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NEW DELHI - India's cabinet approved on Saturday a policy amendment allowing foreign direct investment of up to 20% in Life Insurance Corp of India (LIC), a government source said, a change aimed at easing the listing of the state-run insurer.

India's biggest insurance company plans to float a stake of 5% to raise about $8 billion next month for the south Asian nation's largest initial public offering (IPO) by far.

The amendment would allow foreign direct investors to buy up to 20% of LIC's shares through an automatic route, said the government source, who spoke on condition of anonymity after the cabinet meeting.

Under current rules, foreign investment is not allowed in the LIC, governed by the special parliament act, while 74% 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%, on 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 due to 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% of the offer size, while the portion reserved for employees will not be more than 5% of post-offer equity share capital, according to the IPO filing. LIC employed 114,498 people as of end-March, 2021.

LIC, which was formed six decades ago when India's insurance sector was nationalised, straddles the business in the country, with more than 280 million policies and over 60% of the insurance segment.