The Insurance Regulatory & Development Authority (Irda) has allowed Life Insurance Corporation of India (LIC), the country’s largest institutional investor, to hold more than the mandated 10 per cent stake in at least 47 companies.
The relief – termed temporary by the regulator – came six months after Irda decided to cap a life insurer’s holding in a company at 10 per cent of the paid-up capital.
“In a downturn, policyholders will be at a loss if LIC sells its stake as 95 per cent of the money in equity belongs to policyholders,” a senior Irda official told Business Standard over the phone.
While LIC would not have to pare its holdings immediately in the companies where it holds over 10 per cent, the special dispensation came with the rider that in companies where it held less than the prescribed ceiling, it would not be allowed to breach the cap.
| TOP PICKS Companies where LIC holds over 10% | ||
| Company | Stake (%) | Value (Rs cr) |
| ITC | 13.98 | 9,505.83 |
| L&T | 17.38 | 6,332.50 |
| Maruti Suzuki | 14.64 | 2,679.67 |
| Cipla | 13.49 | 1,980.80 |
| Tata Power | 11.44 | 1,868.30 |
| ACC | 17.48 | 1,817.14 |
| HPCL | 16.03 | 1,609.06 |
| Grasim | 12.75 | 1,570.79 |
| Reliance Infra | 12.99 | 1,453.96 |
| Tata Steel | 11.56 | 1,418.92 |
| Shareholding at the end of Dec, 2008 Value based on closing price on Feb 20, 2009 Source: BSE | ||
Also, LIC would not be permitted to further increase its shareholding in companies where it held over 10 per cent, the Irda official said.
The position was communicated to the public sector insurance company recently. LIC had sought a relaxation on the grounds that sale of its holdings would result in a fall in the market value of the stocks in its portfolio.
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According to data from the Bombay Stock Exchange, LIC’s equity holdings in 395 companies were valued at Rs 1,09,507 crore, based on Friday’s closing price.
At the end of December 2008, there were 47 companies in which the life insurer held over 10 per cent stake. LIC held over 26 per cent stake in Corporation Bank, for which it had received a regulatory forbearance a few years ago. In two companies – TCM and Gloster Jute—it held over 23 per cent.
It held over 9 per cent stake in 13 companies, including BPCL (9.88 per cent), Tata Communications (9.21 per cent), Aditya Birla Nuvo (9.35 per cent), Bharat Forge (9.40 per cent) and Gujarat Alkalies (9.76 per cent).
The ruling would provide the insurer — which was looking to invest another Rs 14,000 crore in equities during the fourth quarter — an opportunity to raise its stake only by a small proportion.
Also, LIC, like other life insurers, was allowed to increase its shareholding in infrastructure companies from 10 per cent to 20 per cent. This will help companies to diversify their portfolio, the Irda official said.