LIC investment cap raised to save PSU selloffs
In a last-ditch attempt to mop up resources through disinvestment, the finance ministry has upped the limit for the state-run Life Insurance Corporation (LIC) to buy equity stakes in companies up to 30%. Financial services secretary DK Mittal said on Wednesday a notification was being issued to allow LIC to hold up to 30% in listed/unlisted companies against the current cap of 10%.
With the norms being eased, the cash-rich insurer can now pick up large chunks of PSU shares expected to be put on offer in the coming months. While it has been targeting R30,000 crore from disinvestments in 2011-12, the government has mopped up virtually nothing so far.
Having received a tepid response to the auction for 2G spectrum — which fetched it just R9,400 core against an expected Rs 30,000 crore — and with the growth in tax revenues sluggish in a slowing economy, the government appears to be pulling out all stops in a bid to rein in the ballooning budget deficit.
The insurance regulator has strongly opposed the ministry’s idea, saying it would not be prudent and pointing out that large exposures to individual companies could pose risks to LIC. The Insurance Regulatory and Development Authority (Irda) has also been concerned over any likely negative impact on LIC's financials from its heavy annuity payouts.
For some time now, LIC has been buying stakes in several public sector banks including Bank of India, Punjab National Bank and Dena Bank. LIC also bailed out the government in February 2010 by subscribing
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