LIC IPO

LIC IPO

Image - Wasim akram beldanga / CC BY-SA 

Not a long time ago, Finance Minister Nirmala Sitaraman presented the 2.4 hour speech on budget 2020 which stirred a set of debates around the Insurance Industry. One of its main highlight of the Budget announcement was the Initial Public Offering (IPO) of the behemoth of insurance industry in India, the LIC.

Let's analyze fact by fact the public listing of the state-owned  Life Insurance Corporation.

The Goal

Well, there is a goal called a disinvestment target set by the Govt. of India to meet the financial requirements for the Union Budget 2020. Govt decided to divest not all, but some percentage of stakes of LIC in stock exchange which is stated to be around 10 percent. That mere 10 percent is said to meet Govt. disinvestment target by around Rs. 80000 Crores. Subtract it by 2.1 lakh Crore. That's a major chunk Govt will be getting right? 

Thanks to the humongous Asset Under Management of LIC i.e. around 33 lakh crores. 

And once listed, LIC IPO will push all other big companies such as Reliance (RIL) and Tata Consultancy Services behind and will become the largest company in market capitalization in India.

LIC - The Savior 

LIC can be termed as one of the most profitable organizations owned by Govt. of India. LIC Policy is one of the most trusted insurance policy a person can get in India. Out of every 100 claims, the percentage for the settlement ratio is 98.31%.

It's not new to the Govt that listing is being done. Earlier GIC Re and Coal India were also divested in the offering. But the majority of its chunks were subscribed by LIC. It seems things didn't go down well with these since LIC has garnered more NPAs (Non-Performing Asset) into its arena.

Speaking of NPA, IDBI comes into my mind. LIC stakes around 51 percent of controlling shares in IDBI didn't turn out to be fruitful as IDBI has a lot of bad loans on its side. It has been suffering losses for 4 years. Moreover, Govt. force on LIC in purchasing stakes in other PSU led its NPAs to grow horribly higher as it has been doubled in 5 years to 7.49%. Generally, LIC used to maintain an average of 1.5 to 2 percent of NPA previously but the deterioration, a major factor being IDBI making a dent on its assets. To decrease the NPA, LIC had to shell out  Rs 23,761 crores to bail out IDBI, still, this is not enough. It can be termed as the savior of the state. The insurance giant has a stake in a whopping 21 state-owned banks and out of the 11 are undergoing a bad loan phase. 

But whatever the case may be, LIC is still the most highly profitable organization as I said earlier. The profit from investment for the financial year 2018-2019 was Rs. 29,956 crores. Assets under management are stepping higher and higher. LIC has more than 76 % market share in terms of no. of policies. It has the trust of millions of policyholders and LIC is one of the oldest branches of the Insurance Industry in India. 

Process?

IPO of LIC is not gonna be an easy task. Such a big asset has to be reviewed and audited by SEBI for listing in the stock market and LIC Act 1956 has to be amended since Public listing is going to happen.

Benefits?

Things that will make this beneficial to both govt. and society will be transparent in the financial portfolio. Policyholders will now be able to track how LIC is performing in Insurance Market. This will further allow LIC to be more responsible for its investments. People needn't be worried about their policies and money invested in LIC as govt assures that it will maintain policyholder's interest as it was earlier. 


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