LIC equity investment cap provision still not clear

The Fin Min is yet to clarify whether their limit is 15% or 30%

The provision given by the Union finance ministry for government-owned Life Insurance Corporation of India (LIC) to invest up to 30 per cent in a company is still a grey area, it appears.

A senior LIC official said it was still unclear if the equity investment cap applicable to them was 15 per cent or 30 per cent. The ministry is yet to notify the provision. In November 2012, former financial services secretary D K Mittal had said LIC could invest up to 30 per cent in a company. According to officials in the finance ministry and LIC, the latter is allowed to invest up to 30 per cent by the LIC Act, 1956. The law ministry, according to LIC sources, has said the Act’s provisions would hold in terms of an equity investment cap.

The Insurance Regulatory and Development Authority (Irda) had recently increased the equity cap for insurers from 10 per cent to 12 per cent and 15 per cent, depending on the size of the controlled fund of an insurer. The LIC official said the 15 per cent limit had given them some headroom to transact in good scrips. “Though the 30 per cent limit still remains a grey area, the Irda move to increase the cap to 15 per cent  will enable us to transact in those scrips and book profits,” the official said.

Since the 10 per cent cap on equity investment in a company by an insurer came into force in 2008, LIC had been lobbying for this relaxation, as it has exhausted the limit in various blue-chip stocks.

J Hari Narayan, chairman till recently of Irda, had earlier told Business Standard that LIC would be required to adhere to the maximum permissible equity investment limit. “This rule is applicable for all insurers. LIC will also be required to adhere to this cap, as they are under our jurisdiction,” he had said.

According to data compiled by the Business Standard Research Bureau, as on December 31, 2012, LIC had more than 15 per cent stake in, among others Larsen & Toubro (17.01 per cent), Mahanagar Telephone Nigam Limited (18.81 per cent) and Corporation Bank (25.49 per cent).