 Hello and welcome to NewsClick. The business papers have been reporting since 10th of November that state-owned insurer LIC has reported a 50% fall in its net profit at 7925 crore rupees. How significant is this development? Should the investors and should the government be concerned? Also, should the policyholders in LIC also be concerned? In order to discuss the significance of this news, we spoke to Thomas Franco. He has been with the All India Bank Officers Confederation as he is the former General Secretary of the ARBC and he is also an advisor with the Centre for Financial Accountability. Let's go over to him. Thanks very much for joining us, Mr Franco for this discussion. The news report said just a couple of days ago on 10th and 11th November, the news is still coming in that LIC's net profit for the second quarter has dipped by 50%. Now, how serious is this issue and why is it happening? Number one, the newspapers have not, none of the financial newspapers have read six of them on this issue. None of them have done a real positive analysis. Yes, the profit has gone down by 50%. That is comparative to two quarters. It is only a comparison between September 2023 and 2024. So that is not an alarming thing which we have to be worried. But what is worrying is the way the LIC is behaving now. After this 3.5% even to the public, it is a kind of a private players who have got that 3.5% share. And because of that, the policies of the LIC have changed. Number one is that if we see the analysis of the income, the income from the premium has not gone down much, especially the new premium, that is the first policy premium they call it, that has increased. Renewal premium has increased, but what has decreased is only the premium related to the single premium policies which are called the non-participatory policies and one of the non-participatory policies and these policies are taken by the comparatively better of people. Single premium, the normal people who are the majority policy holders in LIC, they always go for regular premium monthly quarterly like that. This single premium very few people use and that only those who are going to afford to give huge amount to use that. So that is not a very worrisome issue in my analysis. But what has gone down and is that the other income has gone down. The other income comes from the real estate and their assets which they are holding. You know that LIC has huge properties all over the country and many of them are rendered out to different agencies. There the income has come down. That is something the LIC could have handled better and that would have reduced this profit degrees could have been arrested. That is one. Secondly, another thing which is very alarming is that the provision they have given for diminishing value of investments. That is they have invested funds in many things including the LIC group where the investment value has gone down now. They would have invested say 1000 crores and today if it has the value in the market has gone down to 900 crores, they have to make a provision on this investment. That is the provision they call it, provision for diminishing value of investments. That has increased by 12,441 crores. So are you saying that the LIC is expecting more losses in terms of where it has invested in corporate India in a sense or in non-insurance where not in the areas where it has an interface with customers or policy buyers but in other areas of its business it expects things to get worse. We cannot predict that but presently it has affected badly. So we don't know exactly who are all the investments are that analysis I have not done. Earlier LIC was investing only on public sector and public services. Very seldom they were putting their funds in private sector or it used to be less but now it has increased. That is because of the change in this policy that do things as per the wishes of the shareholders. Now that you have private shareholders you want to satisfy them. For that you try to take risk and put some investment and that has affected that is major cause for this reduction in the property. But still I would ask that over 12,000 crores is a very large number. It's a very large figure. So is that normal? Does LIC or other companies like it around the world from your experience is this normal for them to do? Yes because LAC's investments are huge. I think last it was 24 lakh crores. Now it's closer to 35 lakh crores right now. Now it's reportedly closer to 35 lakh crores. The figures I was putting was related to the time when this shareholder sharing share issue was done. So now yes so that's a huge amount out of that some value going down. It can go always up and down. We have seen even the case of IDBA where LIC has invested huge amount. The value went down but now it has gone up and LAC took over the IDBA's management and it has done well because of that IDBA is doing well. But unfortunately the government is asking to once again give up the share and sell it to private sector. That's the wrong policy. See the basic problem has started because of the policy change. The LAC was created for the purpose of helping the larger majority in this country who do not have any social security. That's right. And LIC has been always concentrating only on policies which help the middle class, upper middle class, lower middle class and the poor, poor of the majority actually. The amount might be less but number of policies if you see it is these LAC agents who go door to door and converse from the ordinary people which constituted the major policy premium which was being earned by the LAC. And that is why the government at that time itself decided that in the name of bonus the profit will be shared with the policy. And what's today slowly everything has shifted which we had predicted when this share issue came that this is what is likely to happen to satisfy the shareholders who are actually minority shareholders. But to satisfy them you keep changing the policy. And because of that the non-profit sharing policy has increased and profit sharing policies have reduced. And LAC continues to focus more on non-profit sharing policies. And out of that