InvestorQ : What is this state guarantee pertaining to LIC IPO and why is it important to the IPO process and the success of the LIC IPO?
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What is this state guarantee pertaining to LIC IPO and why is it important to the IPO process and the success of the LIC IPO?

Answer
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vidhya Laxmi answered.
7 months ago


We are talking about the implicit guarantee for all LIC policies under Section 37 of the LIC Act. This would, perhaps, be the most controversial of the various provisions of the LIC Act that will have to be handled. Currently, every insurance policy issued by the LIC has an implicit guarantee of the government of India. That means; the policy claim will never be rejected on the grounds of capital inadequacy. That is the reason; LIC has been able to manage all these years with a paltry capital base of just Rs.100 crore. Clearly, if the guarantees of the state continue, then the government will expect special compensation and may also have to show that as a contingent liability in their budget. Alternatively, the capital base of LIC will have to be boosted adequately before the IPO.