Letter to BS: LIC allowed to buy 51% stake in debt-laden IDBI Bank

This refers to “LIC allowed to buy 51% in IDBI Bank” (June 30). As IRDAI approves LIC-IDBI deal, once again LIC has emerged as as white knight to rescue or revive sick state enterprises. The history of bailouts dates back to the early nineties and LIC holds stakes in almost every listed public sector undertaking (PSU). Over the years, most of these PSUs saw a steep erosion in their market value. Hence, the rationale behind these investments remain unclear. However, with hardly any private taker, the government is left with no choice but to lean to LIC to ensure that fiscal deficit and disinvestment targets are meet, and it also ensures that the government doesn’t lose ownership of these PSU.

However, it is worth noting that actually it’s the policy holders’ money that has been used to bail out these state run enterprises. If it is unfair to bail out a company using tax payers’ money, is it fair to use policy holders’ money for the same purpose? Same money could have been given to the policy holders as bonus or could have been utilised for better investment opportunities. Further, even though LIC is considered to be in the “too-big-too-fail” category and is operating in a strict regulatory framework, the failure rate of insurance companies is very low. That doesn’t mean that it is not inevitable, AIG being the prime example when US government had to bail it out during the 2008 financial crisis and one shouldn’t forget that LIC no longer enjoys monopoly it once did.source from business-standard

Leave a Reply

Your email address will not be published. Required fields are marked *