LIC goes for proactive policy to cover its investment risks

Dec 31 2012, 01:28 IST
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SummaryWith the finance ministry hiking the investment limit for LIC in a company to 30% from the earlier 10% and following criticism that rules were relaxed to bail out the government's lacklustre disinvestment programme, the public sector insurance giant does not want to take any chances on its investment strategy.

With the finance ministry hiking the investment limit for LIC in a company to 30% from the earlier 10% and following criticism that rules were relaxed to bail out the government's lacklustre disinvestment programme, the public sector insurance giant does not want to take any chances on its investment strategy.

LIC, which is also the country's largest domestic institutional investor, has asked its officials on the boards of companies it has invested in to play a more proactive role as directors especially regarding corporate governance, highly-placed sources told FE.

The concern is that inactive directors could harm the interests of the insurer especially on board decisions that impacts the operation and profitability of target companies. The LIC, so far, has maintained a passive role on the boards of companies, treating its participation more like an investor than an active management partner. The finance ministry also wants LIC to use its investment in companies to improve its overall functioning. "The role of LIC needs to be changed and it should not just be an investor in the market but also one that helps to improve governance in companies," said a finance ministry official.

Last year, the PSU insurer formed a six-member high-level panel (including two of its executive directors, three directors and a government representative) to look into its investments in various companies where it has significant stake-holding. Besides the investment operations and monitoring departments, the company also has a department to assess risks and carry out research in pre and post investment stages. This followed a CBI probe into the role of its top officials in some alleged scams involving LIC officials and irregularities in LIC investments in 2008 and 2009.

Recently, there were reports that the insurer had sold off its holdings in highly-rated stocks such as Mahindra & Mahindra and Larsen & Toubro for a huge profit of R11,000 crore in a bid to channel the returns in the government's disinvestment plan. LIC had also put its money in the recent disinvestment of PSU companies such as Hindustan Copper and NMDC. However, LIC sources said its investment was always based on the potential to earn good returns.

Another incident that seems to have irked the LIC top brass was the competition watchdog CCI imposing a R55.5 crore penalty on the nation's premier stock exchange NSE on whose board LIC has a nominee member as a

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