Life Insurance Corporation of India (LIC) is likely to get a temporary exemption to hold stake indirectly in IDBI Federal Life Insurance. According to sources, Insurance Regulatory and Development Authority of India (IRDAI) will allow LIC to hold stake in two insurance companies as it holds stake in IDBI Bank.
According to insurance laws, one company cannot be a promoter of two insurance firms in the same category. Here, LIC itself is a life insurer while it holds stake indirectly in IDBI Federal Life via IDBI Bank.
Nonetheless, the source told Moneycontrol, "To prevent uncertainties in the business, LIC's stake in IDBI Federal Life through its holding will be allowed for the time being."
LIC is the majority shareholder in IDBI Bank. Hence, it has become the parent of its life insurance firm IDBI Federal Life. IDBI Bank is one of the parent firms of IDBI Federal Life.
In June 2018, IRDAI made an exception and allowed LIC to hold 51 percent stake in IDBI Bank. Insurance regulations state that an insurer can hold only up to 15 percent equity stake in an entity to ensure there is no concentration of risks. LIC completed the IDBI Bank deal in January 2019.
Later, IRDAI Chairman Subhash Chandra Khuntia said that the approval for the LIC-IDBI Bank deal had been on the condition that the stake eventually be brought down to 15 percent.
IRDAI will give out a timeline for LIC to reduce its stake in the bank. Until then, LIC will continue to be an indirect promoter of IDBI's life insurance arm. It is likely that LIC will get 10-12 years to reduce its stake.
With IDBI Bank, this is LIC's foray into the banking sector. The life insurer would ideally look to expand operations and engage in full-fledged banking business. The mandate of reducing its stake to 15 percent in the future could dampen its plans.