Govt. okays 20% FDI in Life Insurance Corporation of India

Move will expand investor base for LIC IPO amid choppy markets.

The government on Saturday approved changes to India’s foreign direct investment (FDI) policy to allow global investors to participate in the initial public offering of Life Insurance Corporation of India (LIC) shares expected to be launched soon.

Foreign investors will now be able to invest up to 20% in LIC shares under the automatic approval route, government sources said. FDI into insurance ventures is already allowed up to 74% under the automatic approval rout, but the policy was silent on foreign equity investments into the country’s largest insurer LIC, a statutory corporation set up under an Act of Parliament.

“As per the present FDI policy, the FDI ceiling for public sector banks is 20% on government approval route, so it has been decided to allow foreign investment up to 20% for LIC and such other bodies corporate,” an official source said, adding that the approval has been made automatic for LIC investors in order to as to expedite the capital raising plan.

The amendments to the FDI policy come less than two weeks after the draft red herring prospectus (DRHP) for LIC’s share sale was filed with the stock market regulator. The government is offloading 5% of its stake in LIC, with upto 10% of these shares to be reserved for LIC’s policy holders and another 5% for employees.

The government is keen to close the listing process of LIC, which has an embedded value of ₹ 5.4 lakh crore, before the end of the financial year as receipts from the share sale are critical to meet the disinvestment target for the year, revised downwards from ₹ 1.75 lakh crore to ₹ 78,000 crore.

Although the markets have turned choppy since LIC’s DRHP was filed, Finance Minister Nirmala Sitharaman had earlier this week indicated that the government will be going ahead with the IPO.

“On whether the market condition is conducive for LIC (listing), if it’s good for LIC, it is good for everybody else. If there are headwinds for LIC, it is headwinds for the rest as well,” she had said on Tuesday, adding that the financial market volatility was triggered by overseas developments such as the Ukraine crisis.