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Against the backdrop of its disinvestment plan, the government will soon come out with a notification allowing LIC to invest up to 30 per cent of its funds in listed as well as non-listed companies.
It is in the process and the notification will be issued soon, a finance ministry official said here.
It is already given in the LIC Act 1959 that the LIC can invest up to 30 per cent of its total fund in a single entity, the official said.
However, the Insurance Act stipulates that an insurance company can invest only 10 per cent of the fund or have 10 per cent of a company’s stake, whichever is lower, in an entity.
The Law Ministry, meanwhile, has already clarified that LIC Act 1959 supersedes Insurance Act 1999.
The draft notification about the investment ceiling was issued a couple of months ago.
The government has proposed to raise about Rs 30,000 crore from disinvestment during the current fiscal. Last month, the government successfully divested 10 per cent stake in iron ore major NMDC raising about Rs 6,000 crore.
So far, the government has realised Rs 6,900 crore from disinvestment in various companies.
In any case, LIC won’t be able to pick up more than 25 per cent stake in a company, as SEBI’s prescribed ‘take over code’ kicks in at that level, making it mandatory for the acquirer to make open offer for another 26 per cent stake.
As of today, LIC has stake over 10 per cent in many companies including L&T and Corporation Bank.
Once the final notification is issued, it will enable the cash rich LIC, which invests around Rs 50,000-60,000 crore in equities annually, to pick up larger amounts of equity in state owned companies during the disinvestment process.
Insurance regulator IRDA, however, has expressed reservation over raising the investment ceiling for LIC beyond 10 per cent. It wants LIC to stick to the norms applicable for the private insurers.
On capital infusion in public sector banks, the official said the Cabinet will soon consider Rs 12,000 crore recapitalisation proposal of the finance ministry.
The ministry has approved investment of Rs 12,000 crore in 12 public sector banks including State Bank of India, Central Bank of India and United Bank of India.
Besides, the ministry will also seek Cabinet approval for fund infusion in the public sector banks till March 2018.
The finance ministry has made assessment of the capital need of public sector banks for meeting Basel III norms to be complied in a phased manner, ending in March 2018.
As per the existing norms, capital infusion beyond Rs 300 crore in company requires Cabinet approval.
In order to strengthen risk management mechanism, the Reserve Bank issued guideline for Basel III last year.
The implementation of the capital adequacy guidelines based on the Basel III capital regulations was to begin from January 1, 2013. However, the RBI recently deferred it by another three months.
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