The Centre is of the opinion that Life Insurance Corporation's (LIC) move to hike its stake in Corporation Bank from 12.32 per cent to 26.93 per cent should be cleared by the Insurance Regulatory and Development Authority (Irda).
This follows law ministry's comments which said that provisions in the LIC Act, 1956 were overriding Insurance Act, 1938. Finance ministry officials told Business Standard that the law ministry is of the opinion that section 30 A of the LIC Act permits a special dispensation for the life insurer.
On its part, Irda has said that LIC's proposal is against the investment norms laid down by the regulator which prohibits exposure of over 20 per cent in a company.
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As per the LIC Act, the state-owned life insurer can invest up to 30 per cent in a single company, but Irda investment regulations stipulate a maximum 20 per cent exposure.
Law ministry's opinion had been sought following the insurance regulator's decision to extend the stipulated Rs 100 crore minimum equity requirement to LIC which has a paid-up capital of only Rs 5 crore.
Speaking on the sidelines of an insurance seminar organised by Ficci, Irda chairman N Rangachary said that LIC is yet to come back to the regulator after objections were raised. He said a decision on permitting LIC to hike its stake will be taken only after the insurer comes back to Irda.
The issue has been pending since June this year when LIC signed a memorandum of understanding with Corporation Bank to hike its stake. The proposal of selling 2.4 crore shares to LIC through preferential allotment at Rs 196 a share amounting to Rs 470.40 crore was approved by the bank's board and shareholders. The government has also given its green signal to the move which would see a dilution of its stake in the bank to 56.94 per cent from 68.33 per cent post allotment.