As Prime Minister Modi is looking for resources to bridge the widening gap in the budget, authorities are now seeking cabinet’s approval to sell 25 percent of the nation’s largest life insurer, Life Insurance Corporation (LIC).
To prepare the sale of the insurance body, the government plans to amend the act of the parliament under which the Life Insurance Corporation was set up. The sale of the insurance body will be conducted in phases and depending on the market conditions, the timing of the insurer’s initial public offer will be known. As of now, there are no official comments available from any of the Financial Ministry spokesperson.
The government will be able to bolster its financial aspects as the sale of the stakes will be conducted through a public offering of shares. It will provide some degree of relief to the government’s financial situation as the economy was crunched due to the coronavirus pandemic. Due to the current crisis in the economical sector, there is a threat to the fiscal deficit target of 3.5% of the gross domestic product set for the year ending March 2021. Against a target of raising ₹2.1 trillion, the administration has only been able to raise ₹5,700 crores by selling stakes in the fiscal year from April 1.
The Bloomberg News reported last month that the government has choosen Deloitte Touche Tohmatsu India Ltd and SBI Capital Markets Ltd. to assist Life Insurance Corp. of India set up for an initial sale of it’s stakes. According to a tender statement issued in June, the advisors from these companies will assist in evaluating the capital structure of Life Insurance Corporation’s within the country as well as help the company to remodel its financial statements.
An authorized capital of ₹20,000 crores will be issued which will be divided into 20 billion shares as a part of the proposal. For this move, the government will move an amendment in the parliament soon.
The cabinet will seek some changes in the capital structure of the insurance body and decision on the size of the public offering set up for the sale of the assets will be taken by a ministerial panel. In February’s budget speech, Financial Minister Nirmala Sitharaman said that making the insurance body public will induce “discipline” and optimize the maximum value of the body.