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Tuesday, July 26, 2011

IRDA plans to change lock in period for stake sale

Effectively managing capital and coping with long gestation period are two factors which determine which companies survive in the competitive insurance market. Earlier this year in June, Sunil Mittal decided to sell its 74% stake both in Bharti Axa Life Insurance and Bharti Axa General Insurance to Mukesh Ambani precisely for these reasons.

Acknowledging this, Insurance Regulatory and Development Authority (IRDA) already has Article 6AA of the insurance act in place. However some aspects of this act may soon change. Currently the guidelines says that promoters holding a 26% stake in life insurance companies needs to be locked in for a period of 10 years. But news is brewing that a new IRDA guideline would allow promoters to escape as early as 5 years. The new draft however does not apply to those promoters subscribing to IPOs of insurance companies. The draft guideline is expected in August and after public comments and recommendations, the final guideline is expected in October.

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