The Indian Government has shelved plans to increase foreign investment in insurance, a move that will prevent IAG from increasing its stake in its joint venture with the State Bank of India.

The proposal to lift the foreign investment cap on insurance to 49%, introduced in the 2004/05 budget, has been deferred because the Government does not have the numbers in Parliament to get the bills passed, The Times of India reports.

IAG holds 26% of SBI General Insurance Company, the maximum allowable under India’s foreign investment laws, while the State Bank of India owns 74%.

Morningstar insurance analyst David Walker says this will slow IAG’s expansion into India, but the insurer has a pan-Asian strategy that also involves other ventures in Thailand, Malaysia and China.

“Incomes are reaching levels where insurance is becoming attractive, whereas in Australia it’s fairly mature,” he told insuranceNEWS.com.au. “There are opportunities for the insurance industry in high-growth markets.”

Mr Walker says IAG’s recent commitment to spend $335 million in Asian acquisitions is just one option it could follow.

“We would prefer that the company returns the capital to shareholders and focuses on becoming more profitable and efficient in its core domestic markets,” he said. “We’d like to see buybacks and special dividends.

“That’s not a strong view, however. It is possible it will be successful and augment the company’s growth rate.”

An IAG spokesman told insuranceNEWS.com.au that India is a target market for the group, “and we would look to increase our stake in the joint venture should foreign direct investment caps be lifted”.

“In the interim, it is business as usual for us in Asia.”