News for LIC's investment ceiling

LIC to soon have a new 30% investment ceiling

The Government of India with its investment plans all set to come out with a notification which will allow the Life Insurance Corporation of India to make an investment of up to 30 per cent of the fund it has in listed as well as non-listed companies.

According to the Life Insurance Corporation Act, 1959, the LIC can invest up to 30% of the total funds it has, in a single entity. Whereas, as per the Insurance Act allows the LIC to invest only 10 per cent of its fund or it can hold 10 per cent of a company’s stake, whichever is lower. The LIC Act of 1959 supersedes the Insurance Act of 1999 as was cleared by the Law Ministry.

The Government of India aims to raise a sum of around Rs. 30,000 crore from disinvestment, during this fiscal. In its attempt to disinvest, in the last month, the Government divested its 10% stake in NMDC, an iron ore major and raised a sum of Rs.6,000 crore which increased the total of income generated from disinvestment to Rs.6900 crore.

As of now, the LIC has a stake of over 10% in many companies like the Corporation Bank, L&T, etc. LIC will not get more then 25% stake in a company in which case, SEBI’s prescribed Take Over code acts and makes it mandatory for the acquirer to make an open offer of another 26% stake.

The LIC will be allowed to pick larger amounts of equity from state- owned companies during disinvestment process, after the final notification is issued by the government. The investment by the LIC on equities annually presently is limited to Rs. 50,000 to Rs. 60,000 crore. IRDA however would prefer to have LIC under the 10% investment ceiling as it wants LIC to stick to the norms applicable to the private insurers.

The Ministry of Finance has given an approval to invest Rs.12,000 crore in 12 public sector banks like the State Bank of India, Central Bank of India, United Bank of India, etc. The Ministry also wishes to get a nod from the Cabinet on fund infusion in the public sector till March, 2018 and the Ministry of Finance has assessed the capital need of the public sector banks for meeting the norms under Basel III, to be complied in a phased manner. According to the norms currently in existence, any capital infusion beyond Rs.300 crore in a company requires an approval from the Cabinet.

The RBI, last year issued Basel III guidelines to strengthen the risk management system. The implementation of the capital adequacy guidelines based on it have been deferred by three months.