FDI in LIC: The government has amended the rules of the Foreign Exchange Management Act (FEMA). With this, foreign direct investment (FDI) has opened up to 20 percent in the insurance sector giant Life Insurance Corporation (LIC). The government is planning to reduce its stake in LIC through an initial public offering (IPO).
Documents submitted in February
Let us tell you that LIC had submitted documents (DRHP) for the IPO with the Securities and Exchange Board of India (SEBI) in February. Last month, SEBI approved the draft documents and now the insurance company is in the process of filing a Request for Proposal (RFP) with changes.
FDI rules were amended on March 14
Following the approval of the Union Cabinet, the DPIIT on March 14 amended the Foreign Direct Investment (FDI) rules to bring in foreign investment in the company ahead of the ‘big’ public issue of LIC. The FEMA notification was necessary to implement the provisions of DPIIT with the change in FDI policy. A recently issued gazette notification states that these rules may be called the Foreign Exchange Management Rules, 2022.
20% FDI is allowed
Through the notification, a paragraph has been inserted in the existing policy, in which FDI in LIC is allowed up to 20 percent from the approved route. Under the current FDI policy, 20 per cent foreign investment is allowed in public sector banks with approval. In such a situation, it was decided to allow 20 percent foreign investment in LIC and other similar corporate entities.
It states that foreign investment in LIC can come through the provisions of the Life Insurance Corporation Act, 1956 (LIC Law) and such provisions of the Insurance Act, 1938, which will be applicable to LIC. These are amended from time to time. Setting the stage for the country’s biggest ever public issue, SEBI has approved the draft documents for sale of five per cent stake in LIC by the government for about Rs 63,000 crore.
Biggest IPO will be
LIC’s IPO will be the biggest IPO in the history of Indian stock market. Once listed, the market valuation of LIC can be compared with that of Reliance Industries and Tata Consultancy Services. Till now Paytm had raised Rs 18,300 crore from IPO in 2021. This is the biggest IPO ever. Earlier in 2010, Coal India raised Rs 15,500 crore through IPO and Rs 11,700 crore in Reliance Power in 2008.