Articles 986 views February 22, 2020

LIC IPO 2020

One of the most unanticipated announcements at the Union Budget 2020 was the proposal of Initial Public Offer -IPO of Life Insurance Corporation of India-LIC. The economic consequence and government’s bold move to monetize and allocate the resources of LIC to the growth in the country’s infrastructure and fix the gap of fiscal deficit is a historic move taken by Mr. Narendra Modi during his reign.

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What is LIC IPO?

LIC IPO is a strategy where the Government of India will sell a part of its share to the public by way of an IPO and meet the target for disinvestment and will make up the fiscal-deficit.

The Short Background Behind LIC IPO

LIC was effective in booking a significant income of INR 1.76 lakh crores from its dividends for the fiscal year 2017-2018. LIC IPO is a part of the strategic activity of the Ministry of Finance. The market for disinvestment is not only difficult but complicated too and with a sharp target, hence it was decided to bring LIC IPO. History says that LIC was able to contribute significantly in such situations and therefore rightly named as the ‘white knight’ of nearly all the disinvestment tactics of the Indian Government. LIC is India’s key institutional investor and is the chief insurer, and a leader too in the life insurance industry, both by the amount of premium collected and the number of policies that are sold. From April till December 2019, LIC was able to collect INR 1.37 lakh crores of absolutely new premiums which are 45.5% increase year on year and surely a great achievement.

LIC IPO – 5 Important Points to Consider

Interestingly there are five critical points to know about LIC IPO and they are:

1. Quantum of Selling Government’s Stake

Indian Government is planning to sell not more than 10% of its total share in LIC through LIC IPO. And as because LIC is ruled mainly by the LIC Act, 1956, the same action needs to be modified and the structure of the capital in LIC needs to be changed with further approval from the Parliament, insurance regulatory board and of course SEBI.

2. Release Time of LIC IPO

LIC IPO to be effective in the 2nd half of the next financial year 2020-2021. Since this is the fag end of a financial year and time to make investments, LIC and the Government of India do not want to disturb this flow by bringing the LIC IPO now. The market speculators and the experts are assuming that LIC IPO is going to be the biggest ever IPO concerning capitalization and is expected to get a valuation of INR 8-INR 10 lakh crores.

3. Disinvestment Target

The divestment target set by the Modi government is as high as INR 2.1 lakh crores for the financial year 2020-2021. The expectation is to gather close to INR 70000 crores through LIC IPO. According to the experts, this move will help the government not only to meet the disinvestment target but will also attract the foreign investors to bring in more money into the Indian economy which will, in turn, will help the government to focus and develops more on the critical economic factors of the country.

4. LIC Non-Performing Assets or NPAs

Though the gross NPA of LIC has doubled in the last 5 years and rose to 6.10% during the initial 6 months for the financial year 2019-2020, LIC will be able to handle this situation efficiently. The Corporation has always maintained a steady 1.5-2% of the gross NPA s in past. From the records, LIC is not expectant to recover the defaulting amount and has made a deliberate move by creating adequate provisions in the books of accounts. LIC making profits of greater than INR 2600 crores every year, has made necessary provisions of more than 90% for these non-payments.

5. Market Share of LIC

Last but not the least, LIC holds a giant share in the market in terms of the number of policies being sold 76.28% and 71% in the collection of 1st-year premiums. Further, LIC has also bought several subsidiaries which include IDBI Bank and many more. LIC’s Assets Under Management or AUM is INR 31 lakh crores for the year 2019. Hence, looking at these numbers and the past records of LIC as well, the LIC IPO will be successful is what the Modi government is sure of.

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