ORA-12422: max policies exceeded
Cause : You tried to create a new policy, but the maximum number of policies for the instance had already been created.
Action - How to fix it : DBA Scripts :: www.high-oracle.com/scripts
Increase the size of the MAX_LABEL_POLICIES initialization parameter and restart the server.
Well, the reason for above error is that i have taken the above script from a 11g database and running it on 10g database. 11g has bring some changes in password management. Below code is executed on 11g and user created successfully, which is expected result.