FEMA Rules Amended for Insurance Sector FDI

On May 2, 2026, the Ministry of Finance, Department of Economic Affairs, notified the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2026 (“Amendment Rules”), amending the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“NDI Rules”) to operationalise the revised foreign direct investment (“FDI”) framework for the insurance sector under the Foreign Exchange Management Act, 1999 (“FEMA”).

The Amendment Rules were introduced pursuant to Press Note No. 1 (2026 Series) issued by the Department for Promotion of Industry and Internal Trade (“DPIIT”) on February 9, 2026, which amended Paragraph 5.2.22 of the Consolidated FDI Policy to permit up to 100% FDI under the automatic route in insurance companies and insurance intermediaries. The Life Insurance Corporation of India (“LIC”) continues to remain subject to a separate regime under which foreign investment is capped at 20% under the automatic route.

The amendment follows the passage of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 by Parliament in December 2025, which amended the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999, and increased the FDI limit in Indian insurance companies from 74% to 100%.

A Press Information Bureau (“PIB”) backgrounder titled “Insurance for All: Expanding Coverage, Strengthening Social Security”, released on April 23, 2026, highlighted that the reforms are intended to deepen insurance penetration, strengthen social protection, attract long-term investment, and support growth in the insurance sector.

At the 3rd IFSCA–IRDAI–GIFT City Global Reinsurance Summit held in January 2026, it was observed that India continues to witness significant growth in the insurance sector, with increasing premium collections reaching ₹11.93 lakh crore in FY 2024–25 and expanding market participation.

The reforms have also been accompanied by broader regulatory measures aimed at improving ease of doing business and encouraging long-term participation in the insurance ecosystem, including changes relating to insurance intermediaries and regulatory processes including perpetual registration regime introduced by the Insurance Regulatory and Development Authority of India (“IRDAI”).

Amendments Introduced by the Notification

100% Foreign Investment in Insurance Companies

The Amendment Rules permit aggregate foreign investment, including investment by foreign portfolio investors, in the equity shares of an Indian insurance company up to 100% of its paid-up equity capital. Such investment is permitted under the automatic route, subject to approval and verification by the IRDAI.

Foreign investment in the insurance sector remains subject to compliance with the Insurance Act, 1938 and the requirement that companies receiving foreign investment obtain the necessary licences or approvals from the IRDAI for undertaking insurance and related activities.

Further, in an Indian insurance company having foreign investment, at least one among the Chairperson of the Board, the Managing Director, or the Chief Executive Officer is required to be a resident Indian citizen. Indian insurance companies having foreign investment are also required to comply with the Indian Insurance Companies (Foreign Investment) Rules, 2015 and other applicable rules or regulations notified by the Department of Financial Services or the IRDAI from time to time.

Foreign Portfolio Investment and Pricing Guidelines

The Amendment Rules clarify that foreign portfolio investment (“FPI”) in Indian insurance companies shall continue to be governed by Rules 10 and 11 read with Schedule II of the NDI Rules, as well as the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019.

Any increase in foreign investment in Indian insurance companies is also required to comply with the pricing guidelines prescribed under FEMA and the NDI Rules.

Insurance Intermediaries

The 100% foreign investment limit has also been extended to insurance intermediaries, including insurance brokers, reinsurance brokers, insurance consultants, corporate agents, third-party administrators, surveyors and loss assessors, managing general agents, insurance repositories, and such other entities as may be notified by the IRDAI from time to time.

Foreign investment in insurance intermediaries will continue to be governed by Rules 7 and 8 of the Indian Insurance Companies (Foreign Investment) Rules, 2015.

The Amendment Rules further provide that insurance intermediaries having majority foreign ownership must:

• be incorporated as limited companies under the Companies Act, 2013;
• ensure that at least one among the Chairperson of the Board, Chief Executive Officer, Principal Officer, or Managing Director is a resident Indian citizen;
• bring in the latest technological, managerial, and other skills; and
• make disclosures, in formats specified by the IRDAI, of payments made to group, promoter, subsidiary, interconnected, or associate entities.

Bank-Promoted Insurance Companies

The Amendment Rules also clarify that conditions applicable to the “Banking – Private Sector” under Schedule I, Serial No. F.2.1 of the NDI Rules will continue to apply to insurance companies promoted by banks.

Accordingly, foreign investment limits applicable to the principal sector of banks or other entities functioning as insurance intermediaries will continue to apply, provided that revenue from their non-insurance business remains above 50% of total revenue in a financial year.

Conditions Applicable to LIC

Foreign investment in LIC continues to remain capped at 20% under the automatic route.

The Amendment Rules further provide that foreign investment in LIC shall remain subject to the provisions of the Life Insurance Corporation Act, 1956 and such provisions of the Insurance Act, 1938 as are applicable to LIC under Section 43 of the LIC Act.

Additionally, the provisions relating to foreign portfolio investment under Rules 10 and 11 of the NDI Rules, along with the applicable FEMA pricing guidelines, have also been extended to LIC.