Indian promoters of insurance joint ventures are apprehensive that with foreign direct investment limits proposed to be raised to 49 per cent, foreign partners could have the upper hand by the 10th year of their ventures' operation.

Their concern follows the Insurance Act dictating the dilution of promoter capital by the 10th year in favour of Indian public, whereby Indian promoters have to reduce their stake from the current 74 per cent to 26 per cent.

The Insurance Act had not visualised foreign holding rising from the current 26 per cent to 49 per cent. The Act to this effect will also need to be revisited, prior to Indian promoters offloading a portion of their stake in favour of foreign partners.

"After Indian promoters have been aborbing a large portion of the losses over the last three years, the government will have to ensure that at the time of reducing the shareholding in favour of the public, the residual shareholding pattern ought to mirror the 51:49 ratio, favouring Indian promoters," said Deepak Satwalekar, managing director HDFC Standard Life Insurance Company.

Indian promoters are all willing to dilute their holding in the respective joint ventures in favour of their current foreign partner.

The Birlas, the Tatas, ICICI Bank, State Bank of India, the Bajaj group, Housing Development Finance Corporation, among others are expected to make a killing when they do so.

"Dilution of shareholding will be at a premium. I cannot see Indian promoters diluting at par, after having put in majority of funds in the beginning when the venture was taking off," said Shikha Sharma, managing director, ICICI Prudential Life Insurance Company.

Currently the total capitalisation of private life insurance companies stands at Rs 3,179 crore (Rs 31.79 billion), of which only Rs 827 crore (Rs 8.27 billion) is by way of FDI. The majority 74 per cent of investment in by Indian promoters.

What is however, a moot point is what will happen to the shareholding pattern on further dilution to the public. Some insurance companies feel divestment to the general public will become irrelevant once the FDI ceiling is raised.

"There is no need to take the company public if the idea is to ensure availability of capital when both partners can easily bring in funds. If foreign equity is raised to 49 per cent, the issue needs to be approached differently and the clause will need to be amended," said Venkatesh Mysore, managing director, MetLife India.