In 2013, the insurance regulator revised its investment regulations for insurance companies, linking it to the fund size. Insurance companies
can increase their exposure in equity in a given company from 10% to 12 per cent and 15 per cent , depending on the size of their controlled fund.
However, if LIC wants to own more than the prescribed limit of 15 per cent , it has to get approval from its board and Irdai. It can own as much as 30% in some companies
under a special dispensation from the government.
However, in the case of IL&FS as per the RTI reply, LIC did not ask for any permission from the insurance regulator and citing a GSR from 1958 proceeded to increase its stake in the debt-ridden group.
As per Irdai (Investment) Regulations, 2016 there are certain prudential norms for exposure of insurer in an investment.
While the stake of LIC in IL&FS is quite substantial, the insurer cannot claim to be a promoter. The reason is as per Irdai Investment Regulations, exposure limit to companies
belonging to promoter group is capped at 5 per cent.
Note 7, under Regulation 9, says an insurer should not have investments of more than 5% in aggregate of its investment assets in all companies belonging to the promoters’ group. Investment made in all companies belonging to the promoters’ group should not be made by way of private placement or in unlisted instruments like equity, debt, certificate of deposits and fixed deposits held in a scheduled commercial bank, except for companies formed by insurers under Note 12 to Regulation 9, the note says.
As on 31 March 2018, LIC and ORIX Corporation of Japan were the largest shareholders in IL&FS with their stakeholding at 25.34 per cent and 23.54%, respectively, while Abu Dhabi Investment Authority, HDFC, Central Bank of India and State Bank of India stake holding are at 12.56%, 9.02%, 7.67% and 6.42%, respectively.
IL&FS was incorporated in 1987 with the objective of promoting infrastructure projects in the country. IL&FS was promoted by the Central Bank of India (CBI), Housing Development Finance Corp Ltd (HDFC) and Unit Trust of India (now SUUTI). While SUUTI has largely exited (stake of 0.82% as on 31 March 2018), the shareholding has broadened over the years with the participation of many institutional shareholders.
Stretching the rules
In the case of insurers having investment assets within the meaning of Regulation 2 (i) (1) and Regulation 2 (i) (2) of the under mentioned size, the marked limit in the table for investment in equity, preference shares, convertible debentures, debt, loans or any other permitted investment under the regulations, shall stand substituted as under:
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