In what could be seen as an effort to meet the disinvestment target of Rs 30,000 crore this fiscal, the Finance Ministry has relaxed the investment norm for Life Insurance Corporation of India.
Financial Services Secretary D. K. Mittal said on Wednesday, “LIC now can invest up to 30 per cent of a company’s paid-up capital.” Earlier, this limit was 10 per cent. The notification relaxing the investment norms has been issued, he added.
The move is significant as it comes at a time when the Government is working hard to sell some of its stake in various companies. At the same time, LIC plans to invest up to Rs 50,000 crore in equity during the current fiscal. So, if other investors do not show much enthusiasm in the offering of PSUs, LIC can step in for a bail out, a market analyst said.
Last March, the insurer had bailed out ONGC’s offer-for-sale by pumping in about Rs 11,400 crore, thereby increasing its stake in the upstream oil major from 4.4 per cent to 9.48 per cent. A host of public sector banks also made preferential allotments to the insurance behemoth last year. Instead of the government, which is facing a huge fiscal deficit, it was LIC that injected capital into the banks. However, all these stocks are quoting well below the price at which LIC picked them up last fiscal (
Reacting to the Finance Ministry’s move, a senior LIC official said, “We are awaiting details from the Finance Ministry. It is just a matter of few days.” Market experts say LIC usually invests in the BSE top 100 stocks. According to them, the 10 per cent cap has been breached in a number of cases.
IRDA for 10% limit
Interestingly, insurance regulator IRDA was against LIC picking up more than 10 per cent equity in a company. It wanted LIC to stick to the norms applicable to private insurers. However, the investment norms for LIC are mandated by the Finance Ministry. The Ministry also clarified that there is no change in the investment norms of other government-owned companies. However, there is fear that more and more investments in equity out of the total surplus fund will affect the returns. If that happens, then the policyholders may have to contend with lower-than-expected returns.