Teji Mandi Explains: LIC IPO - Major hurdles removed with amendments in LIC Act, 1956

The listing of LIC is crucial for the government to meet its ambitious divestment target for FY22. Out of the target of Rs 1.75 lakh crore, the LIC is expected to garner about Rs 1 lakh crore.

Keeping this in mind, the government has taken a first concrete step towards divesting its stake in LIC. The government has codified the amendments to the LIC act 1956 in Finance bill, 2021. And, it was also passed by Loksabha during the recently concluded budget session.

Amendments of the LIC act 1956:

As many as 27 out of 49 sections of the LIC Act are amended through the finance bill 2021.

The major changes are made with regards to the capital structure, corporate governance, surplus distribution and dividend declaration rules, and ownership rules. These changes will bring LIC at par with private players in surplus distribution on par and non-par products.

Changes to accommodate SEBI's listing norms:

The LIC legislation, effective since 1956 did not allow LIC to be listed on stock exchanges. But, with these amendments, LIC's company structure now accommodates SEBI's listing criteria. LIC is now turned from a mutual entity to a corporate company. It will allow it to set up a board with independent directors.

The changes also provide for (A) an executive committee to decide on operational matters. (B) Dissolution of powers from the central government to the board concerning strategic matters on selling the assets, declaration of dividend, etc.

Other operational matters regarding the appointment of auditors, holding of AGM, actuarial exercise to ascertain correct valuation of liabilities and assets, etc., have also been outlined in the new amendments.

Closing comments:

Currently, the government owns 100% stake in LIC. It is likely to sell 10-15% of its stake. Once listed, LIC is likely to become the country's biggest company by market capitalization with an estimated valuation of Rs 8-10 lakh crore.