For now, at least, the insurer is on a strong wicket with robust financials. But if the govt continues to treat it as an extension of its coffers, that strength may not remain forever.
However, a senior LIC executive defended the investments, saying that though it invests in banks from the open market, the opportunity came only when banks decided to issue preferential shares.
When global rating company Moody's downgraded Life Insurance Corporation of India's (LIC) foreign currency insurance financial strength rating from Baa2 to Baa3 with a stable outlook recently, it caused a bit of a stir, though the news was not entirely unexpected.
For, LIC's growing exposure in government bonds and its investments in shares of state-owned enterprises, including banks and corporations, have been a matter of worry for a while. After LIC bought a substantial stake of over 4% in Oil and Natural Gas Corporation (ONGC) in the recent government auction, taking its total stake to 9.48%, an exasperated former finance minister Yashwant Sinha termed it a "daylight robbery".
Sinha got support from former LIC chairman SB Mathur. "LIC believes in picking up a stake whenever there's an opportunity. But it has always been a stake of a couple of percentages and not 4-5%. This is not a prudent way of investing," said Mathur.
However, a senior LIC executive defended the investments, saying that though it invests in banks from the open market, the opportunity came only when banks decided to issue preferential shares. "We invest in public sector companies because we believe in them. If it helps the government, it does not mean that LIC should not invest," he said.
But regular policy holders aren't convinced about LIC's investment strategy, especially in recent times. Its investments in oil marketing company ONGC and public sector banks to prop up a cash-strapped government are, in some sense, a throwback to the US-64 days, when many investors lost their hard-earned money.
In 1990, when the first mutual fund scheme (US-64) collapsed, its state-sponsored manager Unit Trust of India took heavy losses on its investments. And while US-64 isn't exactly comparable with any of LIC's schemes, investors are worried about their money. The US-64 scheme offered above market returns, but carried little transparency with it. Whereas, LIC's unit-linked policies disclose NAVs (net asset value) on a daily basis and offer modest returns on traditional plans, following investment guidelines laid down by the regulator.
"There are significant differences between US-64 and policies offered by LIC. While US-64 was a growth scheme and investors treated it like a fixed deposit, LIC's policies offer returns based on the prevailing interest rates with protection," said Vishal Kapoor, wealth manager with Standard Chartered Bank.
However, a senior LIC executive defended the investments, saying that though it invests in banks from the open market, the opportunity came only when banks decided to issue preferential shares.
When global rating company Moody's downgraded Life Insurance Corporation of India's (LIC) foreign currency insurance financial strength rating from Baa2 to Baa3 with a stable outlook recently, it caused a bit of a stir, though the news was not entirely unexpected.
For, LIC's growing exposure in government bonds and its investments in shares of state-owned enterprises, including banks and corporations, have been a matter of worry for a while. After LIC bought a substantial stake of over 4% in Oil and Natural Gas Corporation (ONGC) in the recent government auction, taking its total stake to 9.48%, an exasperated former finance minister Yashwant Sinha termed it a "daylight robbery".
Sinha got support from former LIC chairman SB Mathur. "LIC believes in picking up a stake whenever there's an opportunity. But it has always been a stake of a couple of percentages and not 4-5%. This is not a prudent way of investing," said Mathur.
However, a senior LIC executive defended the investments, saying that though it invests in banks from the open market, the opportunity came only when banks decided to issue preferential shares. "We invest in public sector companies because we believe in them. If it helps the government, it does not mean that LIC should not invest," he said.
But regular policy holders aren't convinced about LIC's investment strategy, especially in recent times. Its investments in oil marketing company ONGC and public sector banks to prop up a cash-strapped government are, in some sense, a throwback to the US-64 days, when many investors lost their hard-earned money.
In 1990, when the first mutual fund scheme (US-64) collapsed, its state-sponsored manager Unit Trust of India took heavy losses on its investments. And while US-64 isn't exactly comparable with any of LIC's schemes, investors are worried about their money. The US-64 scheme offered above market returns, but carried little transparency with it. Whereas, LIC's unit-linked policies disclose NAVs (net asset value) on a daily basis and offer modest returns on traditional plans, following investment guidelines laid down by the regulator.
"There are significant differences between US-64 and policies offered by LIC. While US-64 was a growth scheme and investors treated it like a fixed deposit, LIC's policies offer returns based on the prevailing interest rates with protection," said Vishal Kapoor, wealth manager with Standard Chartered Bank.
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