MOVE TO LIST LIC IN STOCK MARKET
By N Sundaramurthy
LIC continues to be in front page news for wrong reasons. Stories are in circulation in the media, more so in the news portals that Prime Minister Narendra Modi government’s disinvestment targets may worsen LIC’s health and wealth. There are headlines that LIC’s bad loans have bulged by 145 per cent in the last five years to Rs 30,000 crore as on September 30, 2019. Concern for the continued good financial health of LIC is quiet in order. The nation and its people have great stakes in the LIC.
According to UK’s ‘BRAND FINANCE’ Institution, LIC is the most trusted brand in India, whose brand value is 7.32 billion dollars. But a negative tinge while reporting about the investments of the LIC will have unhealthy impact on the policy-holders and the public, which will be harmful. It shall lead to a scare.
Let us deal with the issue of LIC’s NPAs a little more in detail and carefully a little while later. In the meantime the Union Budget 2020 has come. The government has announced that it will list the LIC in the stock market. The two issues of soaring LIC’s NPAs and the proposed disinvestment in LIC, together has the pathogen to destabilize the LIC, which will destabilise the economy of the country as well in the longer run. That is the real danger.
Arvind Nadane, one of the tall leaders of the LIC trade union movement used to say, sell the Sun to buy a few candles! The statement just summarises the imprudence and the lack of vision of the present government. The recipe for the economy to ‘take-off’ is contained in the Economic Survey that preceded the budget. The corporates and the markets are described as ‘wealth creators’. The wealth creators must be honoured by extending to them more tax concessions, more sops, more freebies and also all the governmental back-ups.
The ordinary people and the workers have to carry more burden, more taxes when the government does away with all subsidies, (including food subsidies). They need to be removed out of the ambit of any kind of constitutional protection by ushering in flexible labour laws, etc. So, Narendra Modi government is going full-blast on disinvestment in PSUs and LIC is a big-ticket reform.
The economic survey brags that the “invisible hand of the wealth creators could help India become a five trillion Dollar economy”. Wealth creators are thus going to be honoured by government’s disinvestment in PSUs. In the words of Narendra Modi, ‘wealth creators are the wealth of the nation’. Aggressive privatization and disinvestment in PSUs are the action points in the Budget. The government is no longer bothered about the fiscal deficits breaching the targets.
The government has set a target to raise Rs 2.1 lakh crore through disinvestment in 2020- 21. The plan is to raise Rs 90,000 crore by selling stakes in public sector banks and financial institutions, and the remaining by selling in central PSUs.
The government is also planning to sell the balance holding in IDBI Bank to private, retail and institutional investors. LIC is the majority stake holder in IDBI Bank with 51 per cent share, while the rest is owned by the government.
LIC is the largest company in India, managed by assets under management (AUM). Even at 25-30 per cent of its AUM, the LIC’s value can be estimated to be around Rs10 lakh crore. Even off-loading five per cent of that could fetch the government anywhere up to Rs50,000 crore as bonanza, which would help it to narrow the fiscal deficit gap. For LIC to be listed, the LIC Act has to be amended. According to LIC Act, the capital of the LIC will be wholly subscribed by the government. Listing LIC in the stock market is thus a move towards privatization of LIC, which will put into danger the economic sovereignty of the country. A highly retrograde move that will put India’s economy on reverse gear!
Now, we will revert to the subject of LIC’s surging NPAs, which have doubled after Narendra Modi government took charge at the Centre in 2014. Before that, the LIC’s gross NPAs were in the range of 1.5- 2 per cent. As on March 31, 2019, the LIC’s gross NPA was 6.15 per cent and its value was Rs 24,777.22 crore. As on September 30, 2019, it jumped to Rs 30,000 crore, which is 7.44 per cent, a jump of 1.29 per cent in NPA in just six months. LIC made a provision of Rs 23,760.84 crore to write off bad loans. The net NPA worked out to 0.27 per cent. The total assets of LIC are Rs 36 lakh crore. All the bad loans in the LIC pertained to the corporates, the same as in the case of banks. LIC advances loan to the corporate in two ways. One is Long Term Loans and, the second is via Non – Convertible Debentures (NCDs). Let us now look at the Gross NPAs of the LIC.
As per the directive from Narendra Modi government, LIC in 2014 bought 5.94 per cent stake in BHEL Ltd for Rs 2,685 crore, Coal India shares in 2015 worth Rs 7,000 crore. In November 2017, LIC purchased stakes in New India Assurance worth Rs 5,713 crore and in 2018 in re-insurer GIC stakes worth Rs 5,641. The share prices collapsed and LIC suffered huge losses. It suffered a loss of about Rs 17,000 crore.
LIC was under orders to purchase majority stakes in the crisis-ridden IDBI Bank worth Rs13,000 crore. A turnaround in IDBI Bank is not visible yet. The corporate companies which have failed to repay the loans to LIC include Deccan Chronicle holdings, Essar ports, Gammon India, IL&FS, Bhushan Steel, Videocon Industries, Alok Industries, Amtrak Auto, ABG Shipyard, GTL, Unitech, GVK Power, Reliance Capital, Dewan Housing Finance Ltd, Yes Bank, PNB Housing, Reliance Communications, Sterling Biotech, etc.
Like an obsessed punter, the government started gambling with the funds of the LIC. The funds of LIC were the hard-earned savings of the people of India. The government started misusing the LIC’s funds and prevailed upon LIC to invest its funds in risky and doubtful corporate entities. LIC has thus reached a stage that it is presently in. People’s money was allowed to be looted by the corporates.
LIC was always a prudent and conservative investor. But the picture started changing after 2014 when Narendra Modi came to power. It started meddling in the investment policies of the LIC. Proliferating NPA in LIC is the wilful creation of Narendra Modi government. LIC is a corporation, an autonomous institution, yet there is no functional autonomy in the LIC. The present developments in LIC have not come as any sort of a surprise.
LIC has always been a nation-builder, the backbone of India’s economy. LIC has invested Rs 1,08,154 crore in power, Rs 65,620 crore in Road, Port and Bridges, Railways, Rs 54,285 crore in Housing, Rs 1,500 crore in Water Supply and Sewerage and Rs 31,468 crore in other sectors including Telecom, a total of Rs 2,61,027 crore in the social sector. It has invested Rs 10,34,828 crore in central government securities and Rs 8,44,251 crore in state government and other guaranteed marketable securities.
In 2018-19, LIC generated a valuation surplus of Rs. 53,214.41 crore, a 9.9 per cent growth over the previous year and paid to government of India a dividend of Rs 2,610.74 crore, as 5 per cent of valuation surplus, for 2018-19. LIC has made provision of Rs 7,01,483 crore for the 13th 5-Year Plan (2017-2022). LIC has a market share of 76 per cent in terms of number of policies and 71 per cent in terms of first year premium. On a single day on January 31, 2020, the preceding day of Budget, LIC collected 11.20 lakh initial deposits worth Rs 1,816.58 crore towards New Business.
Something amazing! But all these achievements will become meaningless if the government goes ahead with its stake-sale in the LIC. The investor confidence will take a beating and the nation will suffer. The move to privatise LIC is fraught with dangers. It cannot be allowed to happen. The goose that lays the golden egg cannot be slit! (IPA Service)