The committee is understood to be in favour of scrapping the 14 per cent reservation for foreign institutional investors (FIIs) and overseas corporate bodies (OCBs). It is of the view that reservation for FIIs and OCBs in equity capital does not exist in any industry sector and is therefore not convinced about making such a reservation for the insurance sector.

Convinced that foreign participation has to be limited to 26 per cent, the committee is faced with the dilemma of providing a 74 per cent stake to Indian companies. The committee is of the opinion that not many domestic companies will be able to ferret out an amount close to Rs 74 crore from theirreserves. The capital requirement for domestic companies will be more than Rs 74 crore if the authorised capital is pegged at over Rs 100 crore.

The committee is also not certain as to how the Indian partners will provide additional capital to support the venture as business grows. Solvency requirements will make it imperative for both partners to contribute to the growing capital requirements as additional policies are written.

Linked to the issue of how much the partners hold is the question of what should be the initial capital requirement. The draft bill is silent on what should be the start-up capital. Some members in the committee are of the view that it should be left to the IRA to decide the level of authorised and paid-up capital.

While the Malhotra Committee on Insurance Reforms had recommended a start-up capital of Rs 100 crore in 1994, the ministry of finance has been of the view that the figure should be pegged upwards. The MoF feels that since the rupee has devalued by more than 30 percent since 1994, foreign companies should not get the benefit of devaluation. But foreign companies have argued with the IRA that for arriving at the right figure Rs 100 crore should be indexed to the cumulative level of inflation of the last five years and not the exchange rate.

The committee is wrestling with the issue that if the level of Rs 100 crore is raised it will queer the pitch further for Indian companies as most do not have deep vaults. It feels that settling for a high level of authorised capital and a lower level of paid-up capital for the time being will not solve the problem. Both foreign and Indian companies have impressed upon the IRA that as capital requirements will grow gradually the initial paid-up capital should be about Rs 50 crore. Companies are of the opinion that markets do not provide suitable opportunities for parking additional funds at the moment.The committee has posed comprehensive questionnaires to the IRA which are being worked on by the regulatory authority. The IRA islikely to take about a week to answer the queries.