LIC Act likely to be amended to facilitate public issue

The government is likely to move a Bill in the forthcoming monsoon session of Parliament to amend the Life Insurance Corporation (LIC) Act, 1956.

This amendment, being prepared by the Department of Financial Services (DFS), will facilitate the Initial Public Offering (IPO) of the country’s largest life insurer. It will also enhance its paid up equity capital.

The process to appoint merchant bankers has already been initiated. According to sources, the DFS is preparing a Cabinet proposal. The Cabinet may also consider a tagged proposal to give umbrella approval for off loading up to 25 per cent of equity in various tranches.

The government plans to come out with the IPO during the second half of the current fiscal. The amendment in the LIC Act is required to achieve at least three objectives — to list as a corporation and not as a company, expansion of paid up capital and continuation of sovereign guarantee to shareholders.

Listing as a corporation and not as company is key to ensure sovereign guarantee as there are some issues in giving sovereign guarantee under the Companies Act, 2013.

LIC Act envisages that, “The sums assured by all policies issued by the Corporation including any bonuses declared in respect thereof and, subject to the provisions contained in Section 14 the amounts assured by all policies issued by any insurer the liabilities under which have vested in the Corporation under this Act and all bonuses declared in respect thereof, whether before or after the appointed day, shall be guaranteed as to payment in cash by the Central Government.”

The original capital of the Corporation was ₹5 crore. After the 2011 amendment in the LIC Act was passed, the paid up capital was enhanced to ₹100 crore.

Considering the size of business and to offer more shares, while retaining the government’s shareholding over 50 per cent, the capital base will have to be expanded. The amendment in the Act will help achieve this.

Though, the government has not disclosed how much of its shareholding will be offloaded through the IPO, expectations are that it will be 10 per cent. Once listed, an entity is required to have at least 25 per cent of public shareholding — shares owned by those other than promoters and include institutions and individuals after three years.

According to sources, an umbrella approval of off-loading up to 25 per cent can help the government to approach the market as and when required.

The Budget documents show the government has set a disinvestment target of ₹2.1-lakh crore, of which ₹90,000 crore would come from the sale of IDBI Bank and LIC stake.

LIC reported a 12.42 per cent increase in total premium income in 2019-20 to ₹3.79 lakh crore as against ₹3.37 lakh crore in 2018-19. New business performance for the year ending March 2020 has grown by 25.17 per cent in its first year premium, by posting a highest ever figure of ₹1.77 lakh crore.

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