Cabinet may take up FDI proposal for LIC next week

The union Cabinet is expected to take up as soon as next week a proposal to allow foreign investment in Life Insurance Corporation, to help facilitate the initial public offering of the state-owned insurer. A senior government official told ET that the final proposal would be moved for Cabinet's consideration soon and that the approval is expected by mid-February.

India allows foreign direct investment (FDI) up to 74% in the insurance sector, but this does not apply to LIC, which is governed by the LIC Act. The government may now allow up to 20% foreign investment in the insurer that plans to list by the end of this fiscal year.

"We don't expect much delays (for getting the approval) because everyone is on board," the official said, adding that the aim is to ensure that there are no legal issues and the clearances for the IPO from both insurance and market regulators are fast tracked.


The changes have been agreed to by all stakeholders including the ministries of corporate affairs and finance, the official said. "Hopefully, the Cabinet approval would come by mid-February."

Industry secretary Anurag Jain had, earlier this month, said the government was making changes to the FDI policy to facilitate disinvestment of the country's largest insurer.

"So, we would be coming out with a revised FDI policy which will facilitate LIC disinvestment," he had said.

The LIC Act does not mention foreign investment. Also, only the central government is allowed to hold more than a 5% stake in the company.

The Cabinet had in July last year approved the initial public offering LIC and the stake sale is being planned in the ongoing quarter.

The official said minor issues such as the definition of shares-based employee benefit schemes, or ESOPs, have been aligned with the Companies Act to avoid any contradictions with other laws.

"Once the government makes the amendments, we will reach out to the insurance regulator, the Insurance Regulatory and Development Authority of India, seeking the requisite clearances," said a senior LIC official, adding that the firm will file the draft red herring prospectus (DRHP) only after getting the regulator's approval.

Tuhin Kanta Pandey, secretary at the Department of Investment and Public Asset Management, had earlier said that the government was hopeful that LIC's DRHP would be filed by early February and the issue would come within this fiscal year.