Nearly two months after first rejecting it, the Foreign Investment Promotion Board (FIPB) today recommended for approval ICICI Bank’s proposal to sell 24 per cent sell in its newly-formed wholly-owned subsidiary ICICI Financial Services, the proposed holding company for its insurance and asset management ventures, to foreign investors.

“The proposal has been recommended for conditional clearance. ICICI will have to take clearance from the Reserve Bank of India to conform with the conditions and rules of the Banking Regulations Act,” said a government official.

The decision on ICICI Bank’s proposal, which now awaits the finance minister’s approval, is significant for other insurance companies looking to expand foreign equity participation to raise capital for business expansion.

Most insurance companies are awaiting the passage of the amended Insurance Act, 1938, which is expected to raise foreign equity limit to 49 per cent.

The ICICI proposal had been rejected by the board at its meeting on June 23 on the grounds that it did not comply with the 26 per cent foreign direct investment (FDI) cap in insurance ventures.

This contradicted the view of the finance ministry’s insurance division and the Insurance Regulatory and Development Authority that FDI in ICICI Bank’s proposed holding company would not violate norms.

ICICI Bank, in support of its stance, had written two letters — on June 14 and 27 — referring to the Warburg Pincus investment in Max Healthcare, approved by the FIPB in March 2005.