The cabinet approved on Saturday a policy amendment to allow foreign direct investment of up to 20 per cent in Life Insurance Corp of India (LIC), a change aimed at easing the listing of the state-run insurer.

India’s biggest insurance company plans to float a stake of 5 per cent to raise about $8 billion next month for the country’s largest initial public offering (IPO) by far.

The amendment would allow foreign direct investors to buy up to 20 per cent of LIC’s shares through an automatic route. The choice of the automatic route is expected to expedite the capital raising process.

Under current rules, foreign investment is not allowed in the LIC, governed by the special Parliament act, while 74 per cent foreign direct investment is allowed in other private insurance companies.

The amendment would allow the government to raise the foreign direct investment limit in the LIC up to 20 per cent, on a par with the rule for state-run banks, the government source said.

The cabinet decision comes amid growing fears among some investors that the government could defer public listing of the LIC because of the increasing volatility in the market after Russia’s invasion of Ukraine.

Government officials, have however, said that there was no plan to defer the listing of the insurance company — critical for plans to raise funds for budgeted spending.

In the IPO, the firm will also earmark a certain percentage of shares for policyholders, not exceeding 10 per cent of the offer size, while the portion reserved for employees will not be more than 5 per cent of post-offer equity share capital, according to the IPO filing. LIC employed 114,498 people as of end-March, 2021.

“The FDI reform will facilitate foreign investment in LIC and other such corporate bodies,” sources said.

Life Insurance Corporation on February 13 filed draft papers with capital market regulator Securities and Exchange Board of India (SEBI) for the sale of 5 per cent stake by the government for an estimated Rs 63,000 crore.