Irda sticks to its guns on LIC

Increases equity exposure to 15% for all insurers; ministry wanted 30% for LIC

The tussle between the Insurance Regulatory and Development Authority (Irda) and the finance ministry took a new turn on Friday, with the regulator capping the equity exposure of all insurance companies, including the Life Insurance Corporation of India’s (LIC), at 15 per cent.

The finance ministry had wanted up to 30 per cent exposure limit for government-owned LIC. An Irda board meeting on Friday increased the equity cap for insurers from 10 to 12 per cent and 15 per cent, depending on the size of the controlled fund of the insurer. “This rule is applicable for all insurers. LIC will also be required to adhere to this cap, as they are under our jurisdiction,” said J Hari Narayan, chairman of Irda.

The Irda moves comes in the backdrop of the finance ministry’s insistence that the exposure limit for LIC be increased to 30 per cent. The move was primarily to aid the divestment process and possible dilution of the Specified Undertaking of UTI (SUUTI). The latter holds significant stake in companies like Larsen & Toubro, ITC and Axis Bank.

Last November, then financial services secretary D K Mittal had said LIC could invest up to 30 per cent in a company. Sushobhan Sarkar, managing director of LIC, had also confirmed that the position of LIC, as in the LIC Act, 1956, would be maintained. According to ministry officials, the provision of allowing LIC to invest 30 per cent already exists in the Act.

Officials have also said in the recent past that LIC’s exposure limit would be increased soon and they were expecting Irda to exempt LIC in the final investment regulations.

LIC has been lobbying for this relaxation as it has exhausted the limit for various blue-chip stocks.

LIC Chairman D K Mehrotra had said time and again that the 10 per cent cap restricted the insurer’s participation in the equity market and it had presented its case to the regulator.

In on Friday’s meeting, the Irda board also cleared other key regulations, including those in the area of health regulations, a standard proposal form for sale of life insurance products and a draft to strengthen the Indian Institute of Insurance Surveyors and Loss Assessors.

Besides Irda, senior officials with the Securities and Exchange Board of India (Sebi), had also expressed concern over an increase in the limit, as it would trigger an open offer.