The government is nudging India’s largest local investor, the state-owned Life Insurance Corporation, to exercise greater control, including seeking more board seats if needed, in some of the listed companies in which it has sizeable holdings to ensure the safety of investments.
Further, in companies where LIC is a shareholder, the government wants the insurer to ensure governance standards and take a stand on critical issues. “I entirely agree that where LIC is a shareholder, it should protect its shareholding and ensure the highest standards of functioning. It makes business sense to protect your shareholding. They have to take a stand,” Rajiv Takru, secretary, department of financial services, told ET in an interview. The department oversees state-run banks and insurers.
LIC, which manages assets worth over 13 lakh crore, exceeding other local fund managers by a fair distance, has investments in hundreds of Indian companies, including almost all blue chips. But it is seen as being a passive fund manager.
In FY13, the insurer bought stocks worth 17,630.39 crore, including shares of state-run companies in which the government divested its stake through an auction process. Takru, who took over as secretary in the department earlier this year, said he was shocked to learn that in some companies, LIC, despite owning a substantial stake, does not even have board representation. “Now this is something on which I find LIC very diffident. It is very hesitant. Had a private sector entity been what LIC is, it would have been a dada,” the secretary said.
Takru made it clear the aim was not to intimidate or interfere in the affairs of corporates, but to put across the view that LIC – a significant shareholder in some of the top Indian companies – should play a proactive role to safeguard its investments. “If I am a 9% shareholder, I have a right to be on the board. Who else has a 9% shareholding keeping aside family concerns? Somebody sitting with 4% thinks he owns the company. My financial institution is 30% and we are not there,” Takru said. LIC owns the stocks of almost all top Indian companies across sectors, a portfolio built over several decades. This includes stakes in multinational companies, where parent firms were told by the government to divest part of their holdings in favour of LIC in the late 70s as part of a move to widen the shareholder base.
It has often been criticised for not wanting to question managements and for seeking guidance from the finance ministry. But that stance is defended by officials who say LIC does not want be caught in the crossfire in any corporate battle.
Over the weekend, the LIC board met to discuss its investment strategy. Takru, who is on the board of LIC, also attended the meetings.