Life Insurance Corporation of India (LIC), the largest institutional investor in the country, is not in a hurry to bring down its holdings in unlisted companies to align with the 10 per cent equity exposure cap mandated by the insurance regulator.
According to highly placed sources in LIC, the insurance behemoth has already made its stance clear with the government and the Insurance Regulatory Development Authority of India (Irda), citing the practical hindrances involved. The largest life insurer in the country has also requested the regulator to tweak some of the debt investment norms to allow more flexibility.
“There are practical challenges involved, even if we are to bring down the stakes in these unlisted companies. It cannot happen overnight. We are aware of the regulations, but we are not in a hurry,” said an official at LIC.
The insurer has exceeded investment limit in 57 unlisted firms. “We need to arrive at a valuation, then need to look for a suitor. Also, some have been hugely profitable investments. All these procedures are easy and take a lot of time. We have made our position clear to the government and regulator,” he added.
LIC can invest up to 10 per cent of capital employed by the investee company or 10 per cent of the fund size in a corporate entity, whichever is lower. The capital employed includes share capital, free reserves and debentures or bonds. LIC has asked Irda to allow more investments in AA-rated papers. Otherwise it might impact yields.
According to the norms, insurers are required to invest 75 per cent of its debt investment in AAA-rated papers. “More than half of our debt instruments are in government securities, which are more secured than the AAA-rated papers. Now with 15-20 per cent investment in equities and another 10 per cent in policy loans, it leaves us with very small headroom. If we have to invest the remaining amount in AA-rated papers (to maintain 75 per cent cap) it means the return will be lower,” the official added.
The insurance behemoth has made a profit of Rs 15,000 crore from sale of equity investments in 2011-12, as against Rs 17,000 crore a year ago. LIC is planning an investment of around Rs 2.25 lakh crore in 2012-13, of this Rs 60,000 crore is expected to be in equities. In 2011-12, the insurer invested around Rs 2 lakh crore in debt and equities put together. “Last year, around Rs 1.5 lakh crore was invested in debt and around Rs 50,000 crore in equity investments,” an LIC official said.
During 2010-11, investments of the insurance behemoth stood at Rs 1.96 lakh crore and the corporation made a profit of Rs 9,000 crore by selling equity investments. LIC collected Rs 81,514 crore by selling new policies in 2011-12, down 5.7 per cent compared with Rs 86,444.72 crore in the corresponding period last year.
