Life Insurers Raise Money for Any Other Activity

The Life Insurance Corporation, or LIC, will not be able to question tax-saving infrastructure bonds aggregating 5,000 crore to retail investors this economic due to a regulatory problem, which was discovered after India's largest speculation institution was name an issuer of these bonds by the IRDA. Insurance regulations allow life insurers to raise funds simply for promoting their nucleus business. So, logically, life insurance companies cannot raise money for any other activity. "We are still under pressure with the modalities on how to raise these loans. I am not sure about the legal position. So far, we have not finalized any plan to launch tax-saving communications bonds," LIC Chairman TS Vijayan told ET.

LIC secured a mandate to raise up to 5,000 crore from side to side these bonds after the I-T department authorized the institution, along with two other communications financing companies-Industrial Finance Corporation of India, or IFCI, and Infrastructure Development Finance Company, or IDFC-and non-banking finance companies, or NBFCs, categorized as infrastructure finance companies by RBI to be the issuers. IFCI, IDFC, L&T and Rural Electrification Corporation, or REC, have already raised money from beginning to end these bonds. The craving for such bonds has disappeared up after the direction announced tax incentives on them. Subscribers to these bonds are entitled to a tax deduction of up to 20,000 this fiscal.

LIC can offer free cover
This is more than and above the Rs1-lakh tax deduction to be had on other savings scheme such as the public sagacious sponsor and equity-linked nest egg schemes. With a coupon rate of 8%, the pre-tax surrender of these bond works out to over 11%. A taxpayer, in the 30% tax bracket, can save up to Rs6, 180 by investing Rs20, 000 in these bonds. One alternative open before LIC to conquer the regulatory obstacle is to offer extra skin tone such as free of charge insurance covers to bondholders. However, a similar benefit cannot be obtainable by term lending institutions, leading to a inequality in norm for bond offerings. "We have asked LIC to sort out the problem with the insurance watchdog and they are nevertheless to revert," said a senior government official who did not aspiration to be named.

The tax subdivision will, therefore, remove LIC from the list of issuers if the narrow hurdle cannot be determined. CBDT officials were unavailable for comment due to the budget. Insurance regulations, though, allow all life insurers to spend up to 50% of their investible assets in administration and other approved securities. as well, they can put 15% in infrastructure investments. They hold a discretionary control, subject to conditions, on the balance 35% of the assets. LIC has assets under management of Rs11 lakh crore.

According to bureaucrat in a combine of mercantile banks, relatively a few issue need to be clarified by LIC. "LIC, dissimilar IDFC or IFCI, is not a term-lending institute. Its core authorization is to garner currency for life cover business," said a merchant banker. The other fear is one of given that a level in concert field. "If LIC can raise funds through infra bonds, then why not private insurers; Also, it is not correct to include LIC with NBFCs. This may wrap up in other NBFCs offering relatively elevated returns to attract investors as they are competing with LIC," he said.

IDFC on Monday drift its second trenched of tax-saving infra bonds to lift up around Rs2, 930 crore, aiming to mop up a total Rs3, 400 crore. L&T Infrastructure Finance earlier rise about Rs240 crore, REC too newly opened its issue of Rs50 crore with a olive shoe option from first to last private placement. IFCI raise Rs60 crore in its first trance and recently closed its moment trenched of Rs50 crore, according to brokers. The country's connections use is expected at $514 billion in the 11th Plan. Core subdivision projects, however, need finance for 10-15 years, which banks are unable to provide as their funds in your prime in the medium term.

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