Govt Allows LIC’s investment cap in firms to 30%

The Finance Ministry has relaxed the investment norm for Life Insurance Corporation of India. LIC can now invest up to 30% of a company’s paid-up capital. Earlier it could invest up to 10%.

Objective:

• This can be seen as an effort to meet the disinvestment target of Rs 30,000 crore this fiscal.
• LIC on March, 1, 2012 had bailed out the government’s disinvestment process by picking up ONGC shares. Thus, the fresh norms will enable the cash-rich LIC, which invests around Rs 50,000-60,000 crore in equity yearly, to pick up higher equity in state-owned companies during the disinvestment process.
• The government aims to sell equity in various state-owned companies like Nalco, Hindustan Copper, SAIL, BHEL, MMTC and Oil India Limited (OIL).
• Govt also aims to sell its remainder equity in companies which were privatized earlier. 

Before the ONGC disinvestment, the government had collected a merely Rs 1,145 crore (mostly from the sale of shares in Power Finance Corp) against a target of Rs 40,000 crore. That has been increased by about Rs 12,600 crore via the sale of 5% of ONGC in an auction that scraped through thanks to a last-minute intervention by the LIC.

• The insurance regulator IRDA was against LIC picking up more than 10% equity in a company. It wanted LIC to stick to the norms applicable to private insurers.
• However, the investment norms for LIC are mandated by the Finance Ministry and NOT IRDA.
• There is however, no change in the investment norms of other government-owned companies.

Month: Current Affairs - November, 2012