Mumbai: Insurance Regulatory and Development Authority, or Irda, has asked state-run Life Insurance Corp. of India, or LIC, to reduce its stake in companies where its holding is in excess of 10%, except for a few “critical investments”, according to an Irda official.
Enforcing norms: The LIC building at Connaught Place, New Delhi. The firm can retain holdings in critical investments and Navratna firms. Raj Kumar / Mint
Irda regulations cap an insurance firm’s investment in companies at 10%. LIC has in the past held higher holdings in many companies. But since Irda investment norms do not discriminate between private and public insurers, LIC will have to pare these holdings. “LIC has to align itself with the industry. It has to comply with the 10% investment ceiling norm as prescribed by Irda,’’ said R.Kannan, member, actuary, at Irda.
Hinting that Irda may give it time to pare these holdings, Kannan said, “LIC should not look at any distress sale (to bring down its stake) as this would not be in the interest of the policyholders (as this will bring down the prices).”
LIC, the biggest investor among domestic financial institutions, has 10% or above stake in at least 40 listed Indian companies, including Larsen and Toubro Ltd, Maruti Suzuki India Ltd, Ranbaxy Laboratories Ltd and Tata Steel Ltd, firms which are part of the Bombay Stock Exchange’s benchmark index, the Sensex, as well the National Stock Exchange’s Nifty.
The insurer had at least 5% holding in another 107 companies as on 31 March, going by the stock exchange data.
Irda’s Kannan, however, said LIC can retain its holding in critical investments and Navratna companies.
Navratna is a title given to nine public sector enterprises in 1997. These “crown jewels” enjoy greater autonomy to compete in the global market.
One such critical investment is LIC’s 26.32% stake in Corporation Bank. The insurer initially held around 12% stake in the Managalore-based public sector bank, but in 2000 decided to raise it substantially and play an active role in running the lender.
Two such firms where LIC has at least 10% holding are Mahanagar Telephone Nigam Ltd and Hindustan Petroleum Corp. Ltd. The insurer has 17.85% and 16.01% stake in the two, respectively.
LIC’s executive director (investment operations) N. Mohan Raj declined to comment “on any interaction between it and the insurance regulator”.
In recent months, the insurer has raised its stake in State Bank of India, the country’s largest lender, to 9.16% from 4.58%, as well as ICICI Bank Ltd, India’s second biggest lender, from 7.70% to 9.38%.
It also raised its stake in public sector Indian Overseas Bank from 7.06% to 9.96% in February-March through open-market transactions. While LIC’s stake in these banks are indeed less than 10%, in Kolkata-based Allahabad Bank, it holds 11.64%.
Besides, the insurer has also increased its holding in HDFC Bank Ltd, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank and Syndicate Bank. ]
Incidentally, LIC also wanted to increase its stake in Axis Bank Ltd, where it currently holds 10.36% stake, but Irda did not allow it.
NDTV Profit news channel on Tuesday reported that the government has asked Irda to relax investment norms for LIC and permit it to invest more in public sector companies. The business channel also reported that Irda maintains that it had relaxed the investment norm in March 2008.
Incidentally, LIC holds 4.22% stake in the troubled drug firm Wockhardt Ltd, which has been referred to the corporate debt restructuring cell as the promoters are not in a position to service its huge debt burden.
LIC leads the pack of domestic institutional investors that have heavily bought Indian stocks in past one-a-half years. In fact, they turned net sellers of equities for the first time in 17 months in April as they booked profits, taking advantage of the 17.46% rise in equities in April.
They kept on buying stocks right through the stock market meltdown in 2008, which saw the Sensex tumble 52% through the year, after touching its lifetime high of 21,206.77 points in mid-January 2008.