LIC may get to invest more in corporate debt

HYDERABAD/MUMBAI: IRDA, the insurance regulator, is set to give the Life Insurance Corporation (LIC) more leeway to invest in debt instruments of a single company. The proposed move would help state-owned companies access funds from the LIC, which has surpluses to invest even in these turbulent times.

India���s largest insurer, however, is hamstrung as the current insurance regulations allow life insurers to invest only up to 10% of the capital employed by the investee company. The capital employed includes the company���s subscribed share capital, free reserves and debentures or bonds, or 10% of the fund size, whichever is lower.

���We are examining a proposal to relax this cap to enable LIC deploy more funds in debt instruments, especially of public sector companies,��� Irda member C R Muralidharan said. The National Housing Bank, NTPC, Rural Electrification Corporation and the Power Trading Corporation feature in the list of corporate debt issuers.

The global credit crunch following the collapse of Lehman Brothers and the AIG has forced borrowers, including state-owned-companies, to turn to domestic lenders. Until last year, the LIC could invest 20% of the capital employed by the investee company. But this was halved to 10% when the regulator changed the investment norms for insurers two months ago.

One option is to revise the ceiling to 20% given that the LIC is the only institution in India with long-term funds. The corporation has made out a case to Irda, following a flood of investment proposals by state-owned companies.
���But, unlike the LIC, private life insurers do not have huge surpluses to subscribe to corporate debt issuances,��� said the chief financial officer of a private life insurance company. The LIC has reportedly invested huge funds in non-convertible debentures (NCDs) issued by private companies.

For many years, the LIC also enjoyed leeway on equity exposure in a single company. It dipped into policy holders��� funds, for instance, to pick up a 27% stake in Corporation Bank after a special permission from the government. Since LIC had invested beyond the prescribed limit in many companies, it held that it would not be able to comply with the new norms. J Hari Narayan, the Irda chairman, clarified the new norms would apply to the LIC���s future investments. ���The cap on exposure in equity of a single company would stay at 10% for all life insurers. A higher limit is being considered only for exposure in debt instruments of a single company,��� said Muralidharan.