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LIC’s IPO to benefit insurance industry: Fitch Ratings

New Delhi: Fitch Ratings said on Wednesday that the proposed IPO of Life Insurance Corporation of India (LIC) would improve accountability and transparency of the country’s largest insurance company, but it is unlikely to happen during the next financial year.

In its recent report, Fitch stated, “Legal hurdles following amendments to certain sections of the LIC Act, independent assessment as well as obtaining regulatory approval may delay execution beyond the government’s target deadline at the end of March 2021 is.”

Similarly in 2018, the government announced its decision to merge three state-owned non-life insurance companies – National Insurance Company, United India Insurance Company and Oriental Insurance Company – and subsequently listed them on the stock market.

The merger is likely to end in 2020, after a delay of nearly a year due to several factors, including the weak capital capacity of insurers.

Earlier in 2017, the government listed two of the country’s largest insurance companies, New India Assurance Company and General Insurance Corporation of India, through an IPO route.

LIC’s IPO will benefit the entire insurance industry. Fitch said the insurance industry will probably benefit from it. This is because the industry will be able to attract more foreign capital, which will also increase the flow of foreign capital into the country.

Fitch has hoped that once LIC’s IPO comes, some private sector insurance companies will also be encouraged to list their shares in the stock market in the medium term.

However, it is not mandatory for all insurance companies to be listed under the existing regulations. It is noteworthy that Finance Minister Nirmala Sitharaman had announced in the budget speech for FY 2020-21 that LIC will be listed as part of the government’s disinvestment initiative.

It is known that whenever a company or government proposes to sell some shares in front of common people, this process is called Initial Public Offering (IPO). That is, the government will put LIC’s IPO in the market for the common people. After this people will be able to buy stake in LIC through shares.

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