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 working on a note to the Cabinet. The Cabinet may also consider a tagged proposal to give umbrella approval for off-loading up to 25 per cent of the LIC equity in several tranches. According to sources, this can help the government approach the market when required to achieve minimum public shareholding. The government plans to come out with the IPO during the second half of the current fiscal. The amendment to the LIC Act is required to achieve at least three objectives – list the insurer as a corporation and not as a company; expand its paid-up capital, and ensure that it continues to give sovereign guarantee to policyholders. Listing the insurer as a corporation and not as company is key to providing sovereign guarantee; this will be a problem if LIC is under the Companies Act, 2013. The LIC Act envisages that “The sums assured by all policies issued by the Corporation, including 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.” LIC’s original capital was Rs. 5 crore. This was enhanced to Rs. 100 crore after the 2011 amendment to the LIC Act. Though the government has not disclosed how much of its shareholding will be offloaded through the IPO, it is expected to 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 – within three years. The Budget documents show that the government has set a disinvestment target of Rs. 2.1-lakh crore, of which Rs. 90,000 crore would come from the sale of stakes in IDBI Bank and LIC. LIC reported a 12.42 per cent increase in total premium income in 2019-20 to Rs. 3.79-lakh crore against Rs. 3.37-lakh crore in 201819.

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