On May 2, 2026, the Department of Economic Affairs under India’s Ministry of Finance (“MoF”) notified the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2026 (the “FEMA NDI Amendment Rules”) to amend the sectoral table under Schedule I to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“Primary FEMA Rules”) and operationalize the Government’s earlier decision to amend the Consolidated Foreign Direct Investment Policy of 2020 pursuant to Press Note 1 of 2026 dated February 9, 2026 with respect to the insurance sector.

The FEMA NDI Amendment Rules complement the changes proposed under the Sabka Bima Sabki Raksha Act (Amendment of Insurance Laws) Act, 2025 (“Insurance Law Amendment”) and corresponding amendments made to the Indian Insurance Companies (Foreign investment) Rules, 2015 (“Insurance Foreign Investment Rules”) through the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025 (“Insurance Foreign Investment Amendment,” and together with the Insurance Law Amendment, the “New Insurance Laws”) – an overview of which was provided in our previous note (“Previous Note”) (see here) in the context of M&A opportunities in the Indian insurance sector.

Pursuant to the FEMA NDI Amendment Rules, 100% foreign direct investment (“FDI”) is now permitted in the insurance sector across Indian insurance companies and insurance intermediaries through the automatic route, except in Life Insurance Corporation of India (“LIC”), where FDI remains capped at 20%.

This note discusses the key amendments introduced pursuant to the FEMA NDI Amendment Rules and should be read in conjunction with our Previous Note.

Key Amendments

Revised sectoral caps

The FEMA NDI Amendment Rules have increased the permitted limit of aggregate foreign holding (including portfolio investors) through investment in equity shares under the automatic route from 74% to 100% in (i) Indian insurance companies (except LIC), and (ii) insurance intermediaries, covering insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third-party administrators, surveyors and loss assessors, managing general agents, insurance repositories, and other entities notified by the Insurance Regulatory and Development Authority of India (“IRDAI”) (collectively, “Insurance Intermediaries”).

While the entry route for FDI is classified as “automatic”, such investment remains subject to approval and verification by the IRDAI, as well as other specified conditions (see below).

Residency requirement

Consistent with the governance related relaxations proposed by the Insurance Foreign Investment Amendment, the FEMA NDI Amendment Rules remove the requirement for an Indian insurance company receiving FDI to have a majority of its directors or key management persons as resident Indian citizens. However, at least one individual among the board chairperson (“Chairman”), managing director (“MD”), or chief executive officer (“CEO”) is required to be a resident Indian citizen.

Insurance intermediaries

FDI up to 100% has been permitted in Insurance Intermediaries under the automatic route even prior to the Insurance Law Amendment. The existing carve-out for insurance intermediaries whose primary business is outside the insurance area (e.g., banks), has been retained. Under this carve-out, revenue from such primary business (i.e., non-insurance related business) must remain above 50% of the total revenue in any financial year.

Additionally, consistent with the Insurance Law Amendment, the following obligations of Insurance Intermediaries which have a majority foreign shareholding have been done away with: (i) the requirement to obtain prior IRDAI permission for repatriating dividend; and (ii) restrictions on payments to the foreign group, promoter, subsidiary, interconnected, or associate entities beyond what is necessary or permitted by the IRDAI (although such payments still need to be disclosed in IRDAI-specified formats).

Among other things, an Insurance Intermediary must: (i) be incorporated as a limited company under the Companies Act, 2013; and (ii) similar to insurance companies receiving FDI, have at least one individual among the Chairman, CEO, principal officer, or MD as a resident Indian citizen.

Other conditions

In general, foreign investment in the insurance sector will remain subject to compliance with the Insurance Act, 1938 (which was amended by the Insurance Law Amendment). Companies receiving FDI will need to obtain necessary licences or approvals from the IRDAI for undertaking insurance and related activities, and Indian insurance companies having foreign investment will need to comply with the Insurance Foreign Investment Rules and applicable rules / regulations notified by the MoF’s Department of Financial Services and the IRDAI.

Foreign portfolio investment in an Indian insurance company will be governed by applicable provisions of the Primary FEMA Rules and the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019. Increases in foreign investment in an Indian insurance company must follow the pricing guidelines specified under the Primary FEMA Rules.

Conclusion

Following the New Insurance Laws, several companies have begun exploring potential restructuring opportunities. With the necessary amendment to the Primary FEMA Rules and relaxation of governance norms with respect to Indian insurance companies and Insurance Intermediaries, the M&A market in the Indian insurance sector is expected to receive a significant boost, with the possibility of greater management and operational control by foreign investors. Despite the governance relaxations, however, the IRDAI’s regulatory role and oversight functions have not been diluted, and companies should remain diligent in ensuring compliance with the applicable regulatory framework.

While the New Insurance Laws had signaled a broader liberalization trajectory, the FEMA NDI Amendment Rules are operationally significant because they integrate the revised foreign investment framework into India’s exchange control regime and automatic-route architecture.

The New Insurance Laws and the FEMA NDI Amendment Rules could catalyze M&A activity across life insurance, general insurance, health insurance, reinsurance, and Insurance Intermediary segments. Foreign insurers that operated through JVs may now seek greater management and operational control, and platform acquisitions, particularly where legacy JV structures resulted in strategic misalignment or operational constraints even though JV structures may still have a rationale to access the distribution reach of the Indian JV partners. The liberalized regime may also accelerate sponsor exits, secondary transactions, and capital recycling by Indian promoter groups and financial investors.

Importantly, the extension of the liberalized regime to Insurance Intermediaries may drive inbound foreign investment into technology-led insurance infrastructure and ‘embedded’ insurance ecosystems (see, e.g., here and here) – such as, trip insurance integrated into travel bookings, device insurance embedded into e-commerce purchases, health covers integrated into wellness apps, or accident and gig-worker insurance embedded into mobility and delivery platforms – given the rapid rise of digital distribution models in India. The liberalized FDI regime may facilitate further expansion into the insurance infrastructure stack – including claims automation systems, underwriting technology providers, API-based distribution layers and integration, digital servicing platforms, as well as AI-enabled risk and fraud analytics.

This trend is particularly significant because an increasing share of innovation and customer acquisition in the sector is now occurring outside of traditional insurance. Large digital platforms – including ride-hailing, food delivery, quick-commerce, and digital payment apps, as well as fintech and e-commerce ecosystems, collaborate with insurers and ‘insurtech’ entities to offer contextual insurance products. Viewed in light of its large digital consumer base, UPI-driven payment infrastructure, Aadhaar-enabled onboarding architecture, and relatively low insurance penetration, India appears well-suited to facilitate the growth of embedded insurance models – which remain, in turn, structurally dependent on technology-based platforms and infrastructure providers.

The FEMA NDI Amendment Rules build on India’s policy shift towards treating insurance as a strategic growth sector.

This insight has been authored by Rajat Sethi, Dr. Deborshi Barat, Durga Prasad Mohapatra and Advaita Kapoor from S&R Associates. They can be reached at [email protected], [email protected], [email protected] and [email protected], respectively, for any questions. This insight is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.