Has LIC grow to be the lender of closing hotel?

LIC committed to invest up to Rs1.5 trillion in Railways over a period of 5 years till 2020 by subscribing to bonds issued by the Railways. Photo: Hemant Mishra/Mint

LIC committed to invest as much as Rs1.5 trillion in Railways over a length of 5 years till 2020 by way ofsubscribing to bonds issued through the Railways. photo: Hemant Mishra/Mint
Economics textbooks may additionally inform you that the Reserve bank of India is called the lender ofultimate motel, but of late it’s far the existence coverage company of India (LIC) this is assuming thisposition.

With its large corpus of funds, nation-owned LIC is the most sought-after lender by means of theauthorities across sectors—be it for extending tender loans to the railways, subscribing to the electricityquarter’s Ujwal Discom guarantee Yojana (UDAY) bonds, investing inside the countrywide investmentand Infrastructure Fund (NIIF) or capitalizing country-run banks, except actively taking part within theauthorities’s disinvestment schedule.

With assets of Rs.20 trillion and lengthytime period finances from policyholders, it’s far a few of the niceequipped to lend long time, and subsequently, not exceedingly, the government’s favored lender.

but is this a terrific or a terrible component? specially because the publicity of the life insurer togovernment and different country-owned undertakings is increasing hastily.

The publicity

remaining month, Mint suggested that the authorities asked LIC to make investments 10% inside theNIIF—a quasi-sovereign fund envisaged to fund India’s infrastructure requirements. With the whole corpus pegged at Rs.40,000 crore, LIC’s funding might be around Rs.4,000 crore.

This, notwithstanding the fact that the government had first of all dominated out LIC to make sure its portfolio remains balanced. In an interview in April, Shaktikanta Das, secretary, department of economicaffairs, stated as lots .

“LIC has already committed to railways. We don’t want to create an extra authoritiesrelated liability for LIC. LIC also has a commitment to its policyholders. They have to do an amazing blend of investments,” he had said.

What explains the rethink? A logical clarification is tepid response from foreign investors. more than a 12 months after pronouncing this fund, the authorities has received simplest few expressions of interest, signing 3 memorandums of know-how (MoUs)—with Qatar investment Authority, Abu Dhabi investmentAuthority and Rusnano—to date.

The life insurer also sold a part of the UDAY bonds issued by country governments as a part of the bailoutpackage deal for debt-ridden country power utilities designed via the crucial government. LIC offeredbonds amounting to Rs.four,200 crore final fiscal, as consistent with authorities information.

similarly, ultimate year, LIC additionally devoted to invest upto Rs.1.five trillion inside the railways over alength of 5 years, until 2020, via subscribing to bonds issued by way of the railways.

Railways minister Suresh Prabhu had termed the associationattractive’, as the interest costs could bearound the winning authorities protection charges and the loan will to be had in tranches.

The roads ministry is likewise looking for a comparable association with LIC to fund its highwaydevelopment programme.

graphic: Mint
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LIC has also stepped up its monetary relations with nation-run banks. In 2015-16, country-owned bankslaunched 26 bond troubles, raising Rs.29,165 crore, of which LIC offered bonds well worth at leastRs.8,000 crore. further, LIC invested near Rs.five,000 crore in banking equity in 2015-sixteen. a part of this borrowing happened inside the January-March area, while public sector banks have been scrambling to elevate capital, Mint mentioned in April.

It has additionally been one of the primary subscriber of shares inside the authorities’s divestment programme, selecting up more than 50% of the stocks provided in maximum of the issuances closingeconomic.

The common sense

officially LIC is mum, no longer responding until Wednesday to an e mail sent on 30 might also.

but, someone familiar with LIC’s decisions who did now not want to be identified denied it was doing thegovernment’s bidding.

“This nonetheless may want to have held true in some sense when LIC turned into not underneath a regulatory regime. however now LIC is beneath IRDAI (coverage Regulatory and development Authority of India), it conducts required audits and regulatory inspections. So, the authentic tale of LIC is quite differentand all of LIC’s activities are in the regulations.”

“As a long way as UDAY bond is worried, it’s far like a nation development mortgage and not anythingelse. moreover, such issuances are achieved according with the new regime of FRBM Act, which state that the finances deficit of any nation cannot exceed three.5% if they may be elevating money thru such bonds. So for LIC, this funding is nothing but a nation development mortgage, which falls in theregulatory norms that allow LIC a 25% net accretion to the fund,” the character stated.

FRBM Act refers to the financial duty and finances management Act.

The individual also defended the life insurer’s investment commitment in railways.

“LIC has simply signed an MoU with the railway ministry that LIC may additionally make investments up toa maximum of Rs.1.5 trillion in 5 years at the circumstance that the investment fits into the existingexposure norms of IRDAI and if the securities issued convey appropriate credit score scores and are sufficiently able to producing suitable returns.”

The equal person clarified that during any individual 12 months, LIC’s investments in the railways will no longer exceed Rs.30,000 crore and its investments might take region if it’s far satisfied after vetting thedangers.

J.N. Gupta, managing director, Stakeholders Empowerment services, a proxy advisory firm, said thatshielding policyholders’ interests should be the principle precedence.

wherein is the independence of LIC? If it’s miles unbiased, why does it bail out the authorities thruinvestments in bonds, equity or infra funds? interest of the policyholders is fundamental. They ought toget the quality returns for their cash. The functioning and funding decisions ought to be independentand now not precipitated by using the authorities. however so long as LIC’s investments are inside thehobby of the policyholders, one can’t question the ones investments,” he stated.

as an example, LIC choosing up non-voting shares in banks at a charge which turned into notdiscounted is not truthful to the policyholders. In nation-run banks, the vote casting rights are capped at 10%. So, in instances in which LIC picked up more than 10% stake in state-run banks and isn’t alwaysgetting voting rights, you can still query why LIC did no longer purchase those shares at a discountedfee,” he brought.

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