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.
