In a last-ditch attempt to mop up resources through disinvestment, the finance ministry has upped the limit for the state-run Life Insurance Corporation (LIC) to buy equity stakes in companies up to 30 per cent. Financial services secretary DK Mittal said on Wednesday a notification was being issued to allow LIC to hold up to 30 per cent in listed/unlisted companies against the current cap of 10 per cent.
With the norms being eased, the cash-rich insurer can now pick up large chunks of PSU shares expected to be put on offer in the coming months. While it has been targeting Rs 30,000 crore from disinvestments in 2011-12, the government has mopped up virtually nothing so far.
The insurance regulator has strongly opposed the ministrys idea, saying it would not be prudent and pointing out that large exposures to individual companies could pose risks to LIC. The Insurance Regulatory and Development Authority (Irda) has also been concerned over any likely negative impact on LICs financials from its heavy annuity payouts.
As per the Irda Act, 1999, insurance companies can hold only up to 10 per cent stake in a company. The government can go ahead with its plan to raise the upper limit for LIC investment in companies as Section 18 of Irda Act 1999 states that in matters of policy, its views would prevail over the regulators. The relevant notification is being issued under Section 43(2) of the Insurance Act of 1938. FE