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Friday, November 23, 2012

LIC gets nod to buy 30 per cent in companies

The government has allowed India’s largest insurer Life Insurance Corporation (LIC) to invest up to 30% in a company as against the earlier limit of 10 per cent. "LIC can invest up to 30 per cent of a company’s paid-up capital. Earlier it could invest up to 10 per cent," said DK Mittal, financial services secretary in the finance ministry. The government will also announce a recapitalisation plan for banks and is considering of doing it through rights issue.

The new investment rules have not gone down well with the sector regulator Insurance Regulatory and Development Authority (IRDA), but LIC managing director S Sarkar played down the differences. "Even before IRDA regulations came, we had the flexibility of going up to 30 per cent but we never did. When new financial institutions were being set up, which were pioneers in the country like Stock Holding Corporation of India and National Stock Exchange, we always remained within the prudential limit," Sarkar said.

"We follow Irda regulations in letter and spirit except in case where we had separate dispensation for us and we have no desire to go far away from Irda". Another senior LIC official clarified that new norms will allow the insurer to invest up to 25 per cent in listed companies and up to 30 per cent in unlisted firms. "We will not reach or cross 25 per cent stake in listed firms as it may lead to the trigger as per Sebi norms," he said. In 2011, the Securities and Exchange Board of India had notified that an entity buying 25 per cent stake in a listed firm will have to mandatorily make an open offer to buy an additional 26 per cent shares from the public.

The relaxation is expected to help the government achieve its 30,000-crore divestment target, as the new norms will allow LIC to deploy its funds to buy stock of state-run firms. LIC aims to invest around 50,000 crore in equities this fiscal. On the issue of bank capitalisation, the financial services secretary said the government will soon prepare a plan that could include a rights issue option. "We will finalise recap for banks soon," Mittal said, adding that if government opts for rights issue for banks, it will be done for all banks.

SBI has said it would prefer capitalisation through a rights issue. The government aims to infuse around 15,888 crore this fiscal in state-run banks wherein it has committed to maintain at least 58 per cent holding. The top three banks requiring capital are IOB, CBI and the Bank of Maharashtra. At an Assocham function on Wednesday, Indian Overseas Bank CMD M Narendra said that they have asked for 1,500 crore from government. 

source: ET
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