New Delhi:
As part of government's plans, Finance Minister Nirmala Sitharaman, while presenting Budget 2020 on Saturday, proposed to sell a part of its holding in largest insurer Life Insurance Corporation (LIC) via initial public offer (IPO).
The government proposes to sell a part of its holding in LIC, the largest life insurer in the world in terms of policies, through the initial public offer(IPO)," the finance minister said, without specifying any further details.
On the IPO size and timeline for the LIC disinvestment plans, Rajeev Kumar, finance secretary cum secretary department of financial services(DFS) said that the details are being worked out.
“It will be finalised in the next fiscal.The required measures and the processes,including the consultations with the Law ministry,for the disinvestment of LIC, have already been initiated,'' said Kumar.
The government has a target to raise of Rs90,000 crore,as part of divestment revenue target of Rs 2.1 crore, for FY21 from the disinvestment plans of the state owned financial insititutions including LIC and and IDBI Bank during 2020-21,said Atanu Chakraborty, economic affairs secretary..
The LIC IPO will be one of the largest one, may be crossing Rs 50,000 crore, in the country and would help the government to mobilise large funds to manage its fiscal deficit that has come under stress due to low tax collections in recent times.
Sitharaman revised the country's fiscal deficit target to 3.8 per cent for the current fiscal year, from an earlier target of 3.3 per cent Sitharaman,who was presenting the annual budget in parliament, also pegged the fiscal deficit target for the year 2020/21 at 3.5 per cent of the GDP. Moreover, in 2019-20, against the target of Rs 1.05 lakh crore for FY20, the government has raised just over Rs 18,000 crore from divestment proceeds.
The government currently owns the entire 100 per cent stake in LIC, which was established in the year 1956.
The government has to first amend LIC Act 1956 as the existing Act doesn't allow any disinvestment in LIC, said analysts.
“There are a lot of technicalities which have to sorted out before LIC gets IPO ready. It may take sometime,'' said ministry of finance(MoF) official
.
However, neither the much awaited announcement on raising the FDI limit in the domestic insurance industry from 49 per cent to 74 per cent and the mergers of three PSU general insurers, United India,Insurance(UII), National Insurance Compoany(NIC) and Oriental Insurance Company(OIC), were missing in the Budget-2020.
“The Government’s decision to list LIC is a welcome move. This will result in better governance and greater transparency given the disclosure requirements of listed entities. It will also contribute materially to the efforts of the Government to raise funds through divestments,'' Sandeep Ghosh, Partner & Leader, Financial Services Advisory,EY India.
Sanjay Doshi, Partner, Deal Advisory – Financial Services, KPMG in India said, LIC IPO will increase penetration of the new and recent insurance segment in capital markets.
Starting with an initial capital of Rs 5 crore in 1956, LIC has assets of over Rs 31,11,847.28 crore with life fund to the tune of Rs 28,28,320.12 crore.It has over 30 crore policies.
LIC had started with 168 offices in 1956, and today it has over 4,851 offices. The insurer has over one lakh employees, 11.79 lakh agents, 29.09 crore plus policies, it said.
LIC's total first year premium amounted to Rs 1,42,191.69 crore at the end of March 31, 2019 capturing 66.24 per cent of market share. LIC's market share in terms of number of policies was 74.71 per cent, garnering over 21 million new policies as on March 31, 2019.
Meanwhile,LIC employees' unions opposed the Centre's plan to sell a part of its shares in the state-run insurance behemoth, insisting that the move is "against the national interest". "We strongly oppose the government's plan to sell a part of its shares in LIC and the move is against the national interest," a spokesman of an employees' union told reporters in Kolkata.
He said that LIC has contributed a lot in the economic growth and the dilution of the government's stake in the company will "endanger the economic sovereignty of the country".
The employees' unions of LIC across the country will stage nationwide protests if the government goes ahead with its plan, he said. He alleged that it will also affect crores of policy holders of LIC.