Published: Sun, February 02, 2020
Markets | By Otis Pena

Budget 2020: Divestment goal ambitious Rs 2.1 lakh cr, an LIC IPO

Budget 2020: Divestment goal ambitious Rs 2.1 lakh cr, an LIC IPO

At the current market price, government's stake in IDBI Bank would fetch it over Rs 18,250 crore.

The government proposes to sell a part of its holding in LIC through initial public offer, she said while unveiling Budget 2020-21. The government expects to earn Rs 90,000 crore by selling stake in public sector banks and financial institutions, while the balance Rs 1.2 lakh crore is expected to come in from the sale of central public sector enterprises.

The surprise announcement in the budget is critical to the financing of government expenditure this year. This is a huge jump in the budget estimate for 2020/21 given the government has to revise downward its 2019/20 budget estimate of Rs 105,000 crore to Rs 65,000 crore.

LIC is now governed by the LIC Act of 1956 which enables the state-owned insurer to obtain a special dispensation in several areas, including higher stakes in companies beyond the limit set by the insurance sector regulator.

The government owns 100% stake in LIC, which was set up in 1956 and remains the country's largest state-run insurer.

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"Listing of companies on stock exchanges discipline a company and provides access to financial markets and unlocks its value".

The target has been set taking into account the strategic stake sale of both big and small companies, apart from the scheduled divestment of Air India, BPCL and Concor and launch of a financial ETF to monetise government stakes in banks and financial and public insurance companies.

"On the back of bank consolidation and capital infusion of Rs 3,50,000 crore into Public Sector Banks (PSBs), the Finance Minister asserted that governance reforms would be carried out to make them more competitive, transparent and professional and thereby ensure a robust banking system. It also gives (an) opportunity for retail investors to participate in the wealth so created", she said.

The government had earlier listed the shares of General Insurance Corporation and New India Assurance through IPOs three years ago. In 2018-19, the disinvestment mop-up stood at Rs 84,972 crore as against the Budget target of Rs 80,000 crore.

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