Amendment in FEMA Rules for LIC

April 19, 2022

The rules of the Foreign Exchange Management Act (FEMA) have been amended by the government to pave way for up to 20 per cent of foreign direct investment (FDI) in the Life Insurance Corporation of India (LIC). The central government also intends to reduce its stake in LIC through an Initial Public Offering (IPO).

Overview:

In February, LIC filed the Draft Red Herring Prospectus (DRHP) for the release of IPO before SEBI.
In the month of March, SEBI gave approval to the draft papers.
LIC is currently in the process of submitting a request for a proposal with certain changes.
Following the approval of the Cabinet, on 14^th March, the Department for Promotion of Industry and Internal Trade (DPIIT) amended the FDI policy so that foreign investment can be facilitated in LIC ahead of its mega public offer.
The notifications of FEMA were required to operationalise the DPIIT issued provisions, including the changes to the FDI policy that will allow foreign portfolio investors to subscribe to the LIC shares.

About the rules

These rules are called the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022. In the amended rules, a notification has been inserted in the existing policy that will allow up to 20 per cent of FDI in LIC.

Reason for the approval of FDI

Since in the public sector banks of India, the foreign inflows’ ceiling is 20 per cent as per the present FDI policy, hence foreign investment of up to 20 per cent in LIC and other such corporate bodies in the country has also been approved by the government.

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