Government reviews FDI policy to allow 20% FDI in LIC

The government has reviewed the FDI policy to permit up to 20% foreign direct investment through the automatic route in Life Insurance Corporation of India (LIC).

A press note from the Department for Promotion of Industry and Internal Trade (DPIIT) which is under the Ministry of Commerce and Industry, Government of India (GOI), said FDI in LIC has been capped at 20%.

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This amendment to the FDI Policy was done last month after the approval from the Cabinet, and it comes ahead of LIC’s mega public offer. The Narendra Modi government is planning to dilute its stake in LIC through the Initial Public Offering (IPO). LIC in February had filed the Draft Red Herring Prospectus (DRHP) before the markets regulator Sebi for the IPO.

In March, Sebi gave approval to the draft papers and the insurer is in the process of filing a request for proposal with changes.

In the press note, DPIIT said, “The Government of India has reviewed the extant FDI policy for permitting foreign investment in Life Insurance Corporation of India (LIC) and other modifications for consistency and further clarity of the existing FDI Policy.”

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“Accordingly amendments have been made under the Consolidated FDI Policy Circular of 2020, as amended from time to time (FDI Policy),” it added.

Further, it stated, “A new Para 5.2.22.1A is inserted under Para 5.2.22.1 of the FDI Policy.” Under this, equity/FDI cap in LIC is 20%, and “entry route” is automatic.

Foreign investment in LIC shall be subject to compliance with the provisions of the Life Insurance Corporation Act, 1956, as amended from time to time (LIC Act) and such provisions of the Insurance Act, 1938, as amended from time to time, as are applicable to LIC as per the provisions of Section 43 of the LIC Act, the press release said.

Sebi has approved the draft prospectus for sale of a 5% stake by the government for an estimated ₹63,000 crore.

According to the draft paper, LIC’s embedded value, a measure of the consolidated shareholders’ value in an insurance company, has been pegged at about ₹5.4 lakh crore as of September 30, 2021 by international actuarial firm Milliman Advisors.

Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would be about three times the embedded value or around ₹16 lakh crore.

The LIC public issue is expected to be the biggest IPO in the history of the Indian stock market. Once listed, LIC’s market valuation will be comparable to top companies like RIL and TCS.

(With inputs from PTI)