Government Approves 20% FDI in LIC Ahead of its IPO

An amendment has been authorized to allow foreign direct investment (FDI) in the Life Insurance Corporation of India (LIC), with the existing policy substantially simplified, as part of the government’s attempts to make India an attractive investment destination. According to government sources, FDI up to 20% is now permitted in LIC through the automated approach.

Other modest changes to the existing FDI Policy have also been implemented in order to create an updated, consistent, and simply understandable FDI framework. The FDI policy change will improve the country’s ‘ease of doing business,’ resulting in bigger FDI inflows and, as a result, contributing to the increase of investment, income, and employment.

According to Section 5.2.22 of the FDI Policy, “insurance” is an authorized sector. The FDI Policy, however, currently lists only “Insurance Companies” and “Intermediaries or Insurance Intermediaries” under the “Insurance” industry. Because LIC is a statutory corporation, it is not covered by “Insurance Company” or “Intermediaries or Insurance Intermediaries.”

Furthermore, no limit is set for foreign investment in LIC under the LIC Act of 1956, the Insurance Act of 1938, the Insurance Regulatory and Development Authority Act of 1999, or the rules promulgated under the relevant Acts.

As the current FDI policy caps foreign participation in public sector banks at 20% through government clearance, it has been decided to enable foreign investment up to that level for LIC and other corporate organizations, according to sources. Furthermore, such FDI has been kept on the automatic path, as it is in the rest of the insurance sector, to speed up the capital raising process.

According to the sources, the FDI reform would permit foreign investment in LICs and other corporate bodies for which the government may have a disinvestment need. It will make conducting business easier and lead to more FDI inflows while also ensuring alignment with the overall intent/objective of the FDI Policy.

The government decision comes amid rising concerns among some investors that the cabinet may delay the LIC’s public listing because to increased market volatility following Russia’s invasion of Ukraine.

However, government officials have stated that there is no plan to postpone the insurance company’s listing, which is important for efforts to collect funds for scheduled spending.

According to the IPO filing, the firm will also reserve a set percentage of shares for policyholders, not surpassing 10% of the offer size, while the part designated for workers will not exceed 5% of post-offer equity share capital. As of the end of March 2021, LIC employs 114,498 individuals.

LIC, which was established six decades ago under the LIC Act, 1956, when India’s insurance market was nationalized, dominates the country’s business, with more than 280 million policies and more than 60% of the insurance segment.

LIC, which was established six decades ago under the LIC Act, 1956, when India’s insurance market was nationalized, dominates the country’s business, with more than 280 million policies and more than 60% of the insurance segment.