NIC stake sale to help cover new ground

NEW DELHI: This could well be the government’s most adventurous divestment initiative — selling its minority stake in the Kolkata-based general insurer, the National Insurance Co in the current financial year.

With three divestment programmes under its belt, the Centre is vying for more. The insurance sector has so far been left untouched by divestment. But cornered by competition and pressure to expand, NIC has no other option, but to divest.

Diluting its holding in the oldest existing insurance company in India may not be easy, with the Left unwilling to concede a hike in FDI in insurance to 49%. However, the government may be able to justify the divestment on account of the company’s need to access capital. Unlike banks, ever since nationalisation in 1973, there has been no capital infusion by the government in general insurers.

Not only will it have to get the Left on board, the government will also have to get a parliamentary approval since NIC was created by a statute under the General Insurance Business (nationalisation) Act of 1972.

Though the company has been able to maintain its prescribed solvency margin of 1.5%, it will need to access capital to fund its expansion, sources at NIC said. The companies have been making provisions on unexpired liabilities and depreciation of assets “Of all four non-life state-owned insurers, NIC lags behind on account of net worth, reserves and investment corpus,” sources at NIC said.