Cabinet Allows 20% FDI in LIC Under Auto Mode

The Union Cabinet approved the proposal to allow up to 20% Foreign Direct Investment (FDI) in the Life Insurance Corporation (LIC) through the automatic route. It will open doors for the foreign investors who want to participate in the upcoming LIC Initial Public Offering (IPO) scheduled next month. It is considered India’s largest public offering.

LIC IPO

On 13 February, India’s biggest life insurer, LIC, had filed for the sale of a 5% stake by the government. The pricing of the LIC IPO issue is yet to be decided, with some estimates fixing the offered size at around Rs.63,000 crore.

The IPO of over 316 million shares or a 5% government stake will likely be in March 2022. The LIC employees and policyholders of the insurance corporation would get a discount over the floor price.

Changes in FDI Policy

As per the present FDI policy, the foreign inflows ceiling for public sector banks is 20% under the government approval route. Thus, the government allowed up to 20% foreign investment for the LIC and other corporate bodies. The LIC is a statutory corporation established under the LIC Act, 1956.

The government has also made specific alignments and changes under different provisions of the FDI policy to provide greater clarity through a consistent, updated and easily understandable framework for overseas investment in the LIC. It was crucial to make the changes as the existing policy does not have specific provisions for overseas investment in LIC.

The government has kept FDI in the LIC and other state-owned corporate entities in the automatic route to expedite the capital-raising process by bringing down the approval requirements. The automatic route means there is no requirement for the Reserve Bank of India (RBI) or the Central Government’s prior approval for FDI.

LIC IPO would be the biggest IPO in the history of the Indian stock market. When listed, LIC’s market valuation would be comparable to top companies like TCS and RIL.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in

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