New Delhi, Feb 01:
After Nirmala Sitharaman announced, in her Budget-2021-22, the government's intention to privatise one of the four state owned general insurance companies along with two PSU banks, Ajay Bhusan Pandey, finance secretary, Ministry of Finance(MoF), has clarified that the government is yet to decide the names of two banks and general insurance company which will be privatised..
Sitharaman, in her Budget document, hasn't also named any of the state owned general insurance company that will be privatised and in what ways.
`Privitisation of a public sector banks or an insurance company depends upon a lot of processes which will be kickstarted now by the ministry. We will examine which of the PSU banks excluding IDBI Bank and an insurance company is ready or to be made ready for the privatisation.It will be a time consuming process. We will announce names, once we identify these companies'' he said, .
However,the government's target of raising Rs 1.75,trillion,in 2021-22, out of the disinvestments of PSU companies is realistic and will be met. Whether, it would include the resources to be raised by privitising two PSU banks and one general insurer is yet to be seen,'' explained Pandey.
Indicating privatisation of banks and one general insurance may not happen during FY 2021-22, later,Tarun Bajaj, Secretary, economic affairs clarified that any disinvestment proceeds from two PSU banks and one general insurance company have not been made part of overall disinvestment target of Rs 1.75 trillion, that the government wants to mobilise in 2021-22.
Even, any proceeds from the IPO of Life Insurance Corporation(LIC) and full privatisation of IDBI Bank are not part of Rs 1.75 trillion, he revealed..
“We had a great deal of consultation process with wide sections of people before arriving on any conclusion on the decision to privatise some PSU banks and one general insurance company as part of the government's strategic disinvestment programme, We have lined of a number of PSUs which will be a kind of pipeline for the disinvestment programme over a period of time. This is a bold political move and we will be able to implement it going forward,'' he said.
As far as the disinvestment in the IDBI Bank is concerned, Bajaj said both the government and LIC will disinvest their stakes simultaneously.
Debasish Panda, secretary, Department of Financial ServIces, Ministry of Finance, said, the process to disinvest government stakes from two PSU banks and one general insurer will start now.
Recently, the government has laid down a mechnism to identify the names of PSUS which will be privatised.
“There are three committees which will be doing the job.It will start with the NITI Aayog indentifying the names of the two PSU banks and one general insurance company that will be privatised. Then the proposals will go to Core Group Secretaries on Disinvestment(CGD) and then to Alternate Mechanism(a group of ministers) for the finalisation of names.The final decision on privitisation any PSU will be taken by the Cabinet.The privitisation process of PSUs is part of Government's reforms agenda, is a continuous process and shouldn't be evaluated in just one year,'' added Panda. .
Whether more of banks and general insurers that will considered for privitisation he said, “As we gain exprience, we will decide about more.These are part of long term strategic disinvestment programme of the government.''
On the lagislative changes that are needed to facilitate the IPO(Initial Public Offering) of the Life Insurance Corporation(LIC), TV Somanathan, secretary, expenditure,,said no separate lagislative moves,to be approved by the Parliament, are required as they have been taken care of by the new Finance Bill- Budget-2021-22 ,that has already been presented in the Parliament on Monday…
“LIC listing has been delayed as some steps like finding out independent value- which are being done through by arriving at the Embeded Value(EV) of the coprporation,for which DIPAM has already appointed an actuary, was yet to be completed. LIC never did this exercise earlier,'' said Somanathan.
Exact time for privatisation or disinvestment and listing of LIC will depend upon a lot of factors including investors sentiments,
However, officials point out that the government is determined to privatise IDBI Bank and launch LIC IPO in 2021-22.
Analysts point out that privatising one of the PSU general insurance companies will be a complicated process and wouldn't be an easy call for the government.
State-owned listed New India Assurance(NIA), the largest general insurance is the only profitable general insurer among the four PSU general insurers and government will not like to privatise it as it needs a sound and PSU general insurer to support the growth of the Indian economy..
On the other hand, three other PSU general insurers -. Oriental Insurance Company Limited (OlCL), National Insurance Company Limited (NICL) and United India Insurance Company Limited (UIICL).are currently not in a proper financial conditions and can't attract investors who can pay reasonable amount of money to the government. .
Though, state owned NIA contributed the highest net profit, at Rs1418 crore, to the domestic general insurance industry, the sector, with 32 players was saddled with total net losses of Rs 1402 crore in FY 2019-20 as mainly the other three PSU general insurers, UII, NIC and OIC had dragged down the industry's financials with their huge underwriting losses during the reporting period,.
Three PSU general insurers, with their large underwriting losses of Rs14,443 crore, together have been responsible for losses of over Rs 7118 crore in the industry in FY 2019-20.
NIC, with a combined ratio of 160.8 per cent and underwriting losses of Rs 5,759 crore, has suffered net losses of Rs 4108 crore while OIC(141 per cent, Rs 4,197 crore) and UII (132 per cent, Rs 4,487 crore) have been hit with losses of Rs1524 crore and Rs 1486 crore respectively in FY 2020-21
The then finance minister Arun Jaitley, in the budget for FY19, had announced its decision to merge three general insurance companies but last year,that decision was reversed.and the government approved ₹12,450 crore of capital infusion.
The cabinet also cleared an increase in the authorised capital of these companies to allow capital infusion and enable them to raise funds.
The government said “given the current scenario, the process of merger has been ceased so far and instead, focus shall be on their solvency and profitable growth, post capital infusion.
The ₹12,450 crore capital infusion includes ₹2,500 crore provided in FY20. The insurers will be provided ₹3,475 crore immediately while the balance ₹6,475 crore will be infused later.
“The re-capitalisation will make them more stable,” the MoF officials had said..