Financial Services Secretary D. K. Mittal said on Wednesday, "LIC now can invest up to 30 per cent of a company's paid-up capital." Earlier, this limit was 10 per cent.
The announcement came a day after market were abuzz with speculations that government may hike the LIC's investment cap to 25 per cent. The notification relaxing the investment norms has been issued, Mittal added.
The move came at a time when government has been staring at a huge fiscal deficit for the current fiscal, and has been relying on the state-run insurer to achieve the disinvestment target for the current fiscal.
The government had set a target to raise Rs 30,000 crore through disinvestments in this fiscal, but has not raised a single rupee so far amid poor market conditions and weak valuations of the PSUs.
Raising the investment cap for LIC would be a big relief for the government as it will call the state-run insurer to bailout anytime if other investors refused to buy shares of the PSUs. During the last fiscal, LIC had bailed out ONGC's near-disaster stock auction where government wanted to raise Rs 14,000 crore. Also instead of the government, which is facing a huge fiscal deficit, it was LIC that injected capital into the banks.
However, the move might have come as huge disappointment for the insurance regulator which always wanted to keep the investment cap at 10 per cent.
Dion Global Solutions Ltd