Money & Banking

K.R. Srivats | New Delhi, May 10 | Updated on: May 10, 2022

Government to facilitate LIC Board’s efforts in striking right balance between policyholders and shareholders interests

Insurance behemoth Life Insurance Corporation (LIC) has a competent Board that would continue to be run professionally post its upcoming listing as well and instances of its decision making at the behest of government are unlikely to arise, top Finance Ministry officials have assured.

There is no reason to hold any suspicion or perception that the government, by virtue of its dominant shareholding (96.5 per cent post IPO), would interfere in the investment decisions of LIC or nudge it to divert some of its premiums to serve the interest of the State (country) rather than pursue its profitability, they said.

“See, even earlier (before IPO), LIC was being managed through a professional board. It is not that as is being hinted that certain decisions were being taken at the behest of the government. I would totally deny that. At least I am not aware of that,” Sanjay Malhotra, Secretary, Department of Financial Services, said.

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He highlighted that it is quite possible that sometimes decisions are judgments that a board makes. “Enough mechanisms have been put in place that the board takes independent judgments and the board can go wrong on those decisions. We talk about those but the board does make several good decisions which yield good returns. But that is not highlighted by the fourth estate,” Malhotra said.

He was responding to a question on whether government interference in LIC’s functioning will end now that the insurance behemoth is getting listed on the bourses.

“I would like to assure you that we are not aware of such decisions (taken by LIC at the behest of government) and going forward also the board would continue to be professionally managed and decisions will be taken in the interests of policyholders, who are paramount,  on one hand and also that of shareholders,” Malhotra said.

LIC for policyholders

DFS Secretary highlighted that the the Corporation exists for the customers (policyholders) and if they are not going to be there, the company and shareholders are not going to be there. 

“Policyholders interest  is paramount, of course shareholders interest has to be looked into — without them the company can’t move forward. That’s approach board will follow and government will facilitate that,” he said.

DIPAM Secretary Tuhin Kanta Pandey said that it would not be right to “blame” government for interference in LIC’s decisions, especially when there is no such instance at least in the last two years. 

“You are putting a blame. There may have been instances. I am not saying that. To say that it has been grossly misused .. please tell me one instance in last two years where government has influenced LIC which is detrimental to the interests of LIC or its policyholders or its business. There is none,”  Pandey said.

These remarks of the two top Finance Ministry officials should comfort institutional and retail investors who had put their faith in the latest mega ₹21,000-crore LIC IPO, which was the largest in the country’s capital markets history and the fifth largest public offering globally this year.

Investors concerns emanated from several wrong equity and debt oriented bets of LIC including that of beleaguered  IL&FS,  a government supported infrastructure investment fund that went bust in 2018. 

Several equity investments in LIC’s portfolio has in recent years taken a hit in value and many of its debt investments had turned into non performing ones, raising concerns around the health of its huge investment portfolio. 

Pandey highlighted that listing is good thing as there will be shining of light on many things. “You must commend the government commitment to get it listed so that there is more and more questioning.. there will be quarterly results .. these will be the collateral benefits. If government gets some disinvestment receipts, it is for the people of India. If you want capex to be done, food and fertiliser subsidy to grow and being funded, then disinvestment and public listing is the answer,” he added.

LIC new business premiums soar

Meanwhile, LIC has started the current fiscal on a strong note with its April 2022 new business premium (NBP) recording a 141 per cent increase to ₹ 11,717 crore. 

This robust increase came on the back of 233 per cent year-on-year growth in group single premium. In 2021-22, LIC’s new business premium grew 8 per cent in 2021-22 to ₹ 1.98 lakh crore.  

Typically, April is a slow month for life insurance companies.  In April 2022, private life insurers recorded 27.47 per cent increase in new business premium at ₹6,223 crore. NBP is the premium acquired from new policies for a particular year.

LIC, which has been taken to the public markets at a valuation of ₹6 lakh crore, has assets under management (AUM) of $507 billion, which is at least three times more than the aggregate AUMs of 23 private life insurers in India. 

Published on May 10, 2022