Time is ripe to further strengthen LIC for self-reliant India
Not a day passes without any item in the mainstream media about IPO in LIC .The Government of India had already issued notification giving effect to the 27 amendments to LIC Act -1956,which was passed in the Budget session along with Finance bill.
Not a day passes without any item in the mainstream media about IPO in LIC .The Government of India had already issued notification giving effect to the 27 amendments to LIC Act -1956,which was passed in the Budget session along with Finance bill. There are already reports in the media that embedded value of LIC is around 150 billion dollars.
Life Insurance Corporation of India (LIC) came into being in 1956 through an act of Parliament with just Rs 5 Crores Capital from Govt of India and started its journey with the Motto- "People's money for People's welfare'. It never faltered in its chosen path and it has been functioning like mutual benefit society catering to the needs of needy sections and playing pivotal role in mobilising small savings of the people for the overall development of the country
Recent amendments to LIC Act ,1956 paved the way for listing of LIC in stock markets and bringing LIC under the provisions of Companies Act and SEBI Rules. Some mainstream economists are gleeful that henceforth LIC can raise resources from the markets.But, the facts are otherwise.
LIC itself is investing Rs 3.5 to 4.5 lakh crore every year for the development of the Country. LIC had invested more than Rs 31 lakh crore till now for the benefit of community at large.Out of this ,LIC had invested Rs 24,01,457 crores in central, state government securities, housing, irrigation roads etc ,dispelling the myths that LIC needed resources from the markets.
Even the arguments that listing enhances transparency are flawed as LIC is a transparent and efficient Board-managed institution. It comes out with public disclosures every quarter. It submits reports of its functioning every month to the regulator IRDAI. It places its accounts in the Parliament for scrutiny. If this is not transparent functioning, what else is?
Many listed companies have collapsed due to bad managerial practices and we have seen the collapse of ILFS, DHFL, Yes Bank and Lakshmi Vilas Bank. Many insurance giants (All are listed companies) in the world including AIG faced turbulent situation ,after 2008-09 economic crisis. AIG was virtually bailed out by US Govt by pumping lakhs of crores. Where as In India, LIC and other PSUs provided stability to Indian Economy. When World Trade Centre of USA was targeted by terrorists on September 11,2001,insurance Companies of USA stoutly refused to settle the claims, till they were subsidised by federal government.
Whenever natural calamities like earth quakes and cyclones occur in various parts of the country, LIC fully settles all the claims, by waiving the statutory requirements also. This gesture of LIC is unparalleled in the entire world. LIC has won so many national and international awards for excelling in corporate governance. LIC had received "Golden Peacock Award , "Most Trusted Brand" , "Excellence in Corporate Governance" etc awards from MARG & various reputed organisations. LIC achieved all these milestones in corporate governance despite not being a listed company. The superlative corporate governance of LIC debunks the myth that listing will enhance corporate governance of LIC!
In a country where only less than two per cent of the population access the share market, unlocking the value of a mammoth financial organisation for the purpose of retail investors ,will undermine the interests of 130 crores of Indian people. Only 3 per cent of the total participants in the stock exchange are retail Investors. The number of demat account holders in India is around 4 crores,out of this only 0.95% Crores are Active. The shares held by general public and ordinary investors is less than 0.01 per cent of shares traded in SBI Life and ICICI Prudential Insurance Companies.
As per international reports from UK, LIC was rated as 'Most Valuable Brand' throughout the globe. On the basis of Brand Strength, LIC occupies third position.
The brand value of LIC is immeasurable. Hence, it is preposterous to imagine that real value of LIC will unfold after its listing.
LIC settles 99.86 per cent of claims and In 2020-21 settled 2.29 crores of claims and once again became world number 1 in claim settlement. LIC has the lowest operating cost in the entire life insurance industry in India. Therefore, the arguments of better transparency, policyholders' interests etc totally fall flat in the face of existing reality.
Strengthening of LIC is 'sine qua non' for Atmanirbhar Bharat
LIC is providing social security and had become a beacon of hope to 40 crore policy holders and earned their massive goodwill .Despite the cut throat competition from 23 private Companies, LIC is still cruising ahead in life insurance industry as market leader with more than 74.58 per cent market share as at 31st March ,2021.This is a rare feat as even China Life Insurance Company couldn't retain more than 50 per cent market share.
Total NPAs of LIC to the Investments to the Rs 38 Lakh Crores Assets is 0.4 per cent, which is lowest by any international standard. LIC is going to invest Rs 1,50,000 crores in Railway ,recently committed to invest Rs 1,25,000 for the development of National Highways, which can't be expected from any private /MNC Insurance company .Once LIC is listed in Stock exchange, will it be allowed to continue to invest for the development of our country ? It is an open secret that any listed company has to work for the interests, profits of the share holders only. The experiences of VSNL, BALCO, Centaur Hotel etc are pointers in this regard.
LIC has been paying around Rs 10,000 Crores by way of income tax ,GST etc. On its Rs 100 Crores Equity in LIC ,LIC had paid Rs 2,697 Crores as dividend for FY 2019-20 to Govt of India. Since 1956 till date ,LIC had paid total dividend of Rs 28,000 Crores to Govt of India.T his humungous payment of dividend reflects the sterling performance of LIC. It is a misnomer that listing of LIC will protect the interests of policyholders .The LIC has fully protected the interests of its policyholders. While ensuring total safety of the funds of policyholders, it has the track record to giving the best returns in the form of bonus.
Therefore, the move to disinvest LIC will severely impact the economy and vulnerable sections of the Indian people. The objectives of nationalisation will recede in the background and LIC will have to concentrate on delivering increasing profits to the shareholders. The LIC like the private companies have to target the big policies which bring greater profits. In the process the small size policies which the poor, vulnerable and lower middle classes purchase will no more be attractive. The social objective of providing insurance cover to the weaker sections will receive a set-back. The aim to expand insurance in the unprofitable rural areas too will suffer. Therefore, any move to change the character of LIC will harm the interests of the national economy and the poorer sections of the Indian population.
As per one of the 27 proposed amendments, the Centre will hold at least 75 per cent in LIC for the first five years post the IPO, and subsequently hold at least 51 per cent at all times after five years of the listing. There is no imminent need for the Government to surge ahead for IPO in LIC, as LIC itself is contributing to 23 per cent of internal resources to the exchequer.
In the background of damage inflicted by corona pandemic to the economy and precious resources of our country, time is ripe for government of India to remove GST on insurance premium and further strengthen LIC for self- reliant India.
(The author is President of Insurance Employees in South Central Zone)