again they have in this what does balance sheet if you are seeing, they have transferred a huge amount to the shareholder point. That's right. Yeah. What does this mean that when you make such a transfer? That helps to increase show your profit and that share in the profit will go to these private shareholders also. And that way in the market, the market share will not go down. The price of the LIC share they don't know it has gone down drastically from the time when the share was issued. But now they are trying to arrest that because of that they are transferring more funds there so that the share value does not go down. Right. So if the dip in the net profit by 19% is on account of certain factors which as you said the media is not highlighting or not highlighting them enough, then why is it such a serious issue that the philosophy behind how LIC makes its investments is changing? If the net profit dip doesn't matter then why is the change in its outlook towards its investments? Why is that so important? That is because of the government's decision. The government wants to privatize LIC. They had earlier itself said that this is only a beginning, this 3.5% share and they are waiting for an opportunity. So because of that they are changing the pattern of the LIC's investments as well as the policies. Both are being changed drastically and at one point of time they will say that see the market share has gone down, the LIC is not doing well. So it's high time we privatize it totally. That is the aim of the government. You are saying this because we have seen it happen with say BSNL, we have seen this happen with other companies or the national carrier, Air India. So is that why you are saying that it could go the Indian Airlines way, it could go the BSNL way? Definitely. Both are classical examples and we know that Air India when it had two airlines, Indian Airlines and Air India together, that time it was making a huge profit and this government wanted it to run into a loss and the amount of concession they have given to Tata's. You can never imagine common man does not know. The government took care of the loan that we will repay the loan. So the rest you take only the assets and for purchase of that asset, they went for loan from State Bank of India where the bank gave a loan at 4.5% which even a housing loan or education loan program does not get the loan at that cheap rate. Housing loan is up to 10% in many banks a little higher at times. When you compare like this with this, it is definitely higher. Education loan is again 11%-12%. That is going for the children whose future is in state but to such a big corporate you are giving loan at 4.5% and the purpose of showing loss of Air India was only to privatize it. The same thing, we as an L it was making a huge profit at one point of time. It was making a profit of 8000 crores per annum but just to help Geo one by one they were not given earlier the 2G auction they were not allowed to participate even now they don't have 5G or even 4G and they are asked to compete it where how can they compete without facilities which people want. So the same way LIC is being slowly converted in such a way that the private insurance companies so far could not compete. The market share of the LIC was not going down. So now they want this to happen to LIC so that the private sector will flourish and finally you can also sell it up in a platter to the private sector. In some segments of the life insurance market, the LIC is actually losing its market share where the private companies are doing better. One of them would be the unit linked policies etc. Could you explain what this means in the long term for LIC and is this related to the policy shift that you were just talking about since it listed on the market? See the unit linked policy is used by all the insurance companies where there is a small insurance and the amount is invested in the market or wherever they can make profit and their return has not been very great but as I told in the beginning the single premium policies the high value policies where the competition is high for example one of the competitors today is SPL life insurance. SPL life insurance does not have to send people door to door through agents they concentrate only on existing customers and the customers especially those who are coming for loan you tell them that you took one policy they will gladly take because they want the loan badly. So that is a walk-in premium which is coming to SBI life and the similar ICICI also has the ICICI prudential life policy for as LIC it has to go directly to the market directly to the people at their door steps so the competition is quite tough for it and in spite of that so far LIC is going well. So let's talk now about why you think it is important to keep LIC in the control of the government in the control of the Indian public is one of the reasons that you know very often you hear this news that LIC has given a check of X amount to the government the latest figure was around 1800 crore rupees. Is this LIC a source of income for the government is that why it should remain within public hands? Definitely LIC has been giving considerable premium to the shareholders profit to the government continuously but it's only small when you compare it with the investment which the LIC was giving on for the government for example almost for many years the budget loan taken you know the government in every budget it is borrowing and from where this money is coming almost 50% 30% to 50% used to be from the LIC and if the government says that you invest in power sector they were investing in power sector in power sector in power sector like that for the development of the country even if the income might not be very high LIC was contributing a huge amount every year now if that is going to reduce step by step and if they start investing more in the private equity or private markets that is going to affect the development of the country as a whole people as a whole this is one major issue second is the our country when we compare with the other countries we are talking that we are growing we are at the third place our economy