The government's decision to allow 100% foreign direct investment (FDI) in the insurance sector is expected to attract significant global capital and help lower insurance premiums, according to Department of Financial Services (DFS) Secretary M Nagaraju.

Global Interest and Market Impact

Nagaraju told CNBC-TV18 that India is increasingly seen as a key investment destination by global insurers, with several international players expressing interest in raising their stake and expanding operations. The government aims to encourage leading global insurers, particularly from Europe and the US, to set up subsidiaries in India.

He described the proposed Insurance Amendment Bill as the biggest reform in the sector, designed to improve capital availability, strengthen competition, and enhance consumer outcomes. "With higher capital infusion, insurance premiums should not increase. Over time, we expect them to come down," Nagaraju said.

Regulatory Oversight and Commission Controls

The government is keen to empower the Insurance Regulatory and Development Authority of India (IRDAI), particularly in overseeing distribution costs and agent commissions. High commissions often push up premiums or strain insurers' capital ratios, ultimately affecting consumers.

"There have been complaints that some agent commissions are excessively high. This either leads to higher premiums or puts pressure on capital adequacy. In both cases, consumers suffer," he said, adding that IRDAI is expected to issue draft regulations on agent commissions.

Governance and Structural Reforms

The government has received multiple suggestions on insurance law reforms but believes more deliberation is needed before approving composite insurance licences or open architecture for individual agents. "We felt it was not the appropriate time to approve these measures," Nagaraju said.

Sector Performance and Outlook

All public sector insurance companies are performing well, and there are no current plans to consolidate them, Nagaraju said. He also highlighted that credit-deposit ratios are healthy in most public sector banks, and the government has no concerns regarding the deposit front.

Insurance density and penetration in India have been rising steadily, but global participation remains limited. The reforms are expected to deepen foreign investment, strengthen regulation, and improve consumer outcomes while maintaining sector stability.

Indian government bonds declined Wednesday, the final trading session of 2024, as quarter-end positioning and the Reserve Bank of India's selective bond purchase strategy weighed on market sentiment. The benchmark 10-year yield rose to 6.5849% as of 10:50 a.m. IST, up from Tuesday's close of 6.5786%, with bond yields rising as prices fell.

Quarter-End Positioning Dampens Demand

Market sentiment turned cautious on the year's last trading day, contrasting with earlier expectations of gains. Quarter-end positioning by institutional investors has reduced buying interest, while traders await clarity on key policy developments that could impact future bond performance.

"OMO support hasn't stopped the selling because the market's risk appetite is still weak," noted a trader at a private bank. "Selling may persist until there's clarity on a U.S. trade deal and Bloomberg index inclusion for FAR (fully accessible route) bonds, which could revive foreign inflows."

RBI's Selective Bond Purchase Strategy

The Reserve Bank of India's decision to focus on short-term notes rather than the former benchmark 10-year securities in its open market operations has tempered market optimism. The central bank is scheduled to purchase bonds worth up to ₹50,000 crore on Monday, with the specific securities announced Tuesday.

Traders had hoped the RBI would include the 6.33% paper maturing in 2035, which would have helped bondholders reduce positions. The central bank's selective approach has reduced the expected support for longer-duration securities.

Policy Uncertainty Weighs on Sentiment

Despite ongoing negotiations, New Delhi has been unable to finalize trade agreements with the United States or European Union this year, as initially planned. This uncertainty, combined with questions about Bloomberg index inclusion for fully accessible route bonds, continues to impact foreign investor sentiment.

Interest Rate Environment Remains Stable

India's overnight index swap rates showed stability as traders sought directional cues amid the mixed market signals. The rate structure reflects cautious positioning ahead of the year-end close.

Record State Borrowing Calendar Expected

Market participants are closely watching for the announcement of the state government's January-March borrowing calendar, expected by week-end. The quarterly issuance is anticipated to reach a record ₹500,000 crore, which could influence near-term yield movements as markets transition into 2025.

The combination of quarter-end positioning, selective central bank support, and policy uncertainties has created headwinds for government bonds as 2024 trading concludes, marking a shift from earlier optimistic expectations.