IRDAI approval must for stake increases in insurance companies to above 5%

Entities who acquire more than 5 percent shares in an insurance company without IRDAI approval will be liable to face penal action.

The insurance regulator today said that an increase in shareholding by entities in listed insurance companies to more than 5 percent of share capital needs prior approval.

Insurance Regulatory and Development Authority of India (IRDAI) said that the body should be informed even if there is a likely chance of increase of an investor's stake in the listed insurer to above 5 percent in the future.

For acquisition of more than 1 percent and up to 5 percent of the paid-up share capital in a listed insurer, the concerned entity has to give the fit-and-proper declaration to the insurance company. The insurer also needs to be informed about the transfer immediately on execution.

For the purpose of calculating quantum of transfer/acquisition of shares, scenarios where transfer is executed in favour of one or more parties, the cumulative transfers made during a given financial year will be considered. If it is likely to exceed 5 percent, prior approval of IRDAI has to be sought.

In case there is a transaction beyond 5 percent threshold without IRDAI approval, the transferee will not have any voting rights in any meetings of the insurance company. Further, the regulator said that the entity has to dispose off the excess shares acquired.

Entities who acquire more than 5 percent shares in an insurance company without IRDAI approval will be liable to face penal action, said the circular from the regulator.