The government has allowed the Life Insurance Corporation (LIC) to increase stake in public sector entities beyond the 10 per cent cap. The move will help the insurance behemoth to meet the investment target for the financial year and support the government’s efforts to fast-track disinvestment.

This has been a long-standing demand from the largest domestic institutional investor in the country. So far, LIC was allowed to pick up a maximum of 10 per cent stake in a company.

LIC has been seeking a relaxation to this norm, arguing that it is limiting its investment options as the insurance behemoth has already exhausted that limit in most blue-chip companies.

As part of this plan, first LIC will pick up five per cent stake in more than a dozen public sector banks, including Canara Bank, Allahabad Bank, Syndicate Bank and Andhra Bank through a preferential allotment of shares. Second, the insurance company will be allowed to acquire 5-10 per cent of the government’s stake in public sector units that will be put on the block before the financial year ends.

Funds would not be a problem for LIC, as it has enough headroom in equity investment this year. Given the choppy equity market and lower sales of unit-linked products, the insurance company had only invested around Rs 25,000 crore in equities during April-December of this year’s target of Rs 40,000 crore.

During 2010-11, the total investment of LIC stood at Rs 1.96 lakh crore, of which Rs 43,000 crore was invested in equities.

According to sources, LIC has already set aside Rs 1,800-2,000 crore for investing in these banks and another Rs 10,000 crore to participate in the disinvestment process.

“The process has already started. Dena Bank and Bank of Maharashtra have allotted shares to LIC on a preferential basis. After the completion of the deal, in both these banks LIC’s share will go up to 11 per cent,” said a source.

In 2010-11, the government raised Rs 22,763 crore by divesting stake in six companies — SJVN, Engineers India, Coal India, Power Grid, MOIL and Shipping Corporation of India. LIC had invested close to Rs 8,000 crore for buying shares in these companies.

“Whenever state-owned companies came up with issues, we had invested and picked up stakes as these are always a good strategic investment,” said an LIC official.

Source: Business Standard

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