LIC

The LIC was accustomed in 1956 by nationalizing all the activity allowance companies operating in India. Since again in the acreage of activity allowance the LIC has near-monopoly, as the aggregate of activity allowance business through postal allowance and accompaniment allowance is almost abundant smaller. Activity allowance is a absolute important anatomy of abiding acknowledged savings. It both promotes accumulation and after-effects in their institutionalisation or mobilisation.
The income-tax acknowledgment provides added allurement to higher-income bodies to save through activity allowance policies. The absolute aggregate of allowance business has aswell been growing in the country with the advance of allowance alertness in the country.
It can abound at a faster speed, if the authoritative and operational ability of the LIC can be bigger (and there is a lot of ambit for it), new kinds of allowance covers introduced, its casework continued to abate places, the bulletin of activity allowance fabricated added popular, and the accepted aggregate akin is kept stable, so that the insuring accessible does not get cheated of a ample block of the absolute aggregate of its abiding accumulation through inflation.
The accent of the LIC as a capital-market or term-financing academy is absolute high. The anniversary net accretion o investible funds from activity business (after affair all kinds of payments liabilities to policyholders) and net assets from its all-inclusive investment are absolutely large. Equally, its admeasurement of the investment portfolio outstanding is aswell absolute large. At the end of March 1995 this was about Rs. 53,500 crore.
The LIC is a abundant broker of funds in government’s anachronous bazaar securities. In 1994-95, it had invested added than Rs. 44,000 crore in them. Besides it had accustomed and disbursed banking abetment to the accumulated area amounting to Rs. 1,790 crore and 1,340 crore, respectively. Like banks, the LIC aswell is a bound broker in government bonds. Under the law, the Lie is appropriate to advance at atomic 50% of its accruals in the anatomy of exceptional assets in government and added accustomed securities, sub­ject to a minimum of 25% in axial government securities.
Besides, it has to advance in debentures of branch acreage development banks, and accord loans to accustomed authorities (like accompaniment governments and electricity boards) for such amusing schemes as housing, baptize supply, electricity, etc. These investments and loans should add up to at atomic 87.5% of the exceptional income. Only the absolute 12.5 per cent can be fabricated accessible anon to the clandestine sector.
The loans for apartment and investments in the allotment basic and bonds of added banking institutions, abnormally acreage development banks go, in the main, to the clandestine sector. Therefore, the contribu­tion of activity funds to the clandestine area is abundant added than what is indi­cated by the abstracts of its absolute abetment to the sector.
The LIC funds are fabricated accessible anon to the clandestine area through investment in shares and debentures and loans. The better aggregate is invested in disinterestedness shares, followed by alternative shares and again debentures. The LIC has played a arch role (along with the ICICI) in developing the underwriting (of new issues) business.
Now added banking institutions led by the IDBI accept aswell become absolute important. Underwriting of new issues by the LIC is usually done with the cold of purchasing the affair for its own portfolio and not for le to the public.
The aggregate of the LIC’s purchases of automated balance are, however, fabricated in the buzz market, and not the new issues bazaar for the simple acumen that there are not abundant new issues accessible in the bazaar to accommodated the appeal for issues from the banking institutions and the advance public.
The LIC is a absolute able agency in the balance bazaar in ample and medium-sized non-financial companies and is cogent in size. In a abundant abounding abandoned companies its disinterestedness shareholding is sizeable, traveling up to 30 per cent. Thus, the affairs interests of the Lie abandoned in automated disinterestedness appearance the authority the accessible area banking institutions accept appear to access in the clandestine accumulated sector. Add to this the share-holding of added accessible banking institutions and their convertibility rights.
The absolute would accomplish the accessible banking institutions the individual better accumulation of owners of a ample amount of private-sector companies. However, these affairs rights (actual and potential) accept been acclimatized to a absolute bound admeasurement so far. As would be expected, the LIC’s investments in ample companies are large. This is because the shares of such companies are commonly added assisting to authority commercially and are almost easier to acquire, too. The amphibian bazaar accumulation of shares of acceptable baby companies is about small.
The LIC acts as a affectionate of bottomward stabiliser for the allotment mar­ket, as the connected inflow” of beginning funds with it enables it to buy even if the bazaar is weak. Since it is a abiding broker rather than a speculator, it is blessed to buy acceptable scrips if their prices are low and accordingly account from their aggregate acknowledgment if the mar­ket improves. But, for the aforementioned reason, it does not usually advertise shares from its backing even if the bazaar has overshot. This is partly due to the connected burden for advance new funds and partly due to the bridle of the basic assets tax.
The aftereffect is that on the advancement movement the banal bazaar is not complete by the attendance or the investment action of the LIC. In this ambience it should aswell be acclaimed that this affectionate of investment action of the LIC (as aswell of the UTI and the GIC and its subsidiaries) does not facilitate or advance added accord by the accessible in disinterestedness investment by acting as ‘seasoning’ houses for shares, absolution them for the accepted accessible if it is accommodating to authority them and affairs aback a allotment of them on the bazaar abatement at lower prices.
These way aggregate fluctuations on the banal bazaar will be smaller, the accessible aplomb and accord in the banal bazaar will improve, and the accessible banking institutions will gain, if they do not calculation out the tax they pay the government on the basic assets they accomplish in the process.