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Irda set to raise LIC's equity cap to 20% in single firm

Niladri Bhattacharya & M Saraswathy / Mumbai 06 Aug 12 | 12:38 AM

The Insurance Regulatory and Development Authority (Irda) is set to allow equity exposure of Life Insurance Corporation (LIC) in a single company to be increased to 20 per cent, from 10 per cent now.

At present, the country’s largest domestic institutional investor 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.

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However, there is a caveat: the life insurer will have to bring down its stake to 20 per cent in companies where it holds more than 20 per cent and prune illiquid stocks and unlisted investments, which constitute around Rs 5,000 crore, or two per cent of its total equity investment corpus.

(As on June 30)
Close to or above 20%

% of holding

IL&FS* 25.0
UTI AMC* 20.0
Corporation Bank 25.5
MTNL 18.8
Larsen & Toubro 18.0
Above 10% but far below 20%
Tata Steel 15.0
Punjab National Bank 14.2
SCI 14.1
Tech Mahindra 14.1
Voltas 13.9
M & M 13.6
Bank of India 13.5
Tata Power Co 13.2
Union Bank of India 12.4
ITC 12.0
Tata Global 11.8
UCO Bank 11.6
State Bank of India 11.1
*Unlisted companies
Source: Capitaline, Compiled by BS Research Bureau

The move assumes importance, as it would allow LIC to invest in a host of corporate biggies like Tata Steel, ITC, L&T and State Bank of India among others, where it already holds more than 10 per cent stake, as it has been unable to raise holding due to the existing cap. Besides, in the backdrop of the pending disinvestment target of the government, the finance ministry is also trying to push the issue at the earliest.

Since the 10 per cent cap came into force in 2008, LIC has been lobbying for this relaxation, as it has exhausted the limit in various blue-chip stocks. Though Irda has not asked LIC to pare its existing holding in companies, where it holds more than 10 per cent, the insurer was asked to follow the 10 per cent cap for fresh investments.

“We are actively considering the issue. We understand that the 10 per cent cap is limiting LIC investment in good companies. Whether it is 20 per cent or more, is not yet decided," said a senior Irda official.

LIC’s total investment corpus stood at around Rs 13 lakh crore as on March 31, of which 20 per cent, or Rs 2.6 lakh crore, is in equity. During 2011-12, LIC invested Rs 1.95 lakh crore, of which Rs 40,000 crore was invested in equities. In the current financial year, the insurer has plans to invest a similar amount in equities.

According to sources at LIC, the equity investment portfolio of the insurer includes investments in about 400 unlisted firms and the book value of such firms is estimated at Rs 1,500 crore.

Both the ministry and Irda are of the opinion that LIC’s exposure to unlisted and illiquid stocks is at more than “desirable" limits and it will have to be brought down to “comfortable" levels, which could not be more than Rs 1,000 crore, sources added.

LIC has already initiated the process and during 2011-12 it knocked off its stake in more than 60 illiquid stocks and exited certain unlisted investments as well. The move also augurs well for the government, which is targeting Rs 30,000 crore from stake sales in public sector undertakings in 2012-13. In the last financial year, the government missed the target of Rs 40,000 crore and was able to raise only Rs 14,000 crore.

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