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The insurance regulator is keen that Life Insurance Corporation of India (LIC) pare down its stake in other companies to 15 percent or below. But this reduction has to be gradual, Insurance Regulatory and Development Authority of India (IRDAI) Chairman Subhash Chandra Khuntia said.
"We would like LIC to bring down their stake in firms to below 15 percent. But this cannot happen before the (proposed) IPO. The reduction cannot be instant because it will lead to disruption and prices may get impacted. We will be fixing a timeline," he said on the sidelines of a National Insurance Academy event.
Finance Minister Nirmala Sitharaman announced on February 1 in her Budget 2020 speech that the government will divest its stake in LIC through an IPO. It is likely that LIC will be listed on the stock exchanges in the second half of FY21.
LIC holds more than 15 percent stake in entities like IDBI Bank, ITC and UTI. As per insurance rules, an insurance company cannot hold more than 15 percent stake in any company. However, LIC has been given special exemption for investing in IDBI Bank.
Once the Parliament gives nod for an IPO, the stake sale by the government will be undertaken. It is likely that the government could sell 10 percent stake in LIC, an insurer whose valuation could be as high as Rs 10 lakh crore.
New tax slabs
Khuntia also spoke about the Budget 2020 proposal on the new optional tax slabs that offer lower tax rates but without any tax exemptions or deductions.
"Even if there is a new tax regime I am sure people understand the need for protection. Those who need it will opt for insurance products. But it is a fact that people don't just buy insurance for tax exemption. There is a still an option," added Khuntia.
Capital infusion in PSU insurers
When it comes to the public sector general insurance companies, Budget 2020 has provided for additional capital of Rs 6,950 crore for Oriental Insurance, United India Insurance and National Insurance.
The budget documents showed that the provision was for the higher requirement of maintaining the requisite minimum solvency ratio by each of the three public sector general insurance companies.
"A total of about Rs 9,500 crore has been provided. This year (FY20) there was a provision of Rs 2,500 crore capital. The same for FY21 will be Rs 6,950 crore," Khuntia added.