Govt may relax LIC's equity exposure cap

Govt may relax LIC's equity exposure cap

Source: Business Standard

The government is set to relax the equity exposure norms for Life Insurance Corporation (LIC), the largest institutional investor in the country, albeit with some riders. A finance ministry official said LIC would be allowed to increase its exposure to more than 10 per cent in corporate entities.At present, LIC can invest up to 10 per cent of capital employed by the investee company, or 10 per cent of the fund size in a corporate entity, whichever is lower. The capital employed includes share capital, free reserves and debentures or bonds.

The caveat, however, is the insurance behemoth would have to prune its book in illiquid stocks and unlisted investments, which constitute around Rs 5,000 crore, or two per cent of its total equity investment corpus.

LIC’s total investment corpus stood at nearly Rs 11 lakh crore as on March 31, 2011, of which 20 per cent, or Rs 2.2 lakh crore, was in equity. During 2010-11, LIC invested Rs 1.96 lakh crore, of which Rs 43,000 crore was invested in equities. In the current financial year, the insurer has plans to invest a similar amount in equities.

To be sure, LIC currently has equity stakes more than 10 per cent in 37 listed companies. Three years ago, the insurance regulator, Irda, proposed bringing down LIC holdings to under 10 per cent in all listed companies. However, it did not follow up on the proposal, given the anaemic state of the markets at that time.

There are around 100 listed companies in which LIC currently holds five to 10 per cent stake. Irda (Insurance Regulatory and