LIC seeks further relaxation on infrastructure investment

State-owned Life Insurance Corporation of India (LIC) has asked the Insurance Regulatory and Development Authority (Irda) to either bring down the infrastructure investment ceiling or allow it to invest in low rated infrastructure paper.

In a meeting held this week, LIC raised the issue on investment in infrastructure and asked the regulator to relook at investment norms.

Currently, insurance companies are allowed to invest 50 per cent in government approved securities, 15 per cent in infrastructure and rest 35 per cent in equity and other instruments from their traditional fund. Investment in lower rated paper would come under other approved securities.

According to present regulations, insurance companies can invest only in highest rated ‘AAA’ or ‘AA’ credit-rated debt paper. During the last financial year, LIC’s total investment in infrastructure was less than 15 per cent. Yesterday, J Hari Narayan had said the regulator is examining the proposal. A senior Irda official said any relaxation in terms of rating will hit the policyholders and is not on the cards.

Since LIC has the highest traditional portfolio, its investment under this fund is guided by investment norms, while most private players depend on unit-linked insurance plans (Ulips) where investments are not regulated.

The Deepak Parekh committee on infrastructure financing had suggested insurance companies be allowed to invest in secured debt with a BBB rating, usually considered investment grade.

The Planning Commission had suggested insurance companies put in Rs 25,000 crore over the next five years. India Infrastructure Finance Corporation Limited (IIFCL) and the Planning Commission had also recommended that insurance companies take part in takeout financing. In takeout financing, entities which have access to long-term funds (pension, insurance companies) buy out loans from lenders which essentially have short to medium term funds.

Through this arrangement, lenders who sell off loans will be able to manage the asset liability effectively, while the insurance and pension funds have long-term assets matching their profile of funds.

For the current financial year, LIC has targeted a total investment of Rs 2 lakh crore. Of the total corpus, the insurer has said Rs 1 lakh crore will go in government securities, Rs 60,000 will go in equities and the rest in corporate bond, infrastructure and others.

“Last year, we got some relaxation in infrastructure. We invest in companies from our different funds like Ulip. We would not increase our stake from one fund without the approval of the government or the regulator,” LIC managing director Thomas Mathew had said in an interview to Business Standard. In venture capital firms, insurance companies can only invest in infrastructure related venture funds. Last year, LIC had invested Rs 100 crore in venture funds.