Page 37 - Life Insurance Today December 2017

LIC may get IRDAI breather on 15% investment cap in Equity increase of Rs.

public sector banks 11,626 crore for Axis Bank
The Insurance Regulatory and Development Authority of India (IRDAI) is open
to allowing the Life Insurance Corporation of In-
dia (LIC) to increase its stake beyond the 15 per
cent ceiling in public sector banks (PSBs). The
move is to give a boost to the government's
recapitalisation plan, an initiative to help banks
tackle bad loan woes and revive growth. The insurance sector regulator has
set a 15 per cent cap on equity shareholding in single stocks for insurance
firms.Currently, LIC's holding in a dozen PSBs is between 10 per cent and 14 Axis Bank recently announced that
per cent. it will raise equity and equity-linked
capital of Rs. 11,626 crore by selling
Finance ministry okays LIC's Rs. 1.5 lakh crore funding shares and warrants to a group of
of Indian Railways marquee investors including Bain
Capital and country's largest insurer
Life Insurance Corporation of India can ministry's revenue, in turn, is backed by and Axis Bank's promoter Life Insur-
now go ahead with its proposed Rs 1.5 budgetary allocation. The charge on the
ance Corporation (LIC).
lakh crore funding of the Indian Rail- central government revenue is more
ways, with a finance ministry clarifica- than a government guarantee, as it In a filing with stock exchanges Axis
tion effectively nullifying the sector amounts to express intention of the gov- Bank said, "entities affiliated to Bain
regulator's concerns and demand for ernment to pay out the obligation, Capital propose to invest Rs. 6,854
sovereign guarantee whereas payment crore and LIC has proposed to invest
for the investment. against guarantee will Rs. 1,583 crore. The bank proposes
The state-run insurer happen only when the to raise Rs. 9,063 crore through is-
had signed a memoran- guarantee is invoked, the suance of equity and the remaining
dum of understanding finance ministry said. Rs. 2,563 crore through issue of
two years ago to invest The clarification was is- warrants."
in the railways through sued after the railways, The Board had approved the sale of
bonds issued by the Indian Railway Fi- Insurance Regulatory and Develop- up to 172.63 million shares at 525
nance Corporation (IRFC). But since this ment Authority of India (Irda), LIC and rupees each, and 45.36 million con-
would take LIC's exposure to more than the finance ministry discussed last vertible warrants at 565 rupees
25% of IRFC's net worth - it has to keep week whether this investment in the each on a preferential basis and it
the investment within that limit in any railways could be classified under ap- has received approval for the capi-
company involved in infrastructure, proved investment category with tal raise from its Board of Directors
debt and equity included -the insur- higher limits, without any explicit gov- on November 10, 2017.
ance regulator demanded explicit gov- ernment guarantee.At the end of June
ernment guarantee for the bonds and 30, LIC had total assets under manage- Despite the rise in bad loans Axis
a gazette notification classifying these ment of Rs 24.74 lakh crore, including Bank's capital adequacy ratio stood
as special securities, like oil bonds. at 16.32 % of assets at the end of
equity and debt. LIC has an 80% share September.
On November 23, the finance ministry in the AUM of the life insurance indus-
issued an order, clarifying that the IRFC try. Of the total investment, Rs 5.74 The bank plans to raise 90.63 billion
bonds can be treated as approved secu- lakh crore is in equities and Rs 19 lakh rupees from the share sale and
rity for investment above the exposure crore in debt, which includes central 25.63 billion rupees from the sale of
limits. It didn't offer any government government securities, state govern- warrants. Affiliates of Bain Capital
guarantee on the bonds, but said the ment securities, and corporate bonds. will invest 68.54 billion rupees in the
bonds were covered by Section 2(3) of LIC has come to the rescue of the gov- bank, while LIC, which is owned by
the Insurance Act under which the re- ernment on many occasions by invest- the Indian government and already
payment is charged on the revenue of ing in bonds and shares of state- owns a stake in Axis, will invest
the railway ministry. The railway owned companies. 15.83 billion rupees.

Life Insurance Today December 2017 37

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