Last Updated on 19/02/2022 by Nidhi Khandelwal
The government has been encouraging the initial public offerings (IPO) of the Life Insurance Corporation of India (LIC) and has even altered various rules and regulations to allow international investors to participate in the LIC IPO.
However, according to LIC’s draft red herring prospectus (DRHP) submitted to the Securities and Exchange Board of India (Sebi) on February 13, the Indian government’s complex regulatory framework, as well as other investment restrictions, have created hurdles for its company.
The outbreak of Covid and several lockdowns damaged LIC, as well as several other enterprises, according to its Annual Report 2021 and its DRHP. Despite the fact that during the epidemic, more people were selecting for insurance coverage, various factors including inflation, the budget deficit, and other monetary considerations had a role.
Due to a complicated regulatory system, the company may suffer penalties. “Our Corporation is subject to complicated regulatory requirements, and if we fail to meet these standards, our activities may be hampered or we may face large penalties.”
Furthermore, any changes in regulatory requirements might have a major adverse effect on our business, financial condition, operating performance, and cash flows,” the company’s DRHP adds.
Investment rules, capital issuance, commission caps, and advertising regulations are just a few of the regulatory issues that potentially affect the insurance industry.
Despite the fact that the government has changed its foreign investment policy to encourage foreign participation in the LIC IPO, this remains a source of concern for the company.
Foreign participation in insurance firms is now limited to 74% via the automatic method, and there are restrictions on the transfer of LIC equity shares, as stated in the DRHP.
Furthermore, under the Life Insurance Corporation Act, the government’s shareholding in LIC cannot go below 51%, implying that all investors will be able to hold no more than 49% of the shares at any given time.