Govt amends FEMA rules to allow 20% FDI in LIC; IPO Launch Soon

A notification has been published to update the regulations of the Foreign Exchange Management Act ahead of the Life Insurance Corporation of India’s (LIC) Initial Public Offering (IPO) (FEMA). The Department for Promotion of Industry and Internal Trade (DPIIT) made these changes on March 14 after receiving cabinet approval. The DPIIT provisions required FEMA notification in order to be implemented.

Now up to 20% FDI can be done in LIC. The maximum limit of FDI has been kept at 20% because under the existing rules, the maximum limit for foreign investment in public sector banks is also 20%. The government is planning to reduce its stake in LIC through IPO. LIC had in February filed a draft red herring prospectus (DRHP) with market regulator SEBI for the IPO. Now RHP can be filed soon.

Government has time till May 12

The notification of amendments to the FEMA rules shows that the long pending IPO of LIC may come soon. The government has time till May 12 to launch an IPO without filing fresh papers with the Securities Exchange Board of India (SEBI) for approval. If the IPO is not launched by May 12, then the government will have to file DHRP again.

Government may sell 5% stake

The government’s plan was to launch the IPO by March 2022, but due to the Russia-Ukraine war, the market sentiments turned negative and the government went into wait and watch mode. Now when the market has improved again and the sentiments are positive, the government has again started preparing to bring the IPO. The government can raise Rs 65,000 crore by selling about 31.6 crore or 5% shares in LIC.

Biggest LIC IPO

LIC’s issue will be the biggest IPO ever in the Indian stock market. After listing, the market valuation of LIC will be at par with top companies like RIL and TCS. Prior to this, Paytm’s issue was the biggest and the company had raised Rs 18,300 crore from IPO last year.