By raising interest rates, the RBI causes banks to raise rates and thus lowers demand; firms do not borrow as much to invest when rates are higher and individuals stop buying durable goods against credit and, instead, turn to save.
Over the long run, there is a need for locally-incorporated insurance firms to achieve greater scale economies if they are going to be able to compete on level terms with their international competitors. Firms will only be able to achieve economies of scale if they become larger. Inevitably, this means that there will need to be some industry consolidation.