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Home News Power Sector News Power ministry requests PM to remove cap on LIC investment in power sector

Power ministry requests PM to remove cap on LIC investment in power sector

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LIC Of IndiaThe government may allow state-owned Life Insurance Corporation of India (LIC) to fund individual infrastructure projects beyond the existing 10% exposure norm. The finance ministry is considering a proposal of the power ministry to enhance availability of funds for power projects.

As per the current norms, LIC has to restrict its funding exposure to a a maximum of 10% of the net worth (sum of share capital, free reserves and debentures/bonds) of the investee company or 10% of the fund size of the insurer, whichever is lower. “In a letter to prime minister Manmohan Singh, power minister Sushilkumar Shinde has demanded removal of LIC’s exposure limit of 10% in a single company.

The proposal, if accepted, will ease liquidity problem in the power sector that requires investments of over Rs 10 lakh crore in the Eleventh Plan ending March 2012,” an official in the prime minister’s office, who didn’t wish to be identified, said.

LIC, the country’s largest financial institution, has over Rs 7.5 lakh crore of investments in various projects. The power minister has also asked for relaxing the group exposure norms of LIC for the power sector. If accepted, the move will provide a major relief to the power sector that is waiting for financial closure for generation projects worth 40,000 MW by June this year. The total investment in these projects is over Rs 1,60,000 crore and debt requirements (on a debt, equity ratio of 70:30) is to the tune of Rs 1,12,000 crore, an official in the power ministry said.

Other proposals of the power ministry include enhancing banks’ exposure for power sector from 15% of total advances to 25%. For ultra mega power projects (UMPPs), it has proposed to relax banks exposure from 20% to 50% (in case of single borrower) of project’s total capital requirement and from 50% to 85% (in case of group borrower).

The second stimulus package announced by the government on January 2, 2009 has already allowed NBFCs to tap ECB from bilateral and multi-lateral institutions after getting RBI nod. Power ministry has proposed that changed exposure norms of banks and institutions for power sector funding should also include power sector financing companies like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC).

Source - Economic Times

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