Life Insurance Corporation of India also called LIC is a state-owned insurance group, owned by the Government of India. It was founded in 1956 when the Indian Parliament passed the Life Insurance of India Act and nationalized the insurance industry in India. More than 245 insurance companies and provident societies got merged to create the State owned LIC.
Just to get an idea of the size of LIC, as of 2019, Life Insurance Corporation of India had a total life fund of Rs 28.3 Trillion.
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LIC has its headquarters at Nariman Point, Mumbai. Finance Minister Nirmala Sitharaman in her Budget Speech on February 1st 2020 made a major announcement. She announced a stake sale in LIC in the next fiscal.
See Also: How to Revive Lapsed LIC Policy?
LIC IPO could be the biggest IPO ever. The Government owns 100% in LIC and is not likely to sell more than 10% stake in the Company. LIC is governed by the LIC Act, so before the IPO process, the act would have to be amended. A final clearing is required by SEBI.
See Also: How to Check LIC Policy Status?
Important: In all this LIC employees are opposing the stake sale by the Government. They have also planned a nationwide protest. Bhartiya Mazdoor Sangh condemns proposal of LIC-IDBI Bank disinvestment. Their main grouse is that LIC offers social security to the middle class. It’s there’s a stake sale in LIC, the focus would only be on profit making. Once listed LIC will come under the market regulator, SEBI. Employees say that LIC is a profit making firm. Stake must not be sold just because the Government wants to make a profit.
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After the LIC listing there would be better transparency and better corporate governance. This can only be good for all parties. It provides access to financial markets and unlocks wealth for the stock market investors. The Government could make Rs 90,000 Crores from the LIC listing and by selling the remaining stake in IDBI Bank. LIC-owned IDBI Bank continues to struggle with its share of bad loans.
There might not be a need to remove the Life Insurance Corporation (LIC) Act 1956. LIC would not have to be converted into a Company under the Companies Act. Experts believe the Sovereign Guarantee is past its utility value. The LIC Act is the life insurer’s charter. With changes in insurance laws, LIC follows insurance laws, just like any insurance Company. When it comes to the divestment of shares through an IPO, it’s governed by SEBI norms. People already know that LIC is owned by the Government. Brand Equity is not a problem.
The Government has created a new tax slab (New Tax Regime) and this could have an impact on LIC valuations. Insurers are trying to adjust to the new tax regime. With no tax deductions and tax exemptions under the new tax regime, life insurers might find it difficult to push Endowment Plans and ULIPs.
Life insurance and other insurance plans are push products. Endowment plans received a major boost as they enjoyed tax benefits. Pure risk protection has never been the real reason why people avail life insurance plans in India. It’s just the tax deduction under Section 80C.
LIC gets its business by targeting the middle and lower class people with life insurance plans. The New Tax Regime is going to affect LIC the most. So, the New tax regime without tax exemptions and tax deductions would lower LIC valuations. Many of the young people who have just settled in their jobs would opt for the new tax regime, to enjoy more cash in hand. This could only be bad for life insurers in India. ULIP policyholders might exit these plans to pay less taxes. The new generation may go for term life plans and use the excess cash in hand for consumption purposes.
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