Is Finance Ministry forcing the LIC to do injustice to small policy holders?


Smt Nirmala Sitharaman

Union Finance Minister

Dear Smt Sitharaman,

This refers to my last letter dated 16-9-2022, and the previous correspondence, as well as the recent report (, on the persistent, contrived attempts by your Ministry to shift LIC’s focus from safeguarding millions of its small policyholders to enriching a few limited number of affluent, speculative stock market investors, to whom, for reasons best known to the government, LIC was forced to sell its equity shareholding at an abysmally understated price.

As already pointed out in my earlier correspondence, when the Parliament enacted the Life Insurance Corporation of India (LIC) Act more than six decades ago, it was unambiguously assured by the then government that the Act was intended for promoting a “welfare state“, that the government would act on the concept of “trusteeship” on behalf of the policy holders from whom it would raise funds, that LIC’s operations would not be driven by the profit motive, that the corporation would exclusively aim at maximising yield for the policy holders and that it would promote the idea of insurance at an affordable rate as the means to providing social security cover in the rural and the remotest areas of the country.

In principle, the nominal equity that the government held in the LIC, till it took steps to disinvest a portion of it, represented its unique role as a trustee for the policy holders, and to disinvest even a small portion of it would constitute an outright breach of such a trusteeship role. It is repugnant for the government to “outsource” such trusteeship to private investors.

During the last several decades, the LIC, true to the assurance given by the government to the Parliament, has effectively extended the idea of insurance to millions of small households across the length and the breadth of the country. By investing the premium funds prudently, the Corporation has been able to generate additional resources with the help of which it could finance thousands of social sector and other development projects in different States. In this unique scheme of things, the LIC has been able to play a pivotal role in contributing to all round socio-economic development of the country.

By forcing the LIC to list in the stock market in May, 2022 and expose its operations to a limited number of speculative, affluent investors, the Finance Ministry has not only reneged from the earlier assurance given to the Parliament but also set in motion a retrograde trend that has started shifting LIC’s emphasis from safeguarding the interests of millions of policyholders to enriching a limited number of stock market investors. It is unfortunate that the Ministry should initially undervalue the LIC, thereby paving the way for a few investors to get hold of equity shares at an unconscionably low price. By resorting to an inappropriate accounting manipulation totally biased in favour of those shareholders, a sizeable proportion of the policyholders’ funds were unjustly set apart for providing dividends and possibly additional bonus payments to the shareholders.

As if this is not enough, the latest report ( suggests that the Finance Ministry is persuading the LIC to take away another Rs 1.8 lakh Crores of the policyholders’ funds to clear the way for further enriching the private shareholders.

I would not be surprised if the Finance Ministry is also indirectly  persuading the LIC, as expected, to shift its focus from lower-income to higher-income households, and bring other changes in its product mix, so as to maximize the benefits to the private shareholders. In due course, these trends suggest that the LIC will progressively move away from its role as a social security provider, diminish its presence in financing development projects in the States and become more and more like the other private life insurance companies whose operations  are largely confined to urban areas and the higher bracket policyholders.

These trends should cause a serious concern to the Parliament and the public at large.

At the time of floating the contentious IPO for the LIC, there were allegations from different quarters that some unethical investors were collecting the personal details of small policyholders and opening benami demat accounts to claim the discount offered through the 10% policyholders’ window. It is in public knowledge that the vast majority of LIC’s policyholders were not in a position to comply with the cumbersome procedure of opening demat accounts and that others who had the necessary wherewithal would exploit the situation. I had specifically requested your Ministry to get this investigated. Apparently, neither your Ministry nor LIC, for reasons best known to you, has thought it necessary to do so.

Against this background, I would request you to order an independent investigation into the efforts made by the government to undersell the LIC to stock market investors so as to grant them undue favours and meting out injustice to small policyholders.

Specifically, please order an independent investigation into

  1. Whether some individual investors or groups of investors have manipulated the stock market transactions to suppress the value of the LIC and its equity shares to the detriment of the public interest?
  2. Whether the steps taken by the LIC from time to time, to bifurcate the policyholders’ funds and place a sizeable proportion of the same in a separate account to grant undue favours to the equity shareholders, violated the assurance given by the government to the Parliament, when the corporation was created and deliberately paved the way to transfer the policyholders’ funds to enrich a few private stock market investors?
  3. Whether some investors had opened benami demat accounts in the name of small policy holders to enrich themselves by exploiting the discounts offered in the IPO through the 10% policyholders’ window?
  4. Whether the IPO, the way it was designed, has adversely affected the interests of the policyholders, particularly those belonging to the disadvantaged sections?
  5. Whether IRDA had fully complied with its statutory obligation to protect the interests of holders of insurance policies” in regulating the manner in which the Finance Ministry and the LIC had processed the IPO when it was floated?

An investigation on these lines, in my view, is long overdue and the Ministry cannot brush it aside any longer.


Yours sincerely,

E A S Sarma
Former Secretary to Government of India

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