltd and ICICI Prudential Trust Ltd are being transferred in ICICI Financial Services Ltd.

While the FIPB had sought the views of insurance division in the finance ministry on the induction of foreign investment, no inputs were sought on the issue of whether the promoter company could be a subsidiary of another company (ICICI Bank in this case) as the IRDA regulation clearly laid it down.

The insurance division does not have objections to induction of foreign capital in the company but it did not give any views on the whether the ICICI Bank subsidiary could be allowed to become a promoter to rope in foreign investors. The insurance division could now be consulted on this issue.

ICICI Bank has also applied to RBI for its approval and also has plans to seek IRDA nod for transfer of its shareholding in ICICI Life and ICICI General to ICICI Holding.