LIC's equity cap wait may get longer

With raps from IMF and other global obervers on not being strict enough with the state behemoth, Irda said to be in no hurry

Life Insurance Corporation (LIC) of India might be required to wait more before the Insurance Regulatory and Development Authority (Irda) allows it to invest up to 30 per cent in a company’s equity.

With global financial agencies raising concerns over Irda’s “incomplete oversight” of the state-owned giant, sector experts said the cap might not be raised soon.

Irda had recently increased the equity investment cap for insurance companies from 10 per cent to 12 per cent and 15 per cent, depending on the size of the controlled fund. LIC is allowed to invest 15 per cent.

Since the 10 per cent cap took effect in 2008, LIC had been lobbying for this relaxation, as it had exhausted the limit in various blue-chip stocks. It had sought an increase to have more headroom while transacting in good scrips. However, former Irda chairman J Hari Narayan had said LIC would have to adhere to the existing limits for other insurers.

“Though the finance ministry officials might have given an informal nod to LIC to go up to 30 per cent in equity investment, it is unlikely Irda will notify this immediately. If they do, the regulator is likely to face criticism from international bodies for preferential treatment,” said a senior insurance consultant.

The International Monetary Fund (IMF), in one of its detailed assessment reports on India’s adherence to core insurance principles, had said the current uncertainty regarding Irda’s control of its funding and budget, its incomplete oversight of LIC and the reserve powers of the central government to direct its activities all potentially detract from the supervisor’s powers and independence.

Responding to these concerns, Irda had said regulatory oversight on LIC was comprehensive, to the extent that it requires monitoring both the prudential and market conduct operations. “Though the LIC Act excludes the applicability of certain provisions of the Insurance Act, 1938, nevertheless, there is no dilution on the regulatory oversight on LIC,” it said.

In an interview to Business Standard, LIC Chairman S K Roy had said they were hopeful of getting a solution for raising the equity exposure cap in a single company. “We are still engaging with the regulator and we are hopeful we will get a solution to this sooner than later. 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,” he had said.

However, some relaxations have been made by Irda for LIC in debt investments. The regulator recently sent a written communication to the finance ministry to enable LIC to put up to 25 per cent in debt investment (20 per cent, plus an additional five per cent, subject to approval from its board). But, Irda has not taken a decision on the 30 per cent equity cap, officials told Business Standard.

LIC is planning to invest Rs 2.25 lakh crore in this financial year, of which Rs 40,000 crore will be in equity.

It had invested Rs 2 lakh crore as a whole in 2012-13 in segments such as government securities, bonds, infrastructure, debentures and equity.