After overseas banking units, the commerce ministry is proposing a similar dispensation for the insurance sector, with fiscal sops and 100 per cent foreign investment permitted in companies that set up shop in special economic zones.

Ministry officials said that the proposal was being sent to the finance ministry and the Insurance Regulatory and Development Authority.

According to the plan drawn up by the commerce ministry, insurance companies in SEZs will also be provided simpler dispensation on other fronts, including freedom in investments of premium.

"We are planning to provide flexibility on investment in instruments abroad and the capitalisation requirement could be lower," a commerce ministry official said.

At present, life and general insurance underwriters are required to commence business with at least Rs 100 crore (Rs 1 billion) paid-up capital, while Rs 200 crore (Rs 2 billion) equity has been prescribed for reinsurance companies.

Under the present rules issued by IRDA, insurers have to park a large portion of their funds in government securities and caps have been put in place for investments in corporate debt and equity.

Commerce ministry officials said the policy for insurance companies setting shop in SEZs would focus on the general insurance business.

He said under the present laws, companies buying insurance covers for goods outside India could opt for a foreign insurer.

They are, however, required to purchase a policy from an Indian company --private or public sector -- for all assets and liabilities in India under the Foreign Exchange Management Act.

In certain cases, however, exemptions are granted by the finance ministry.

The officials said the move would also help in saving on foreign exchange because companies operating in SEZs were proposed to offer covers to assets and liabilities outside India.

They added that nearly 10 licences had been issued by the RBI for setting up overseas banking units, which would be operational over the next three-four months.

State Bank of India, ICICI Bank, Bank of Baroda, Punjab National Bank and Oriental Bank of Commerce are planning to set up such units.

State Bank of India launched the country's first such bank last week.

Bankers said a majority of the business dealing with the existing SEZs would be transferred to overseas banking units in the coming days, while they waited for the establishment and operationalisation of the private sector zones.