The Union Cabinet is likely to approve the proposal to allow foreign direct investment (FDI) in Life Insurance Corporation of India (LIC) Saturday, a move that will facilitate foreign funds to participate in the upcoming IPO of the state-owned insurance behemoth.

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The decision is expected at the meeting of the Union Cabinet and the Cabinet Committee on Economic Affairs (CCEA), which is scheduled for today, according to sources.

It is proposed that a special provision may be incorporated in the Consolidated FDI Policy for FDI in LIC, the sources added. Since the FDI ceiling for public sector banks is 20 percent under the approval route, a similar limit may be kept for FDI in LIC. But the government may consider to keep FDI in LIC under the automatic route so that capital raising process may be expedited, although the final decision will be taken by the cabinet only.

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As per the current FDI policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT), foreign investment is allowed in "insurance companies" and "intermediaries or Insurance Intermediary". Since LIC is neither a company nor an intermediary, it is not covered by either. Further, no provision of FDI under either the LIC Act, 1956 or the Insurance Act, 1938 or the regulations has been made. Even the Insurance Regulatory and Development Authority Act, 1999 doesn't have such provisions.

Allowing FDI in LIC is crucial as the government is planning a stake sale in the company through IPO by March this year.

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