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News February 25, 2020
Life Insurance Corporation of India or commonly recognized as LIC is India’s largest insurance provider and the most trusted insurance company. LIC with its array of products with low-priced premiums has been attracting the mass always to buy insurance policies from LIC.
LIC has made a very robust asset portfolio in India and has been a pioneer in the insurance market by capturing 66.24% of the total Market Stake in the total premium for the 1st year and 74.71% in new insurance plans. Also, LIC reported an increase in its New Premiums of 5.68% for the fiscal year 2018-2019 which is INR 1.42 lakh crores in comparison with greater than INR 1.34 lakh crores for the fiscal year 2017-2018 *.
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A recent announcement by the Government with regards to LIC disinvestment in five PSUs- Public Sector Undertakings after they have received the approval from CCEA- Cabinet Committee of Economic Affairs, has become a very crucial matter of discussion, as the PSUs includes LIC, which is the biggest institutional stakeholder or investor in India. LIC is a key participant in the divestment of government bodies. This announcement is considered to be one of the historic decisions made by the Modi Government recently.
LIC was successful in recording a substantial income of INR 1.76 lakh crores from the dividends only for the financial year 2017-2018. The economic effect and government’s decision to monetize and apportion these resources to new development in infrastructure in the country and plug the fiscal deficit is a historic decision taken for issues that were cropping up for a long time in numerous aspects. LIC disinvestment is a part of the planned activity of the Ministry of Finance that has a target of INR 1.05 lakh for the financial year 2019-2020 as the target for disinvestment. And out of this amount, the center has been able to get only INR 13000 crores which include the latest IPO of IRCTC. The market for disinvestment is difficult with steep target and hence it was decided to bring LIC to bring into the picture to bridge the difference. LIC has been frequently observed as ‘white knight’ of almost all the disinvestment strategies of the Indian Government and has been able to help many such proposals, like a qualified institutional settlement of State Bank of India of INR 9600 crores in 2014 where LIC had induced nearly INR 7200 crores, another instance of sale of Coal India share way back in 2015 where again LIC bought nearly 50%of the offered shares and a couple of more.
The entire process of LIC disinvestment will be falling in place through the IPO of LIC, who has a Net Assets of greater than INR 31 lakh crores and is much bigger than business giants like a RIL -Reliance Industries or a TCS- Tata Consultancy Services. LIC has many investments in several companies that are listed and its business has been recording a top figure of almost INR 5.61 lakh crores, 60% of which is from the individual insurance systems of INR 2.3 lakh crores and group insurance arrangements of INR 0.98 lakh crores respectively. This IPO will be able to attract the Foreign Portfolio Investments of FPIs and other investors internationally. And if the same happens, then this will be a relatively successful approach of the Indian Government to encourage fresh money into the economy by receiving foreign investments contrary to pulling away liquidity from the Indian economy.
LIC disinvestment will help the Government to carry out certain economic constraints easily which they are trying to accomplish, mainly to bridge the fiscal-deficit gap as mentioned above. From a performance and brand perspective, LIC is considered to be the most lucrative institution right now, that will successfully bring solid competitors for the divestment contribution, specifically when the insurance industry is gradually opening up in a big way in India and changing from monopoly to several companies and thus untapping the value right now is correct.
Also, there will a sizeable portion of retail investors to contribute in this wealth formation path of such a big establishment which creates capital through premiums from insurance, incomes from investments and others.
The government has decided that by doing LIC disinvestment ,the basic ownership, structure, and functioning of LIC will remain almost unchanged and also the performance of LIC will not be affected due to the IPO strategy. LIC will continue to contribute its largest share in the insurance market because of its ever-high demand and trustworthiness. The stock exchanges will be also made pretty broad-based thereby changing the position of India concerning its rating and weightage across many global indexes which will include MSCI – an index that is tracked and monitored highly internationally. By adulterating its share in LIC, the government is not essentially weakening its voting privileges in subsidiary and the investee businesses like an ONGC with 9.4% share, RIL with 6.56% share, Infosys with 5.8% share and many more, as LIC will continue to control the same voting rights. Also, LIC holds considerable stakes in many banks which include giant banks like SBI with 9.8% share, ICICI Bank with 10.3% share and a huge share of 51% in IDBI Bank to get a significant governing majority.
In 1956, when LIC took its first step in India, it was able to generate the trust in public to avail insurance plans with a huge circulation network of LIC agents across the country and is continuing. This also included an effort to have an agent for every family which was remarkable progress for the country to ensure that no foreign business entity capture this huge market.
LIC is a market leader in the insurance industry in India and hence still rules the insurance market from all the aspects. LIC will continue to remain so with its strong presence. LIC disinvestment will not have any impact on the company.
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