Once market king, now is on for sale itself
The journey of this 60-year-old government insurance company has been fantastic. LIC owns more than 70% of the insurance market in India.
Whenever the government is in trouble, LIC came forward like a trusted friend. For this, LIC has also suffered losses.
Finance Minister Nirmala Sitharaman has set a disinvestment target of Rs 2.1 lakh crore, which is the highest ever. Out of this, there is a plan to get 90 thousand crores from LIC and IDBI. The Modi government has already announced the sale of Bharat Petroleum and Air India.
When the LIC Act of nationalization of life insurance related business activities was introduced in India in the year 1956, very few people would have expected that one day the proposal of selling it in Parliament would come.
Not too old when in 2015, during the IPO of Oil and Natural Gas Corporation Limited (ONGC), the Life Insurance Corporation of India had invested a sum of $ 1.4 billion. Four years later, when it came to salvaging IDBI Bank, which was struggling with bad debts, LIC once again opened its bag.
But now the situation has changed and the government wants to reduce its stake in LIC by 100 per cent. That is, till now the government used to sell LIC to others, now it is going to sell itself. The government is going to adopt an IPO route to sell the stake.
However, the situation has not been clarified about how much percentage shares will be handed over to the market through IPO.
If the government holds more than 50% stake in LIC, then it means that the management and large stake of Life Insurance Corporation of India will remain with the government.
Finance Minister Nirmala Sitharaman, while proposing the sale of a stake in LIC, said, “Listing of a company in the stock market disciplines the company and gives it access to financial markets. It also opens up possibilities for the company. This retail It also allows investors to participate in the earnings. “
As on 30 November 2019, LIC’s share in the insurance market was 76.28 per cent. In the financial year 2019, LIC earned Rs 3.37 trillion from the premium received from the customers while Rs 2.2 trillion came from the investment as a return. These figures do matter despite stiff competition from private companies.
LIC’s investment as an equity investment in the financial year 2019 is Rs 28.32 trillion, while Rs 1.17 trillion is in debt and Rs 34,849 crore is in the money market. It is believed that with the help of LIC’s IPO to achieve the disinvestment target for 2020–21, the central government will be helped.
For the current financial year, the government had set a disinvestment target of Rs 1.05 trillion while for 2020–21 this target was raised to Rs 2.1 trillion. On Saturday, Finance Secretary Rajiv Kumar said that the government expects more than Rs 70,000 crore from the IPO of LIC. READ MORE
The decision of disinvestment in LIC is being welcomed in the business world.
Vijay Bhushan, president of the Association of National Exchanges Members of India (ANMI), says, “LIC’s disinvestment proposal is the biggest highlight of this budget. It is an event like a listing of Saudi Arabian state oil company Aramco in the stock market. LIC’s Disinvestment is ‘IPO of the Decade. “
Krishna Kumar Karwa, managing director of Emkay Global Financial Services, says, “LIC’s IPO is a very positive step in terms of corporate functioning and transparency. This will create more opportunities for the government to raise money in the coming years.”
According to Balu Nair, CEO of Metropolitan Stock Exchange, “Investors of LIC’s IPO are waiting with great enthusiasm. This step will encourage the raising of money from the primary market.”
The figures for the last five years of the Life Insurance Corporation of India, a government insurance company considered as a ‘symbol of trust’, do not appear very encouraging. In the last five years, the company’s non-performing assets, or NPAs, have reached double levels.
According to the annual report of the company, by March 2019, this figure of NPA has reached 6.15% in the ratio of investment, while in 2014–15, NPA was at 3.30%. That is, during the last five financial years, there has been a jump of about 100% in LIC’s NPA.
According to the annual report of LIC 2018–19, the gross NPAs of the company as on 31 March 2019 was 24 thousand 777 crores, while the total liabilities on the company i.e. the debt was more than four lakh crores. LIC has total assets of Rs 36 lakh crore.
Actually, this situation of LIC has happened because of the financial condition of the companies in which it had invested has become very bad and many companies have reached the verge of bankruptcy. These include Dewan Housing Reliance Capital, Indiabulls Housing Finance, Piramal Capital and Yes Bank.
The Employees Union of Life Insurance Corporation of India has strongly opposed the decision of the Central Government to bring an IPO.
According to the All India Life Insurance Employees Federation, “LIC has always been the last resort for other public sector companies whenever they need money. We strongly oppose the government’s decision to sell a part of its shares in LIC This step of the government is against the public interest because LIC’s promotion is a clear result of the trust and dedication of insurance holders and agents. “
The federation says, “Any manipulation of the government stake in LIC will shake the trust of the insured from this institution. However, the government has not said how much percentage stake it will sell, but from past experiences, it seems that Indians The government will sell its large stake in the Life Insurance Corporation. The result will be that LIC will lose its rating of a public undertaking. “
The Federation believes that whenever the government needs money, LIC has been resorted to. Examples of the past confirm this. LIC money was used to rescue the woeful IDBI Bank from the crisis.
While LIC already owned a 7 to 7.5 per cent stake in IDBI Bank. LIC had to invest between Rs 10,000 to Rs 13,000 crore for IDBI’s 51% stake.
Not only IDBI, whenever an IPO of a public sector company was brought, LIC invested heavily. This includes Maharatna companies like ONGC. The average annual investment of LIC in government securities and the stock market is close to Rs 55 to 65 thousand crores.
Since 2009, when the government started selling government companies to reduce the revenue deficit, LIC was at the forefront of buying. From 2009 to 2012, the government received nine billion dollars from disinvestment in which LIC had one-third share. When the ONGC disinvestment was on the verge of failure, it was LIC that made it successful.
The government will have to amend the LIC Act before bringing an IPO of LIC. Although the Insurance Regulatory Development Authority monitors the insurance the industry of the country, Parliament has a separate law for the functioning of LIC.
Section 37 of the LIC Act says that whatever the LIC promises to its insurance holders regarding the amount of insurance and bonus, the central government is guaranteed behind it. Private sector insurance companies do not have this facility.
Perhaps this is the reason why the common man of the country once considers the option of LIC while getting insurance.
Originally published at https://www.mubahisa.in.