LIC debt investment cap raised to 20%

No decision on raising equity cap

The Insurance Regulatory and Development Authority (Irda) has relaxed the debt investment norms for the Life Insurance Corporation of India (LIC).

The regulator has sent a written communication to the finance ministry to enable LIC to invest 20 per cent in debt, and an additional five per cent investment subject to approval from its board.

LIC has been given this special dispensation  financial services secretary Rajiv Takru told reporters on the sidelines of an insurance summit organised by the Confederation of Indian Industry.     

This exposure limit would vary from one sector to another, with higher exposure limits in sectors such as infrastructure and housing, said Irda chairman T S Vijayan.

He added that since LIC has a large quantity of assets, this provision would be applicable to it.

Irda has said in its recent investment regulations that companies with investments assets of Rs 2.5 lakh crore and more will have an debt investment limit of 15 per cent of paid up share capital, less reserves, and debentures / bonds. However, with the new circular, LIC will be able to invest up to 20-25 per cent in debt.








Industry experts said this would give a boost to corporate debt market. However, it is not clear whether this would be only applicable to exchange traded funds or all categories. A senior LIC official explained this move will give them more head-room to invest in good companies in sectors such as infrastructure.
 
The corporate debt market has seen a slump, after the Reserve Bank of India took some measures to tighten liquidity.

LIC had earlier approached the regulator to consider an increase in its debt investment limit. Former Irda chairman J Hari Narayan had said that it was willing to consider this proposal. He had also said that if the bonds are issued by the company is exchange traded, then LIC’s exposure limit can go up to 20 per cent.

Although the debt limit has been raised, the issue of raising the equity cap -- which now stands at 15 per cent -- has not been resolved. Irda officials said they have not yet taken a call on this subject.

Earlier, LIC Chairman S K Roy had told Business Standard that it was still engaging with Irda and was hopeful of reaching a resolution soon. “We don't want to be seen to be non-compliant and that is why we are engaging. We have made a representation and it is being actively considered. I believe the regulator will take a balance view on this,” he had said.

LIC invested Rs 2 lakh crore as a whole last year in segments such as government securities, bonds, infrastructure, debenture and equity. LIC Chairman SK Roy had said that they are planning to invest about Rs 2.25 lakh crore, out of which Rs 40,000 crore will be in equity.