LIC may not trim stake in legacy investments below 15% as no word has come from IRDAI
Life Insurance Corporation of India (LIC) will likely stay invested in legacy companies like Larsen & Toubro, Corporation Bank and ITC where their stake exceeds 15 percent.
Sources told Cogencis that the Insurance Regulatory and Development Authority of India (IRDAI) has asked LIC to reduce their stake to below 15 percent in some companies. However, LIC officials said that they have not received any communication from the regulator to this effect.
“Whatever investments were made have been made with the regulator’s approval. Only when IRDAI has permitted have the limits been exceeded," said a senior LIC official.
Apart from the fact that LIC has exceeded 15 percent stake in ITC, a public interest litigation (PIL) recently filed in the Bombay High Court has raised concerns about large government entities investing in tobacco companies. A senior LIC official said that all the concerned stakeholders including the government, Finance Ministry and IRDAI are well aware of their investment portfolio.
"They have not told us to reduce our stake. We are merely trustees here and only take a call based on the regulatory limits," he added.
The regulator allows insurers to hold only up to 15 percent stake in one company. Earlier this year, the government divested 2 percent of its stake held in ITC through the Specified Undertaking of the Unit Trust of India (SUUTI). LIC bought this 2 percent taking its overall shareholding to 16.32 percent.
There were some concerns about LIC breaching the maximum permissible limit of 15 percent. However, LIC officials clarified that this is not the new normal.
During the tenure of J Hari Narayan, the previous chief of IRDAI, there were some differences on the investment cap applicable for LIC. IRDAI had then clarified that investment caps apply to all insurers. The regulator has prescribed norms for equity investments in a company based on the size of the insurer. It ranges from 10-15 percent depending on the funds controlled by an insurer.
The LIC Act has said that it can invest up to 30 percent in a company. In most companies, the insurer has stuck to the 15 percent limit and it is only in a handful of cases that the stake has been increased on account of divestment or similar investment opportunities.
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