Centre plans to make 2% CSR spending mandatory for Life Insurance Corp

Life Insurance Corporation of India
The government is planning to bring state-owned insurer Life Insurance Corporation (LIC) under the ambit of corporate social responsibility (CSR). This would lead the insurance behemoth to spend at least 2 per cent of its surplus fund on social activities.

According to a senior government official, the Centre is of the view that LIC, the country’s largest insurer, should contribute a portion of the surplus fund on social welfare. At present, there is no obligation on the insurer to spend a fixed amount on such activities. 

The parliamentary committee, which met in Mumbai on April 25, reviewed the compliance of CSR rules by banks and other financial institutions including LIC, sources said. The committee noted that the LIC Act, which governs the state-owned corporation, had no such provision unlike the Companies Act, which mandates companies to plough back at least 2 per cent of their net profit on CSR.

Sources said that the panel had sought details about LIC’s surplus fund and asked LIC officials who were present at the meeting, whether they had any reservation on allocating certain amount on such activities, said a person who attended the meeting. According to him, the corporation did not have any objection to the proposal.

“The government is keen on financial institutions like LIC channellising a part of its surplus funds towards social activities as it manages over Rs 22 trillion of assets and hence, could emerge as a major source of funds for government initiatives around CSR,” the official explained. 

According to LIC’s 2016-17 annual report, it had a surplus of over Rs 440 billion. Under the LIC Act, it has to distribute 95 per cent of its surplus to policyholders as bonuses, while the balance 5 per cent is the share of the government. So if, the new provision gets implemented, LIC would have to entail at least Rs 8.80 billion from its surplus fund for welfare activities.

The parliamentary committee has sought the detailed division of the surplus fund allocation under the LIC Act. Sources said it would then submit its feedback to the government.

Typically, the surplus is the returns the insurer generates across its businesses of life insurance, pension, annuity, etc.

“LIC has its own welfare fund for charitable purposes which could be increased and labelled as CSR activities,” said a former LIC official. He was referring to LIC Golden Jubilee Foundation, established in 2006, to provide relief from poverty or distress, advancement of education etc. Till March 2017, this foundation had a corpus of Rs 1.60 billion, which is not significant for an organisation of the size of LIC. A source said, “For the country’s largest financial institution, it should be much higher.” 

In its 2016-17 annual report, LIC had also clubbed the claims it had settled under the central government’s schemes such as Aam Aadmi Bima Yojana and also said has that it was promoting social welfare through investments in infrastructure and social sector which include power, housing, and water. 

A CSR consultant to leading firms and foundations who did not wish to be quoted said that LIC’s infrastructure investments are not CSR. She added, “There is a lot of scope for LIC to contribute to CSR, beyond the Centre’s insurance schemes for poor and investing in infrastructure.”

The government is actively monitoring the CSR spending and whether companies are complying with the regulations. In January, the Ministry of Corporate Affairs has directed all concerned departments to take penal action against companies that have not complied with the CSR norms. In a reply to the Rajya Sabha, the ministry has directed penal action against 196 companies that allegedly violated the law in financial year 2014-15. A total of 5,870 companies spent Rs 95.5 billion towards CSR in 2014-15. In 2015-16, as many as 7,983 companies incurred CSR expenditure of Rs 136.25 billion, according to official data.

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