GOI's Desperate Measures: Banks, LIC, Power Utilities, and Divestment.
- Friends,The pity is that government is not even sure of what it is doing. Fearing a poor response from the market and private business to disinvestment in HCL; the finance ministry led by PC has come with Plan-B to back up the effort of Ministry of Mining, which is the administrative ministry for HCL. Financial Services secretary, D K Mittal in parallel announcement said, ^^a notification was being issued to allow LIC to hold up to 30 per cent in listed/unlisted companies against the current cap of 10 per cent^^. The catch is that LIC or Life Insurance Corporation is a government owned insurer. The idea is that LIC would be made to bid for HCL shares during divestment process. Interestingly, this requires amendment to Insurance Act of 1938 [another legacy of British]. The secretary said that ^^The relevant notification is being issued under Section 43(2) of the Insurance Act of 1938^^ to unshackle the hitherto 10% restriction. Who says that government doesn't move, or moves slowly? So what the government has planned in case of a poor private investor response to HCL auction is to have LIC pick up the shares of HCL and cough up the money into government coffers. Isn't it an interesting little trick that may eventually play with the savings and future prospects of millions of Indians? TheInsurance Regulator was not happy with the development:^^The insurance regulator has strongly opposed the ministry’s idea, saying it would not be prudent and pointing out that large exposures to individual companies could pose risks to LIC. The Insurance Regulatory and Development Authority (Irda) has also been concerned over any likely negative impact on LIC’s financials from its heavy annuity payouts^^. Market Experts on the other hand have lauded government move because they are happy that LIC would have more fire power to moderate risks that private capital, Indian and foreing, takes: LIC would be able to and expected to play a more expansive counter-intuitive role of so called stock market stabilization when Casino Capital of Foreign Institutional Investors [FII] desserts at a whip of danger.Please visit http://searchlight-is-on.blogspot.in/2012/11/gois-desperate-measures-banks-lic-power.html for full post.Regards,Sadanand