India’s largest financial institution Life Insurance Corporation (LIC) has been identified as a candidate for a potential public listing by the government, as it attempts to push through an aggressive disinvestment and asset monetisation programme this fiscal.
If the LIC shares are listed on stock exchanges, it could easily emerge as the country’s top listed company in terms of market valuation, overtaking current leaders Reliance Industries Ltd and Tata Consultancy Services. That is because of the insurer’s financials. On a capital base of Rs 5 crore, LIC last reported a valuation surplus — or profit — of Rs 48,436 crore for FY2018 and assets under management of Rs 31.11 lakh crore.
Sources said that the process is in the early stage and has been discussed within the government. The proposal is to initially sell a small tranche of the government controlled institution through an IPO and later dilute the government’s holdings, according to sources. The government has already announced a proposal to make minimum public holding of 35 per cent for listed companies in the Budget. The initial public offering (IPO) is likely to fetch a huge premium as LIC currently has a small equity base.
The government had listed the shares of General Insurance Corporation and New India Assurance through IPOs two years ago. It will have to amend the LIC Act first before taking the Corporation public.
For long, governments had not considered listing India’s top insurer, given the institution’s perceived role in supporting the markets by buying shares during major sell-offs and also shares of state-owned companies during divestment and when investor participation has been weak. LIC also has huge investments in debentures and bonds (Rs 434,959 crore), besides providing funding for many infrastructure projects (Rs 376,097 crore as of March 2018), according to its Annual Report for 2017-18.
Amending LIC Act a necessary step before public listing
Public listing of LIC will lead to more disclosures of investment and loan portfolios and better governance. LIC is currently under the supervisory oversight of the IRDAI, but it is governed by the LIC Act of 1956 which enables the state-owned insurer to obtain a special dispensation in several areas including higher stakes in companies beyond the limit set by the IRDAI. The government will have to amend the LIC Act before listing the corporation — which is the largest financial institution in the country.
LIC realised a profit of Rs 23,621 crore from its equity investment during 2018-19 as against Rs 25,646 crore in the previous year. The life insurance behemoth also made a gross equity investment of Rs 68,621 crore during the 2018-19 fiscal.
One view is that a public listing may help lead to more disclosures of investment and loan portfolios and better governance. LIC is currently under the supervisory oversight of the Insurance Regulatory Development Authority of India (IRDAI). But it is governed by the LIC Act of 1956 which enables the state-owned insurer to obtain a special dispensation in several areas, including higher stakes in companies beyond the limit set by the IRDAI. Under Section 37 of the LIC Act, the government has guaranteed the sum assured with bonus in all LIC policies to ensure the availability of financial security to the family of the deceased.
LIC Chairman MR Kumar did not comment on the listing plan when his response to the listing proposal was sought.
Though the minimum capital stipulated for a life or non-life insurance company by IRDAI is Rs 100 crore, LIC has been operating with a capital base of just Rs 5 crore as set in the LIC Act of 1956. However, the corporation has been handling huge funds when compared to this small capital base. Consider this: the market value of LIC’s investment as at end of FY19 is Rs 28.74 lakh crore, as against Rs 26.46 lakh crore in 2017-18, showing a growth of 8.61 per cent. Moreover, the total assets of the corporation crossed the historic figure of Rs 30 lakh crore for the first time to Rs 31.11 lakh crore, a rise of 9.38 per cent.
Industry officials said the listing should help bring in greater transparency and accountability. “Whether formally so declared or not, LIC is a systemically important insurer. Already the bail-out type investment proposals of LIC in ventures like IL&FS are a subject matter of hot media debates. These are funds of millions of trusting policy holders. But yes, any divestment of stake will first require amendment to the LIC Act,” said former IRDAI member KK Srinivasan.
Successive governments in Delhi have used LIC as a milch cow to bail out the disinvestment programme. The corporation had invested heavily in IPOs and follow-on offers of companies such as ONGC. It was also called in to bail out IDBI Bank, which had been severely hit because of bad loans last year. It is also the largest investor in government securities and stock markets every year. On an average, LIC invests Rs 55,000 crore to Rs 65,000 crore in stock markets every year and emerges as the largest investor in Indian stocks.
Out of valuation surplus – which is equivalent to profit in the case of LIC — of Rs 48,444 crore for fiscal 2017-2018, the government got only 5 per cent as 95 per cent had to be mandatorily returned to the policyholders.
According to the provisional accounts for 2018-19, LIC’s total premium income — new premium along with the renewal premium — was Rs 337,185 crore, showing a growth of 6.08 per cent, while the total benefits paid amounted to Rs 250,936 crore, growing by as much as 26.66 per cent. LIC had mobilised a total new premium of Rs 41,086.31 crore in FY19. The total income of LIC, which includes total premium and investment income, was around Rs 560,784 crore in 2018-19, a rise of 7.10 per cent. Such a robust income augurs well for the corporation’s policyholders, who can continue to expect a decent bonus for 2018-19.
However, with LIC’s declining market share in the domestic market, the company’s performance has been an area of deep concern for its new top management. Its market share declined to 66.74 per cent in 2018-19.
According to the performance analysis by LIC’s top management, headed by recently-appointed chairman MR Kumar, the corporation — except in pension and group scheme (P&GS) — has missed its own targets in the most of the parameters during financial year 2018-19.