The biggest news in the Union Budget was undoubtedly the listing of LIC.
This is like the jewel in the crown of all the PSUs and its so juicy, everyone has been waiting to lay their hands on this sweet fruit. But once again, how long will this take and will we get any shares at all?
LIC is the market leader in the insurance market and one of the most profitable. Its portfolio of stocks is one of the best in the industry as the size of the money it deploys in the market is mammoth.
Well, we all know all this, which is why it the best news in the Budget. At the moment, what we know is that the Govt will be offloading a small percentage of shares only. Along with selling the 46% stake in IDBI Bank, it hopes to garner around Rs.90,000 crore.
The Govt plans to retain the controlling stake so there will be no dilution of the sovereign guarantee on the sum assured and the bonus declared, which all have been fearing. Thus the jubilation now is over how going public will make the institution more transparent.
LIC, once its listed will have to follow the SEBI rules of disclosure and that will be the biggest plus. It is actually great for policy holders as LIC is now directly answerable to the shareholders. Competition has always been there, only now, it will become more intense but given the brand equity and trust which LIV has, this might not change much. But yes, it will most certainly keep LIV on the leash, putting pressure to constantly do something to assure all that it is on the take. And when it comes to solving the complaints, it will have to pay more heed, work like a private sector organization and bring down the grievances to zero.
There are many who are feeling that once LIC goes public, it will reduce the power of the Govt or to be more precise the level of Govt interference. Now that is not going to happen. If the Govt is retaining its majority stake, its interference will not come down in any way. Remember Coal India? When the minority shareholders demanded that Coal India increase prices the Govt did not relent, putting its interest ahead of what was best for the company.
In LIC, it might not able to just pass a diktat and get it going, it will need shareholders approval. So the positive is that its interference will become public knowledge but how much of an influence the shareholders will have to reduce it is a dark cloud.
ONGC, Coal India and other PSUs are fine examples where the Govt passes the diktat, demanding higher dividend payouts; are they able to refuse it though their books show that it is not a prudent move?
This move to make LIC public is a great move, no doubts. But it does not mean that the fiefdom of Govt will go anywhere; it will just become public knowledge. It might still end up being the knight in shinning armor to bail out PSU offerings.