The Reserve Bank of India (RBI) issued a notification on April 25 2005, granting permission to foreign insurance companies to set up liaison offices in India. However, the activities of these liaison offices are subject to the approval of the Insurance Regulatory and Development Authority of India (IRDA).
The scope of activities of these liaison offices is as follows:
The liaison offices can only carry on the activity for which prior approval has been obtained by RBI/IRDA. However, they can undertake a new trading, commercial or industrial activity either by themselves or in partnership, with prior approval of RBI/IRDA.
They cannot offer any consultancy or other service directly or indirectly. They cannot receive commission, fees or any other remuneration and they cannot enjoy any signing or commitment power.
These offices cannot borrow or lend money from or to any person in India and all their expenses have to be met exclusively out of the funds received from their head office.
Liaison offices, for their operations, can enter into leases for no more than five years. They, however, cannot acquire, hold, transfer, and dispose of any immovable property in India without obtaining the RBI's prior permission.
The liaison offices must furnish to the IRDA, on an annual basis, a certificate from the auditor that they have complied with the terms and conditions stipulated in the letter of approval issued by IRDA/RBI and that all expenses are met by way of approved means.
The advantage for foreign insurance companies setting up liaison offices in India is that they can assess the potential of the Indian market and provide widespread domestic representation of their counterparts.