New Delhi: The Lok Sabha on Monday passed the Life Insurance Corporation (Amendment) Bill, 2009, that will replace a 55-year-old Act, aiming to raise the equity base of the state-owned insurer by 20 times.

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Ahead of the passage of the Bill, there was some confusion as a division was sought by the opposition on an amendment moved by an opposition member.

The amendment moved by Bansa Gopal Chowdhary of the Communist Party of India-Marxist (CPM) was negated with 107 votes against 17 for the motion. Members from the Left parties staged a walkout.

Several members, including Raghuvansh Prasad Singh (Rashtriya Janata Dal) and Ravindra Kumar Pandey (Bharatiya Janata Party), stressed the need to ensure that the interests of LIC employees and customers are protected.

Minister of state for finance Namo Narain Meena said the new law will not affect existing policyholders.

The government will continue to provide sovereign guarantee to the policies sold by LIC, Meena said.

Yashwant Sinha, a senior Bharatiya Janata Party leader and chairman of the Parliament standing committee on finance, said he was glad that the government had brought in changes recommended by the committee and there are only minor issues that need to be addressed.

Currently, the central government is the sole shareholder of LIC and provides a sovereign guarantee backing the corporation’s insurance policies.

S.B. Mathur, a former chairman of LIC, said it does not matter whether the government resets the extent of the sovereign guarantee.

“The sovereign guarantee is anyway a thing of academic interest with very few people knowing about it. LIC has never and will not default considering the assets and reserves it has," Mathur said.

Once passed by Parliament, the Bill will be sent to President Pratibha Patil for her assent before it becomes law.

The Act will bring LIC on par with private insurers—both in life and non-life segments, as far as the capital base is concerned. One of the proposed amendments was aimed at reducing LIC’s surplus, which has to be distributed to policyholders, from the current level of 95% to 90%.

Last year a parliamentary committee had asked the finance ministry not to amend the legislation governing LIC in any way that would allow the insurer to invest its reserves in new businesses, warning such a move would undermine the interests of policyholders.

The Bill was first introduced in the Lok Sabha in December 2008, but had lapsed as it could not be put to vote before its dissolution. The Bill was, therefore, reintroduced by finance minister Pranab Mukherjee in 2009.

In 1956, the government brought together over 240 private life insurers and provident societies to form LIC through legislation.