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20% FDI in LIC via automatic route approved by the government

As per the sources, the Cabinet approved up to 20% FDI in the LIC’s IPO-bound Life Insurance Corporation of India (LIC) via the automatic route on Saturday, February 26. The government hopes that by doing so, it will make it easier for India’s largest insurer to be disinvested.

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KEY POINTS

  • The Cabinet, chaired by Prime Minister Narendra Modi, made the decision to approve 20% FDI via the automatic method.
  • The government has approved the listing of LIC shares on the stock market through an initial public offering (IPO) in which it would sell a portion of its investment in the insurer and raise new equity capital.
  • Foreign investors may be interested in taking part in this mammoth IPO. The existing FDI laws, on the other hand, include no special provision for foreign investment in LIC, a statutory corporation constituted under the LIC Act, 1956.
  • Both FPI and FDI are authorised under public offer, according to Sebi guidelines. Because the current FDI policy caps foreign inflows at 20% for public sector banks requiring government permission, it has been decided to allow foreign investment of up to 20% for LIC and other corporate organisations.
  • Furthermore, such FDI has been retained under the automatic route, as in the rest of the insurance sector, to quicken the capital raising process, according to one of the sources.
  • For quicker economic growth and development across sectors, increased FDI inflows will augment domestic capital, technology transfer, and talent development.

BACKGROUND

  • The initial public offering (IPO) of LIC was approved by the Cabinet in July of last year, and the share sale is scheduled for the current March quarter.
  • On February 13, Life Insurance Corporation submitted draft papers with capital market regulator Sebi for the sale of a 5% stake by the government for an estimated Rs 63,000 crore, paving the way for the country’s largest-ever public offering.

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