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Union Budget 2021: FDI limit in insurance sector increased from 49% to 74%

The Finance Minister stated that an Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing  stressed debt and then manage and dispose off the assets to Alternate Investment Funds and other potential investors for eventual value realization. The move will help the Public Sector Banks to manage their stressed assets.

Union Budget 2021: FDI limit in insurance sector increased from 49% to 74% Representational Image/PIXABAY

New Delhi: Finance Minister Nirmala Sitharaman, presenting the Union Budget 2021-22 in Parliament on Monday announced that the government will amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% and allow foreign ownership and control with safeguards,

Under the proposed new structure, the majority of Directors on the Board and key management persons would be resident Indians, with at least 50% of Directors being Independent Directors, and specified percentage of profits being retained as general reserve.

Stressed Asset Resolution by setting up a New Structure

The Finance Minister presenting the Union Budget 2021 stated that an Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing  stressed debt and then manage and dispose off the assets to Alternate Investment Funds and other potential investors for eventual value realization. The move will help the Public Sector Banks to manage their stressed assets.

Recapitalization of PSBs

In order to consolidate the financial capacity of Public Sectors Banks, the Government has proposed further recapitalization of Rs. 20,000 crore during the fiscal 2021-22.

Deposit Insurance

The Finance Minister further stated that the Government had, last year, approved an increase in the Deposit Insurance cover for bank customers from Rs. 1 lakh to Rs. 5 lakhs. In order to help depositors of banks that are currently under stress, the Government will move an amendment to the DICGC Act, 1961 in the current Parliament Session to streamline the provisions, so that if a bank is temporarily unable to fulfil its obligations, the depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover.

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To improve credit discipline while continuing to protect the interest of small borrowers, for NBFCs with minimum asset size of Rs. 100 crores, the minimum loan size eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is proposed to be reduced from the existing level of Rs. 50 lakhs to Rs. 20 lakhs, the Minister added.