Last month, the Indian government approved LIC’s IPO. Credit: Shatadip Majumder from Pixabay.

The government of India is reportedly considering allowing foreign direct investment (FDI) in the state-owned Life Insurance Corporation, which is heading for an initial public offering (IPO).

The decision would allow a single investor to buy a stake in the life insurer. However, the FDI will be capped at a certain level, Bloomberg reported citing a person familiar with the matter.

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The person asked not to be identified as the discussions are private and no final decision has been made yet.

FDI, according to the country’s central bank Reserve Bank of India, is the purchase of a stake that is 10% or larger by an individual or company that is not based in India.

Last month, the Indian government approved LIC’s IPO and aims to list the insurer by the fourth quarter of the financial year 2022.

The mega IPO is expected to raise approximately $13.42bn. Up to 10% of the IPO issue size would be reserved for policyholders.

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For most Indian insurers FDI of around 74% is allowed. However, LIC is an exception because it was created by an act of the Indian Parliament.

Required changes to the LIC Act of 1956 for the IPO have already been made by the government.

The insurer will have a CEO and a managing director appointed by the Central Government under section 4 of the Act (LIC Act 1956).

In June, media reports emerged that the Indian government is planning to bring in a group of anchor investors to invest up to $3.41bn (INR250bn) in the LIC before its IPO.

The IPO was first announced by Finance Minister Nirmala Sitharaman during the 2020-21 budget.