LIC still wants a bigger slice of the pie

Life Insurance Corporation aka LIC, the saviour for many public listed companies and some of our ministers, wants a bigger slice of the pie as it wants higher equity headroom to cash in on trading opportunities and book profits.

In an interview with the Economic Times, DK Mehrotra, LIC chairman, said that current cap of 10 percent in a single stock is restricting it from managing its investment book more actively.

“Companies where we are reaching 10 percent or are beyond 10 percent, we cannot trade in them, not even for booking profit. If I trade, as per the regulation, I cannot go above 10 percent again and that’s preventing me from booking profits in good scrips”, he said.

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IRDA, which is the insurance regulator, had come up with the guidelines in 2008-09, has said that these rules cannot be eased for just one company and that there should be a level playing field in the industry. According to the rule, no insurer would be allowed to own more than 10 percent in a company.

Last month ratings agency Moody’s downgraded LIC to Baa3 from Baa2 with a stable outlook, in line with its Baa3 sovereign rating for India, which is the lowest investment grade rating. LIC also faced a lot of flak from investors after it picked up over 90 percent of the 5 percent follow-on-offer from ONGC for a premium.

The company was also forced to increase its stake in state-run banks like Syndicate Bank, Bank of Maharashtra and IOC among others, as the cash-starved government did not have the funds to pick up stake as part of fund infusion into banks. Accordingly, LIC’s stake in many banks are above the Irda-mandated 10 percent but closer to 15 percent. (see table below).