LIC IPO- Gross Injustice To The Smaller LIC Policy Holders



Smt Nirmala Sitharaman

Union Finance Minister

Dear Smt Sitharaman,

Please refer to my letters dated 6-3-2022, 11-4-2022 & 16-4-2022 addressed to you on the manner in which the proposed LIC IPO would do gross injustice to its policyholders, largely belonging to the SCs/STs/OBCs ( & &

In my earlier correspondence, I had brought to your notice the following disturbing aspects of the proposed LIC IPO.

  1. LIC’s surplus funds, built over the past several decades, belong to its policyholders, who for that reason are the de facto owners of the Corporation, along with the government, which is its 100% equity share holder by way of a nominal equity investment. In contrast, instead of the policyholders being treated as the true owners of the LIC and therefore deemed to be the majority “equity holders” in that sense, as and when the LIC is to be divested, the IPO provides them a highly restricted investment window of only 10%. Of course, this window provides a token 10% discount.
  2. The bulk of the Life Fund of the LIC, which legitimately belongs to the policyholders, has been unjustly earmarked for the future private equity buyers, as when the IPO is to be floated. This implies the bulk of the policyholders’ funds being unjustly misallocated to the account of the stock market investors.
  3. Even for policyholders investing through the highly restricted policyholders’ window to become equity holders, there is a cumbersome process prescribed, which requires linking their PAN cards with their Aadhar cards and thereafter opening their respective demat accounts. Except a few policyholders having the necessary wherewithal to be able to fulfill this requirement, the majority of the policyholders who largely belong to the disadvantaged sections (SCs/STs/OBCs) are unfortunately left out of the race. It amounts to the IPO filtering them out unjustly.
  4. This is exactly the reason that has led to many unethical benami moneyed investors exploiting the smaller policyholders by profiteering at their cost, by offering them crumbs in exchange for helping them to link their policy accounts with PAN and Aadhar and open demats. This implies an outright infringement being committed of the policyholders’ privacy rights, misappropriation of their personal details and profiteering at their expense.
  5. Whereas the policyholders’ investment window has been unjustly restricted to 10%, the MOF has opened up a 20% window for foreign investors. As if this is not enough, the MOF is also reported to be seeking investments from the sovereign wealth funds owned and controlled by foreign governments, which opens an outlet for the latter syphoning of the hard earned savings of the policyholders to overseas destinations, a prospect that ought to cause nationwide distress. The IPO is thus not in the national interest.

In other words, the injustice meted out to the policyholders is five-fold, (i) policyholders’ funds being misappropriated for generating returns to affluent, speculative stock market investors, (ii) instead of treating the policyholders as the dominant  de facto owners of the LIC, a measly 10% window of investment is provided for them, (iii) the cumbersome procedure prescribed for the policyholders to become eligible for investing through their 10% window makes it nearly impossible for the small policyholders to take advantage of it, (iv) as if to add insult to injury to the policyholders, a 20% window for foreign investors is provided; the MOF is even seeking foreign sovereign wealth funds to invest, thereby allowing the latter to profiteer at the expense of the policyholders and syphon of their hard earned savings to foreign destinations and (v) benami investors being allowed to poach illegally on  the small policyholders’ accounts, rent out their accounts and personal data for a song and profiteer at their cost.

Benami investors renting out the small policyholders’ accounts, if it is established, would amount to a fraud committed on the policyholders and infringing their privacy. In my earlier letters cited, I had referred to a recent news report on this ( but these fraudsters seemed to have been poaching the small policyholders’ accounts since January, 2022 or even during the second half of 2021, as evident from an earlier news report (!

The details of their modus operandi are available from this January report.

To corner this discount quota shares, brokers are willing to pay anywhere between ₹2,000 and ₹4,000 to LIC policyholders to open demat accounts and rent it to them for IPO application, market sources told Business Line.  Since many of these brokers also double up as LIC agents they have ready access to policyholders’ databases. The fee could even increase after the details related to the IPO price band becomes clear. Funding for the IPO application will be given by brokers, sources say. ….LIC has over 32 crore policyholders and brokers are expecting to tap at least 5-10 percent of this pool, who they believe have no demat accounts so far. Large brokers have even started issuing newspaper advertisements to attract LIC policyholders to open demat accounts with them“.

This raises the following important questions on which the MOF should provide answers.

  • Apparently, benami investors have been poaching on the small policyholders’ accounts since the second half of 2021. Have not these reports come to the MOF’s attention? What action has MOF taken on these reports?
  • DIPAM and the LIC have triumphantly proclaimed again and again that there has been a flurry of demat accounts opened by the policyholders. Out of the total number of such demat accounts, how many have been opened by benami investors acting clandestinely on behalf of the policyholders? Have DIPAM/ LIC devised a fool-proof system to make sure that only genuine demats are opened in the name of the policyholders? How has the LIC remained a passive spectator while its true owners, namely, the policyholders are being openly exploited?
  • What is the role of the Insurance Regulatory and Development Authority (IRDA) in all this? IRDA’s primary responsibility is to safeguard the policyholders’ interests. Has IRDA failed to discharge that responsibility? Is the MOF indirectly responsible for this by allowing IRDA to remain headless when the LIC IPO had been submitted for clearance?
  • Are MOF/ DIPAM/ LIC proceeding ahead in an undue hurry to push through the IPO without applying their minds to the distressing aspects listed above?
  • Transferring the bulk of the Life Fund, primarily comprising the policyholders’ hard earned savings, to the stock market investors including the foreign investors amounts to the government breaching the trust reposed in it by the policyholders. In addition, the very idea of the government divesting a portion of its 100% equity to private investors would also amount to relinquishing its legitimate role of a trustee, a prospect that violates the legislative intent of creating the LIC in the first instance. Has the MOF applied its mind to these crucial aspects at all?
  • The entry of stock market investors including the foreign investors, who are primarily profit-seekers, would inevitably necessitate a fundamental change in the role of the LIC, a shift from its erstwhile role of a social security provider to that of a mere profit generator benefitting a handful of speculative investors. Has the MOF thought about this at all? Has the MOF informed the Cabinet and the Parliament of this and its likely repercussions for the disadvantaged sections of the society?

Apparently, the LIC IPO has been mooted without the MOF exercising due diligence, a fact that has so far not come to the attention of the Parliament. In my view, to float such an IPO would not serve even an iota of public interest and it deserves to be revoked forthwith.

As far as the fraud being committed on the small policyholders is concerned, especially the reported benami renting out of their accounts, it calls for an independent judicial enquiry, pending which no further steps should be taken to proceed with the IPO.

Please acknowledge the receipt of this letter and let the public and the Parliament know the action you have initiated.


Yours sincerely,

E A S Sarma

Former Secretary to Govt of India


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