Money & Banking

Govt moves to shed stake in a general insurance co

Our Bureau New Delhi | Updated on July 31, 2021

Finance Minister Nirmala Sitharaman speaks in the Lok Sabha, during the Budget Session of Parliament, in New Delhi, Monday, March 22, 2021.   -  PTI

Not a move to privatise, insists Finance Minister as members protest

The Finance Minister, Nirmala Sitharaman, on Friday introduced a Bill in the Lok Sabha to offload a part of government's stake in public sector general insurance companies. The Bill will amend the General Insurance Business (Nationalisation) Act, 1972.

Although the Bill has a provision that will allow the government to bring down its shareholding below 51 per cent, Sitharaman clarified that this is not a Bill for privatisation. “The apprehensions of the members are not well-founded at all. What we are trying to in this is not to privatise. We are bringing some enabling provision so that the government can bring in public participation... Indian citizens... the common people’s participation in general insurance companies,” she said while introducing the Bill amid din.

Three amendments

The Bill proposes three amendments. The first aims to omit the proviso to Section 10B of the Act so as to remove the requirement that the Central government holds not less than 51 per cent of the equity capital in a specified insurer.

The second amendment is to insert a new Section 24B, providing for cessation of application of the Act to such a specified insurer from the date on which the Centre ceases to have control over it.

And, the third amendment is also to insert a new Section 31A, making a director, who is not a whole-time director, liable only for acts of omission or commission committed with his knowledge and connivance by the insurer.

Which of the four?

As on date, there are four public sector general insurance companies — National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited, and United India Insurance Company Limited. It is not yet known in one the government will lower its shareholding.

With the enactment of this Bill, share sale is expected this fiscal year in one more public sector insurance company apart from Life Insurance Corporation of India (LIC). The government has said that the size of the IPO can be expected to be larger than any so far in Indian markets. So, the big question is that whether government will see success in both the offerings.

Devendra Kumar Pant, Chief Economist with India Ratings & Research, said that success of IPOs/FPOs of insurance companies will depend upon the liquidity in the market and the pricing of the issue. Going by the record of offerings in recent times, public issue of insurance companies can be expected to sail through.

Impact on govt finances

“Now, if the government shed parts of its shareholding in LIC and a general insurance company, it will lose money by the way of dividend in the proportion of shares being offered. If it does not sell parts of its stake, it will be required to borrow money which means higher expenditure in future on account of debt servicing. Both options are going to impact the finances,” he said.

Till now, only one public sector insurance company, New India Assurance, has entered the stock market.

This public sector insurance company’s IPO of ₹9,600 crore in 2017 saw a modest success. The issue price was ₹800. Even after a bonus issue in 2018, the share price is at ₹161.85 (at Friday’s close).

 

 

 

Published on July 30, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like