The entire edifice of LIC is built on complete trust of people. So, prudence is necessary before going ahead to sell equity in it. History and present developments bear testimony to the fact that a strong LIC is sine qua non for Atmanirbhar Bharat.
By P Satish, President of LIC Employees, SCZIEF (AP, Karnataka and Telangana)
Not a day passes without a report in mainstream media about IPO in LIC. The Government of India has already issued a notification giving effect to the 27 amendments to LIC Act, 1956, which was passed in the Budget session along with the Finance Bill.
The Life Insurance Corporation of India came into being in 1956 through an act of Parliament with just Rs 5 crore capital from the government and started its journey with the motto: “People’s money for people’s welfare”. It never faltered in its chosen path and has been functioning like a mutual benefit society, catering to the needs of needy sections and playing a pivotal role in mobilising small savings of the people for the overall development of the country.
The recent amendments paved the way for the listing of LIC in stock markets and bringing it 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 is investing Rs 3.5–4.5 lakh crore every year for the development of the country. It has invested more than Rs 31 lakh crore till now for the benefit of the community at large. Out of this, it has put in Rs 24,01,457 crore in Central and state government securities, housing, irrigation, roads, etc., dispelling the myth that LIC needs resources from the markets.
Even the argument that listing enhances transparency is flawed. LIC is already 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 Parliament for scrutiny. If this is not transparent functioning, what else is?
Many listed companies have collapsed due to bad managerial practices. We have seen the collapse of IL&FS, DHFL, Yes Bank and Lakshmi Vilas Bank. Many insurance giants (all are listed companies) in the world including AIG faced a turbulent situation after the 2008-09 economic crisis. AIG was virtually bailed out by the US government by pumping in lakhs of crores. However in India, LIC and other PSUs provided stability to the country’s economy. When the World Trade Centre in the US was targeted by terrorists on 11 September 2001, insurance companies of America stoutly refused to settle the claims till they were subsidised by the federal government. But whenever calamities like earthquakes, cyclones and tsunamis occur in various parts of the country, LIC fully settles all the claims, by waiving even statutory requirements. This is unparalleled in the entire world. It has won many national and international awards for excelling in corporate governance including the Golden Peacock award, ‘Most Trusted Brand’, etc., from MARG and various reputed organisations. And it achieved all these milestones in corporate governance despite not being a listed company.
In a country where only around 2% 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 crore Indian people. Only 3% of the total participants in the stock exchange are retail investors . The number of demat account holders in India is around 4 crore; out of this just 0.95 crore are active. The brand value of LIC is immeasurable, as many reports point out. Hence, it is preposterous to imagine that the real value will unfold after its listing.
LIC settles 99.86% of claims and in 2020-21, it settled Rs 2.28 crore in claims, once again becoming the world number 1 in claim settlement. It 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.
LIC is providing social security and has become a beacon of hope to 40 crore policy holders, earning their massive goodwill. Despite cut-throat competition from 23 private companies, it is still cruising ahead in the life insurance industry as market leader, with more than 74.58% market share as of 31 March 2021. This is a rare feat as even China Life couldn’t retain more than 50% market share.
With Rs 38 lakh crore assets, the net NPA ratio is 0.4%, which is one of the lowest by any international standard. LIC is going to invest Rs 1,50,000 crore in railways and recently committed to invest Rs 1,25,000 crore for the development of national highways, which can’t be expected from any private/ MNC insurance company. Once LIC is listed in the 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 and profits of shareholders only. The experiences of VSNL, BALCO, Centaur Hotel, etc., are pointers in this regard.
LIC has been paying around Rs 10,000 crore by way of income tax, GST, etc. On its Rs 100 crore equity in LIC, LIC had paid Rs 2,697 crore as dividend for FY 2019-20 to the government. From 1956 till date, the company has paid a total dividend of Rs 28,000 crore to the government. This humongous payment of dividend reflects its sterling performance. So, it is wrong to claim that the listing of LIC will protect the interests of policyholders. The LIC has already fully protected their interests. While ensuring total safety of their funds, it has the track record of 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 population. The objectives of nationalisation will recede into the background and LIC will have to concentrate on delivering increasing profits to the shareholders. Like private companies, it will have to target big policies that bring greater profits. In the process, the small-size policies that the poor, vulnerable and lower middle classes purchase will no longer be attractive. The social objective of providing insurance cover to the weaker sections will face a setback. The aim of expanding insurance in the unprofitable rural areas too will suffer.
As per one of the 27 proposed amendments, the Centre will hold at least 75% in LIC for the first five years after the IPO, and subsequently hold at least 51% at all times after five years of the listing. Hence, it is obvious that shares in LIC may be pared down to 51% in a span of five years. The entire edifice of LIC is built on complete trust of people. So, prudence is necessary before going ahead to sell equity in it.
History and present developments bear testimony to the fact that a strong LIC is sine qua non for Atmanirbhar Bharat.
This is a beautifully written article. Very well put!