ATM Of GOVERMENT :- Life Insurance Corporation of India

When you need cash you rush over to the nearest ATM and withdraw some. So it is but natural that the government would want to do the same too. But what if we were to tell you that the government's ATM is not funded by taxpayer money? Instead by an institution that claims to insure the lives of millions of Indians and offers life-long investment options to as many! As most would have guessed, it goes by the name of Life Insurance Corporation of India or LIC. As per an article in the Economic Times, the government has been relying on LIC every time it is in need of funds. Be it bond sale or equity, LIC has helped it through all. 

The insurance company has a huge corpus built by insurance premiums and ULIP funds. The government has been digging into these funds at its discretion to make its asset sales (public sector IPOs, FPOs and bond sales) a success. LIC was the single-largest buyer of government bonds this year. It was also the largest investor for the equity stake sales by the government. Of the total Rs 4,670 bn raised by the government this year, LIC has provided Rs 1,100 bn or 21.4% of the total figure. 

The problem is that some of the issues in which the LIC has invested were shunned by the retail investors. Rather than picking up investments on a prudent basis, it was acting more like a knight in shining armor saving the issues of the government. In many cases like the stake sales of Oil and Natural Gas Corporation (ONGC),Steel Authority of India (SAIL), etc, the issues would have not been successful had LIC not stepped in. 

This is a matter of concern for the policyholders. The government PSUs do not have the best track records when it comes to functioning. The cashless ones continue to bleed. And the cash rich ones are milked by the government on and off. Therefore acting as the savior and ATM for the government could hurt the investment corpus of LIC. And if that happens it spells danger for the policy holders. 

The government has an eerily long history of milking its cash rich PSUs. Remember the US-64 disaster? The country's first mutual fund had collapsed after Unit Trust of India (UTI), took heavy losses on its investments. The era of the 1990s was marked with many incidents of the government milking its cash rich PSUs. We are not saying that LIC would head the US-64 way. But if the riskiness of its investment portfolio keeps increasing at the current rate then the US-64 days cannot be written off. 

Lakshya Profit

lakshyai@yahoo.com

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