Government, looking to bring down its holdings in the five state-owned GICs to 75% from 100%, will be able raise resources in the next fiscal through the move
In what could generate additional resources for the government in the next fiscal, the cabinet committee of economic affairs (CCEA) on Wednesday gave its nod for the listing of the five state-owned general insurance companies (GICs) – New India Assurance Company Limited, National Insurance Company Limited, Oriental Insurance Company Ltd, United India Insurance Company Ltd and Agriculture Insurance Company Ltd.
This paves the way for the government to reduce its stake in the five GICs from the current 100% to 75%, maximum stake-holding mandated by Securities Exchange and Board of India (Sebi) in a publicly listed company.
Ranen Banerjee, leader public finance and economics, PwC India, said the government's decision will result in these general insurance public sector undertakings (PSUs) being operated in a more 'competitive' and 'accountable' manner.
"It should allow them to become more competitive so that they (PSUs) can compete better in the market (with private general insurance companies). It will also make them (PSUs) more accountable as there'll be more scrutiny (of books) and therefore, eventually they will become more efficient. It will also bring some resource to the government," he said.
The PwC disinvestment expert said the timing of the offloading of government stake has come at the right time as the insurance sector, on the whole, was doing quite well. "(Listed private) insurance companies have been doing well, and obviously, this will help the government to get good valuation for the general insurance PSUs," said the analyst with the management consultancy firm.
He expects the benefit of the government stake sale, whose process will start later, to come in the next fiscal.
Another analyst, who did not want to be named, said the divestment of government stake could be either through an offer for sale (OFS) or fresh equity.
He said the PSUs were not in dire need of capital as they were "cash rich," but it would help the government to mobilise finances through the disinvestment.
The move is in line with the announcement made by the finance minister Arun Jaitley in the last year's Budget to bring in "higher levels of transparency and accountability". "To promote this objective, the general insurance companies owned by the government will be listed in the stock exchanges," the minister had said last year.
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The PwC disinvestment expert said the timing of the offloading of government stake has come at the right time as the insurance sector, on the whole, was doing quite well. "(Listed private) insurance companies have been doing well, and obviously, this will help the government to get good valuation for the general insurance PSUs," said the analyst with the management consultancy firm.
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