Budget 2020: Government to sell LIC holdings through IPO
Announcing the Union Budget 2020-21 on Saturday, Finance Minister Nirmala Sitharaman said that Life Insurance Corporation of India will now be listed on stock exchanges. The government has proposed to sell part of its holding in LIC by initial public offering (IPO). Fully owned by the Indian government, LIC is the biggest institutional investor in India. Here are more details.
Sitharaman said, "Listing of companies on stock exchanges disciplines the company and provides access to financial markets and unlocks its value. It also gives an opportunity for retail investors to participate in the wealth so created." She added, "The government now proposes to sell a part of its holding in the Life Insurance Corporation (LIC) by way of initial public offering (IPO)."
Speaking to The Financial Express, Nangia Andersen Consulting Director Nitin Narang said the IPO "spells out the future road map to generate funds from alternate means and less dependency on taxes." Khaitan & Co Partner Aditya Cheriyan added, "Whilst it will definitely help deepen the markets, given that SEBI regulations need a minimum dilution of 10% to the public, it's unclear if there's enough liquidity for such a large-sized IPO."
While presenting the Union Budget, the FM also announced that the government plans to sell off its stake in the IDBI Bank to private retail investors. Notably, since the announcement, shares of IDBI Bank surged. According to Bloomberg, the lender's shares rose as much as 18% to Rs. 39.90, the most since November 22, 2019.
Separately, the government has also set a divestment target of Rs. 2.1 lakh crore for the 2020-21 fiscal year as opposed to the Rs. 1.05 lakh crore target for the current fiscal. Thus far, the government has divested Rs. 18,094.59 crore this year.
Sitharaman announced that deposit insurance cover will be hiked to Rs. 5 lakh from the current Rs. 1 lakh. She said, "The insurance cover for each depositor is currently Rs 1 lakh. We are raising it to Rs 5 lakh per depositor. A robust mechanism is in place to monitor the health of banks, depositors' money is absolutely safe."