Government Changes FEMA Rules To Allow 20% FDI In LIC

Government changes FEMA rules to allow 20% FDI in LIC.

The government has amended the rules of the Foreign Exchange Management Act (FEMA), opening the way for up to 20 percent foreign direct investment in insurance giant LIC.

Significantly, the government is planning to reduce its stake in LIC through an initial public offering (IPO).

LIC had in February filed a draft red herring prospectus (DRHP) for the IPO with markets regulator Sebi. Last month, SEBI cleared the draft papers.

Following the cabinet’s approval, the Department for Promotion of Industry and Internal Trade (DPIIT) on March 14 amended the Foreign Direct Investment (FDI) policy to facilitate foreign investment in LIC ahead of the mega public offer.

However, the FEMA notification was needed to implement the provisions of DPIIT, including changes in the FDI policy that would allow large foreign portfolio investors to subscribe to LIC shares.

“These rules may be called the Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2022,” a government notification issued recently said.

Government changes FEMA rules: A clause has been inserted in the existing policy, which mentions allowing up to 20 percent FDI in LIC under the automatic route.

Since the foreign inflow limit for public sector banks is 20 percent under the government approval route as per the extant FDI policy.

It has been decided to allow foreign investment up to 20 percent in LIC and other such corporate bodies.

The notification said, “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 the Insurance Act, 1938, as amended from time to time, as are applicable to LIC. ”

Let us tell you that this IPO of LIC is going to be the biggest IPO in the country.

SEBI has approved the draft prospectus for the sale of a 5 percent stake in LIC for an estimated Rs 63,000 crore to the government.