The Insurance Regulatory and Development Authority (IRDA) is considering relaxing the 10% ceiling on equity investment by insurers in a company.
This move will not only attract long-term investments into the equity markets but it will also give greater investment flexibility to Life Insurance Corporation of India—India’s largest institutional investor.
In 2008, the insurance regulator amended investment norm that prohibit an insurer from having more than 10% stake in a company. In April 2012, LIC had come under the scanner of IRDA for exceeding investment limit in 78 companies—of which only 27 were listed. Some companies where LIC has exposure in excess of 10% include L&T, ITC, JSW Steel, MTNL and Wockhardt. IRDA had said it would not force LIC to reduce its stake immediately nor would it set a time frame for the exercise.
Government had sought a special dispensation for LIC since Life Insurance Corporation Act of 1956, allows LIC to acquire up to 30% equity in companies after government approval. Government also said that LIC which has huge investable corpus, the limit should be relaxed.
Pankaaj Maalde, head-financial planning, ApnaPaisa, said, “At present LIC is holding more than 10% in many companies and the relaxation is coming to solve the same. It's true that LIC is a major player in life insurance business and can invest Rs. 500 billion every year. Relaxation should only be restricted to LIC and not to all insurers because investing more than 10% in one company increases risk in the portfolio.”
Mr Maalde further said, “It is also important that LIC's fund is managed professionally. We all know why LIC bought ONGC shares a few months back in disinvestment process of government of India. We also know that bonus rates of LIC are coming down year-on-year. Its performance has to be reviewed in the interest of millions of policy holders, and IRDA should ensure that relaxation in norms lead to better performance of the LIC fund and not mere result in solution of one problem.”
In FY13, LIC is planning to invest 15% of its corpus or around Rs. 45,000 crore in equities. In FY’12 LIC had invested about Rs. 49,960 crore in equities.
