(This Sept. 8 story corrects first paragraph to show plan refers to purchases in the IPO, not of the company)

By Aftab Ahmed and Nupur Anand

NEW DELHI (Reuters) – The Indian government is considering allowing foreign institutional investors to buy up to 20% of state-owned Life Insurance Corporation’s initial public offering, a government source said on Wednesday.

India’s largest ever initial public offer is expected to list LIC. The government hopes to raise as much as 900 billion rupees (12.2 billion) through its stake sale.

LIC shares are currently not allowed for foreign institutional investors. Foreign institutions can only hold up 74% and 20 percent of public banks.

If this is allowed, foreign pension funds as well as mutual funds could participate in India’s largest insurance company.

To help alleviate budgetary pressures, the government has selected 10 merchant banks from the 16 that were interested in initiating the process.

The merchant banks will be paid a total fee of 100 million rupees (1.36 million), which is higher than some state-owned firms’ token fees, but lower than private listing fees.

According to Dealogic, Zomato, a food delivery company, paid $31million in listing fees earlier this year.

The low fee, however, has not been a deterrent, with nearly all the major banks barring Morgan Stanley (NYSE:) queuing up.

“We can’t care less about what is the money that is being offered. According to a merchant banker, it’s the most significant IPO and the one that will continue for the next 5 years.

($1 = 73.5350 Indian rupees)