Centre Mulling Over Allowing Foreign Direct Investment In LIC

The Centre is mulling permitting foreign direct investment (FDI) in the country's largest insurer Life Insurance Corporation (LIC). The proposed move may allow a single overseas investor to buy a large stake in the state-run insurer, which has a massive market share of around 66 percent.

A source privy to the development told Bloomberg that though any strategic investment would be subject to a cap, it is unclear at what level that would be set. A 20 percent FDI restriction on state-run banks was mentioned at a meeting earlier this month, the source said.

Earlier in the year, India raised its FDI cap in insurance from 49 per cent to 74 per cent. However, this is not applicable to LIC, as is governed by a separate act of Parliament.

What Would This Mean?

Allowing FDI in LIC would allow so-called strategic investors such as massive pension funds or insurance firms to participate in the initial public offering, which is slated to be the country's largest ever. The Reserve Bank of India (RBI) defines FDI as purchase of a stake that's 10 per cent or larger by an individual or entity based abroad. The Finance Ministry is yet to respond to the report.

About 16 merchant bankers are in the race to manage the LIC IPO. Last month, the Cabinet Committee on Economic Affairs had cleared the initial public offering proposal of LIC. The ministerial panel known as the Alternative Mechanism on Strategic Disinvestment will now decide on the quantum of stake to be divested by the government.

Protest By LIC Staffers

Earlier in the year when the government decided to against the government's decision to raise the Foreign direct investment (FDI) limit in the insurance sector to 74 per cent and to bring an IPO of the LIC, LIC staffers staged a protest against it.

They contended that the Centre's move to disinvest the shares in LIC contradicted its goal of 'Atmanirbhar Bharat'.

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