IRDA, government on collision course on LIC investment ceiling
22 Nov 2012
The government's move to allow state-owned Life Insurance Corporation of India (LIC) to invest up to 30 per cent in the paid-up capital of a company (See: Burden on LIC as govt tries to meet Rs30,000-crore divestment target) will bring it on a collision course with the Insurance Regulatory and Development Authority (IRDA).
The IRDA insists that insurance companies should not have more than 10-per cent stake in a listed company as per the rules. However, while the Irda Act of 1999, which specifies the rules for other insurers including the one relating to the 10 per cent ceiling on investments, the government can make exemptions in the case of LIC under the Insurance Act of 1938.
IRDA chief J. Hari Narayan had earlier criticised the government's move to exempt LIC from the 10-per cent rule. ''It is against the IRDA Act and against any prudence,'' Narayan had remarked. ''The finance ministry has said it has taken opinion from the law ministry, but we have asked them to take a second look. They have to understand the gravity of the issue and the potential danger.''
LIC has a stake of more than 10 per cent in several leading companies including Tata Steel, Larsen & Toubro, Axis Bank and Punjab National Bank.
D K Mehrotra, chairman, LIC, had recently expressed opposition to the 10-per cent cap on its investments.
''Presently there is a lack of headroom in good investable companies due to the existing cap,'' said Mehrotra. ''We have spoken to the regulator in this matter and we would be happy if the cap is increased to even 15 per cent or 20 per cent.''
