LIC holds stake of more than 15% in at least 40 companies, including state-run banks.
NEW DELHI: The government wants state-owned Life Insurance Corporation of India (LIC) to play a more active role in companies where it is a major shareholder, following developments at Infrastructure Leasing & Financial Services Ltd.
LIC, with an over 25% stake in IL&FS, is the biggest shareholder in the infrastructure financier, which has defaulted on its debt obligations. The government sacked members of the IL&FS board on Monday and appointed six new directors in a bid to restore the company’s credibility and stem any contagion from spreading in the markets. A senior finance ministry official said the country’s largest insurer cannot be a silent shareholder.
“They need not be aggressive, but at least keep a close watch on corporate governanceissues,” the official said. In the case of IL&FS, the insurer was caught totally unawares, the official said.
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LIC appoints nominee directors on the boards of companies in which it has a substantial stake by way of debt and/or equity. The insurer had two nominee directors on the IL&FS board.
“Nominee directors provide feedback with regard to operations, problems, prospects and corporate governance standards,” LIC said in its 2017-18 annual report. Last week, after the crisis at IL&FS, LIC promised all support to the embattled lender.
“We will ensure IL&FS does not collapse. We will not allow contagion to spread from IL&FS,” LIC chairman VK Sharma had said, adding that all options were open, including increasing the insurer’s stake in the debt-laden company, to help it overcome a liquidity shortfall.
“They have a responsibility and as a public sector institution they should bring to notice any deviances in a firm where they are a shareholder,” said another official aware of the developments. Some former IL&FS board members have blamed LIC for inaction.
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According to various reports, LIC holds stake of more than 15% in at least 40 companies, including state-run banks. The Insurance Regulatory & Development Authority of India has relaxed for LIC — in some cases — a norm that restricts insurers from holding more than a 15% stake in a company.
LIC holds 16.18% in ITC Ltd. and 17.57% in Larsen & Toubro. In June, the insurance regulator allowed LIC to buy a 51% stake inIDBI Bank for Rs 10,000 crore-12,000 crore. The insurer had over Rs 30 lakh crore of assets under management, including Rs 5.74 lakh crore in equity and Rs 19 lakh crore in debt.
On Monday, the National Company Law Tribunal approved the takeover of the IL&FS board by government nominees under Article 241 of the Companies Act. It ruled that the government can appoint six directors to replace existing members of the board.
