Centre weighs three options to help LIC on solvency norm

The government is weighing three options to help Life Insurance Corporation of India (LIC) meet the Insurance Regulatory and development Authority's (Irda) prescribed solvency norms.

LIC has provided nearly Rs 16,000 crore to meet the solvency requirement, which was estimated at 112 per cent instead of the prescribed 150 per cent.

Financial sector secretary N S Sisodia told reporters on the sidelines of the bankers' conference 2004 that the government was considering allocating funds to LIC to increase the paid-up capital from the present Rs 5 crore.

The other option was to allow LIC, India's largest life insurer, to plough back profits to increase its reserves. the third option, Sisodia said, was to allow the insurer to float an initial public offer, while ensuring that it retained public sector character.

Consultants hired by LIC had also suggested that the company, governed by law, go public to raise capital. Sisodia said that Finance Minister P Chidambaram had recently discussed the matter with the LIC brass and had asked them to work on possible options.

Officials, however, said that the government will have to go to Parliament seeking amendments to the LIC Act to implement any of the three proposals.

"Given the political equations, it looks unlikely that the government can dilute its holding using the public offer route," a sources said.

LIC and Irda have been at loggerheads over the paid-up capital. The insurance regulator had prescribed a minimum equity of Rs 100 crore for all insurance underwriters. LIC had not complied with the norm saying that it was governed by a separate law and had the backing of a sovereign guarantee.

Similar arguments were also raised when the regulator raised the issue of meeting the solvency margin.

The LIC management had recently raised the issue saying that it needed to tap the market to raise funds for maintaining its growth momentum. LIC's business has grown by around 65 per cent during the last few years.