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April 18, 2022

India amends FEMA rules to pave way for 20% FDI in LIC

The Indian government has amended the Foreign Exchange Management Act (FEMA) rules, which will make way for up to 20% foreign direct investment (FDI) in the insurance company LIC.

The government intends to reduce its stake in LIC through the initial public offering (IPO), reported , reported PTI via moneycontrol.com.

In February, LIC had filed the draft red herring prospectus (DRHP) with markets regulator Sebi for the IPO.

In March, Sebi had given nod to the draft papers. LIC is currently in the process of filing a request for proposal with amendments.

After the approval of the Union Cabinet, the Department for Promotion of Industry and Internal Trade (DPIIT) last month had changed the FDI policy to facilitate investment from overseas players in LIC ahead of the IPO.

A gazette notification issued recently reads: ‘These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022.”

This notification has added a paragraph in the current policy, enabling up to 20% FDI in LIC through the automatic route.

Given that the ceiling on foreign investment for public sector banks is 20% as per the government approval route under the current FDI policy, the same has been allowed for LIC and other such corporate bodies.

The notification reads: ”Foreign investment in LIC shall be subject to the provisions of the Life Insurance Corporation Act, 1956, (LIC Act) as amended from time to time and such provisions of the Insurance Act, 1938, as amended from time to time, as are applicable to LIC.”

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