is doing well and all what are the social security benefits we have in this country education is not healthcare is not free and there is no assured pension majority of the unorganized sector they don't have a pension as security they don't have provident funds only those who are in the organized sector they get these employees provident funds there is no gratuity so you have a large section of this society which is vulnerable the government itself is extending the ration pre-ration to 80 crore people what does it mean the government has accepted that out of the 140 crores 80 crore or more so to those people you don't have any other social security these are the people who are investing some amount in the LIC so that when the LIC policy may choose including they have this for the pension policy which is an attractive policy so they could get some income at their old age and that kind of a benefit it is going to be lost because you are increasing the non-shareholder policy so the income out of these small policies will be very bigger for the people who are investing in the policy so this is going to affect very badly and news has come today is another alarming thing is that LIC chairman has stated that they have appointed Boston consultancy group as their consultant this whole country is being now run by consultants and LIC already had two consultants earlier and their addresses are not LIC the last was Delight and before that there was a company called Bay Salon and Hamilton they were advisors to LIC for some time and I have seen in state bank of India Boston consultancy group when it was appointed as a consultant for changing the personal or human resources policies they came out with something called the career development system which I term it the association times it as career destruction system they brought in a formula where till the time everybody was treated as equal but they brought in a concept that 10 to 15% only will be performance so you reward the performance so 85% who are not rewarded they become unhappy their performance goes down this BCG does not bother and they did not calculate the employee requirement properly this I pointed out to them in the presence of state bank then chairman Mrs. Arandadeva Tacharya that there is a calculation mistake they have taken actually banks work for six and a half hours whereas they had taken the working hours as eight hours so because of that the number of people required it became less and they did not correct it and because of that today you see that state bank of India has huge problem of manpower there is continuous reports that the work pressure the work life balance is so bad in the entire banking system including state bank of India because of which people are quitting and says are quitting from the bank so this is the kind of policy which BCC will bring for LIC also that already recommended that you reduce the staff and the agents and if that is done that will be real problem for LIC the major policy is mobilized by the agents of LIC whose number is huge and LIC staff they're giving an excellent service in spite of so much of pressure I've seen employees and my own wife was an employee of LIC so I have seen how they give these services but today BCG is going to recommend that it is you reduce the staff so that your profit will increase and LIC will gladly implement and that will affect the LIC SFO so these are the efforts which the government is taking which is going to be very bad for the LIC and my appeal will be to this government if God this government the new government which is likely to come they should once again buy back this 3.5 percent of the shares see LIC is investing their own funds in many other shares right so even government does not have to fund it government has got that money right they are happy that amount the share can be bought over by LIC itself LIC has sufficient funds for that right so once again LIC becomes 100% public loan government loan and then the policies will change accordingly and that will help the people at last so just to understand you correctly one last time the 96.5 percent that the government has your worry is your concern is or your prediction is that over time this will be whittled down there will be a slow attrition as we have seen in India in other public sectors companies over the years no matter how big they are the companies seem to start clocking profits or if losses and if they are making losses it becomes difficult to pull them out of that quagmire and you worry that if this happens then the losses to the economy and the losses to even ordinary employees of LIC will be tremendous definitely and government has already announced earlier the finance minister herself announced and the the world secretary he keeps on saying that privatization is as per schedule it will definitely happen there are some slowdowns but we are very particular that the privatization has to take place because this is a government which says that the government has no business to be in business whereas LIC is not a business it is a service vanging is not a business it is a service electricity is not a business it is a service to the large population of the country but if they start looking at this as only a business and hand over everything to few people that is also not given to a large number of people you are seeing that you are promoting few corporates who are using all dubious means of their business to increase their profit and they get all kinds of concerns from the government so as a policy this particular government is for the private sector and because of their policies which will be dangerous for the country it will be dangerous for the people of the country so this policy has to be reversed from the policy of helping only a miniscule minority the policy has to change towards the majority in this country and in the case of LIC this is what has to be done by back of the shares all right Mr. Franco thank you very much for joining us thanks for your perspective on the issue and thanks for also throwing light on what is actually worrying and what is not so worrying about the latest results of LIC thank you so much