“On 3/7/2008, the Chairman, LIC had written to the IRDA confirming that the investment management system as mandated by the IRDA is fully in place. Based on this confirmation by the Chairman, LIC, the IRDA has granted certain exemptions in different categories of the investment portfolio. However, it is amply clear that the confirmation by the Chairman, LIC of the system being in place was false and totally incorrect.”
Well this was a part of a stinging communication from the then Chairman J Hari Narayan of the Insurance Regulatory and Development Authority [IRDA] on January 25, 2010 on the performance of TS Vijayan, the then Chairman of LIC.
Subsequently in 2011 the Appointments Committee of the Cabinet, with the approval of “the then FM” was constituted to take stock of the performance of TS Vijayan, the then Chairman of LIC.
Para 3 of a secret note [No A-15011/02/2010-Ins.1] prepared by the Ministry of Finance states: “In view of the decision taken by the Assessment Committee we may call for the meeting of the selection committee to interview all eligible candidates to select a new chairman of LIC.”
Para 4 of the said note goes on to add: “Further, since Shri Vijayan has been left with more than one and half years of service before he superannuates from the services of LIC, it is to be decided to revert him to his substantive post which he was holding at the time of appointment as Chairman, LIC.”
In fact, not only is the Ministry of Finance in 2011 apparently suggesting that the Government of India must scout for a new Chairman “based on available records” but also is clearly of the opinion that TS Vijayan was to be demoted.
Well the best is yet to come. In a handwritten note dated January 3, 2013, Finance Minister P Chidambaram, while considering three shortlisted candidates for the post of Chairman of IRDA, goes on to write, “I have carefully considered the names. I am also aware of the work and experience of the three shortlisted candidates. The learning curve in the insurance industry — and specifically so for the Regulator – is steep: Among the three candidates, the best candidate will be TS Vijayan who has vast experience and a splendid record. We may select TS Vijayan.” Yes the very same Vijayan who, according to the very same Ministry of Finance, was found unfit to head LIC in 2011, was found to have a “splendid track record” in 2013 and fit enough to head not only LIC but regulate the entire insurance industry!
Understanding the ‘splendid record’
Now let us examine the splendid record of TS Vijayan. As already pointed at the outset, in a communication dated January 25, 2010, the then Chairman of IRDA J Hari Narayan to the Chairman of LIC TS Vijayan brought about stinging comments on the investment management systems within LIC. Further, the communication notes: “The valuation of a given portfolio is wrong and is not based on market prices but is based on the book value of the scrip thus giving a wrong picture of the value of the portfolio” and added “LIC has violated exposure norms as earlier mandated in 1958 and as subsequently amended by the IRDA in 2008.” Splendid Record indeed!
Interestingly, these comments are not to be dismissed as mere innuendoes by IRDA against LIC or its chairman. Neither is it a case of personal rivalry between IRDA chairman on the one hand and the LIC chairman on the other.
This letter was written by the then IRDA in his capacity as the sentinel and regulator of the insurance industry was the culmination of an audit of the Investment Risk Management Processing Systems of LIC of India carried out between December 21 and 24, 2009.
Crucially, in a damning conclusion, the IRDA chairman concludes, “This has serious implications on solvency.”
Yet the Finance Minister himself talks of a “splendid record”! Remember, in any insurance company – solvency is the crucial issue. When that is challenged, obviously it constitutes “serious inadequacies” in the functioning of LIC.
The vigilance angle
At the core of the issue is the gargantuan corpus – currently in excess of Rs 13 lakh crore — available for investment with the LIC for investment. Needless to emphasise, this constitutes the premium collected from various policy-holders over the years.
Further, IRDA, as the regulator of the entire insurance industry, regulates a massive fund size in excess of Rs 22 lakh crore that belong to the policy-holders of various insurance companies including that of LIC. And because of the mammoth liabilities that the insurers assume in respect of life covers and non life insurances of the citizens and commercial entities of this nation, the safekeeping and prudent investment of such funds are of paramount importance.
It is in this connection Section 4 of the IRDA Act, 1999 provides for the appointment of a chairperson (and members) “by the Central Government from amongst persons of ability, integrity and standing who have knowledge and experience…”.
Obviously, a closer examination of the track record of TS Vijayan will be in order. It may be noted TS Vijayan was appointed as Chairman of LIC for a period of 5 years from May 3, 2006. Importantly, his tenure was “allegedly” marked by financial scandals in which TS Vijayan was “reportedly investigated” by the CBI on the recommendation of the CVC.
The issues of such scandals were published in Punjab Kesari on August 1, 2011 and November 5, 2011. It may be noted that in the said newspaper’s August 1, 2011 edition carried a headline which, when roughly translated into English, meant ‘CBI enquiry begins on Vijayan, the darling of Chidambaram’.
The enquiries centered around the housing loans given by LIC and on investments made by it when TS Vijayan was at the helm of affairs in LIC.
Simultaneously, the Deccan Herald in its July 29, 2011 edition, reported that the CBI was carrying out an enquiry on Vijayan for “allegedly exposing the funds of LIC by investing in IPOs of companies which are against the investment policies of LIC. Some of the companies are Shahid Balwa’s DB Realty, JSW Energy and JP Infratech.”
RTI applications filed with the LIC to obtain a copy of the report submitted by the CBI to LIC of India has been repeatedly stonewalled by LIC citing the “personal information clause” under provisions of Section 8 of the RT Act. How the functioning of LIC or its chairman can be stonewalled is indeed a billion-dollar question.
Similarly, in response to an RTI application filed on the action taken in the news items published the Ministry of Finance in its reply, conceded that “no action” has been taken on such news published.
Captivatingly, in yet another RTI application made to LIC, the life insurance giant refused to part with investment details made by it (including write-offs) claiming such information is “commercially sensitive” and “making them public is not mandated by IRDA.” And in conclusion it states that the “Corporation makes investment in accordance with Insurance Act and IRDA Regulations.”
Yes the very same regulations that the IRDA chairman claims in his communications dated January 25, 2010, to have been flouted with “serious” implication. It does not require a seer to state that either the LIC or the IRDA is right — not both.
Finally, a reference once again to the secret note of the Ministry of Finance mentioned above in connection with the appointment of TS Vijayan is necessary. Para 6 of the note inter-alia states: “Once he was appointed as the chairman, LIC, for a period of five years, this recommendation of ACC [appointing him as MD] was rendered infructuous. In case it is decided to revert back TS Vijayan to MD level, fresh approval of ACC is to be obtained which is not expected to come in view of the pending vigilance clearance to him. Thus the option available is to revert Vijayan to the ED/ ZM-level post in LIC w.e.f 3-5-2011.”
In short, a person who was found unsuitable for being the Chairman of LIC and was to be demoted – yes demoted – to the post of Managing Director of LIC. That was in view of the “pending vigilance clearance,” and consequently TS Vijayan could not be accommodated even in a position of managing Director and the only option was to revert him to the post of Executive Director or Zonal Manager. Well that was in April 2011.
Yet, despite all this in January 2013, the Finance Minister finds him to have a “splendid record”! Wonders never cease with the UPA, do they?
This is the first part of a two-part article.