According to a report in The Indian Express, the Narendra Modi government is considering the listing of Life Insurance Corporation (LIC), the insurance behemoth which is also arguably the largest financial institution in the country at the moment. If it happens, by far this will be the biggest disinvestment decision that has been taken by any government in many decades. This will be termed as a big-bang reform move by the Modi regime.
Besides creating a heavyweight in Indian bourses (in all likelihood even bigger than Reliance Industries Ltd and Tata Consultancy Service or TCS in terms of market value), LIC’s listing will also testify the government’s intent to unlock the value in large state-owned companies helping the economy in a big way. A slowdown-gripped economy needs this at this point more than ever before.
As The Indian Express report says, on a capital base of Rs 5 crore, LIC last reported a valuation surplus — or profit — of Rs 48,436 crore for FY2018 and assets under management of Rs 31.11 lakh crore. The LIC also has huge investments in debentures and bonds (Rs 434,959 crore), besides providing funding for many infrastructure projects (Rs 376,097 crore as of March 2018), according to its Annual Report for 2017-18, the report says.
But the biggest advantage the LIC will get from the listing exercise is that it can no longer be over-exploited by the Centre to bail out every other government company in trouble and acquire businesses it didn’t understand well. The insurer has been playing the role of the government’s favourite milch cow for years. It has salvaged countless public bond issues by the state-owned companies in almost all sectors.
Last year, it went a step further and was made to acquire one non-performing asset-ridden (NPA) lender—IDBI Bank. It concluded the acquisition early this year. How on earth an insurer that never had experience in handling full-service banking business ended up acquiring one of the worst-performing banks in the country is still a mystery.
To be sure, there aren’t too many analysts who consider the LIC-IDBI deal a wise move. By agreeing to acquire a bad loan-ridden bank, the insurer was jumping into a deal it hardly understood. That too at a time when some of the biggest banking institutions in the country are struggling to find financial stability on account of rising bad loans or NPAs. At the time of the IDBI deal, LIC was holding stakes in all the 21 public sector banks (PSBs), and in at least six of them, it holds over 10 percent stake.
To be sure, LIC has been rampantly used by both the previous United Progressive Alliance (UPA) and the National Democratic Alliance (NDA) governments despite a steady fall in its share in the insurance industry. But this year, according to a CNBC-TV18 report, LIC has reversed this trend and increased its share of the Indian insurance market by 7 percent and now claims 73.2 percent of the industry. Listing the LIC won’t be as easy as it sounds as the government needs to amend the LIC Act first.
Once listed, the LIC’s financial dealings and investments will be subjected to close investor scrutiny and it will have to explain the investment rationale to shareholders. In other words, the government will not be in a position to use the insurer at its will for large bail-outs of weak state-owned institutions. This will be good news for thousands of LIC customers who repose faith in the insurer every time they pay a policy premium.
If the LIC listing happens, the Modi government can claim political points flagging this as another landmark financial sector reform that has been on the pending list for too long on account of lack of political will.
Updated Date: Jul 30, 2019 11:44:46 IST