Thread by @kabhilash02

why is government selling lic when its profitable?
before that lets know some basics,

>The Parliament of India passed the Life Insurance of India Act on 19 June 1956 creating the Life Insurance Corporation of India, which started operating in September of that year.

It consolidated the business of 245 private life insurers and other entities offering life insurance services.

INDIA'S largest financial institution
1) LIC has total assets of 31 trillion rupees (~31 lakh crore OR $434 billion)

2) LIC has 1,11,979 employees and ~12 lakh agents
3) Profit of Rs 48,444 crore for FY2018.
4) 76% market share in Insurance sector.
5) Monopoly till 2000.

What sets the LIC apart from other insurers?
1)The government owns 100% of LIC.
2)It is the only insurer offering sovereign guarantee meaning that the policyholders funds are completely secure.

3)This is the reason that LIC policy premiums are higher than private sector counterparts.

Aggressive disinvestment

The govt has targeted an aggressive disinvestment programme.

The government has set an ambitious target of ₹2.1 trillion(2.1 lakh crore) for the sale of government holding in state-run companies .

It includes ₹90,000 crore to be raised from an IPO in LIC and a stake sale in IDBI Bank.
The aggressive stake sale plan comes against the backdrop of declining tax collections and a sharp deceleration in the economy.

Why haven’t the earlier governments done so (sold stake in LIC)?
LIC has been used as an investor of last resort in the past to support the markets by buying shares of state-run companies.

It also bought shares of state-owned companies during divestment and when investor participation was weak.($1.4 billion in ONGC IPO)
It was also called in to bail out IDBI Bank, which had been severely hit because of bad loans in 2018.(~10,000 crore)

LIC invests Rs 55,000 crore to Rs 65,000 crore in stock markets every year and emerges as the largest investor in Indian stocks. In FY19, LIC invested around Rs 68,620 crore into the equity market.

It also provides funding for many infrastructure projects - Rs 3,76,097 crore as of March 2018.
LIC owns double-digit stakes in several publicly traded firms, including Bharat Heavy Electricals Ltd. and Larsen & Toubro Ltd., that are collectively worth more than $80 billion

If LIC shares are listed on stock exchanges, it could easily emerge as the country’s top listed company in terms of market valuation.

Benefits of LIC going public
1)The government is expecting over ₹70,000 crore from the sale of an undisclosed stake in LIC.
2) Listing of companies on stock exchanges disciplines a company and provides access to financial markets and unlocks its value.

3)It also gives opportunity for retail investors to participate in the wealth so created.
Unlike unit-linked insurance plan (Ulip) investors, who have a clear visibility on the daily performance of underlying funds, the endowment policyholders’ visibility is limited

to annually declared bonuses.
4) Public listing of LIC will lead to more disclosures of investment and loan portfolios and better governance, with greater transparency and accountability.
5)Listing will allow analysts to monitor LIC’s governance

LIC will come under Sebi’s direct watch and will have to comply with the requirements meant for other listed firms. 6) Such compliance is likely to strengthen its overall corporate governance, financial and investment discipline.

7 )Over time, this will increase its efficiency and it may deliver higher returns to policyholders.
8) Government’s influence on its asset management will reduce.
credit - mahipal singh rathore.
#lic