Why the Adani-LIC bond saga is a red flag for public accountability

Almost three years after Hindenburg fired a salvo against it, and well after the American short-seller subsequently wound up, the Adani Group still manages to stir controversy.

The latest is the recent revelation in the Washington Post that the Union Finance Ministry masterminded a bailout of the Adani Group’s bond issues by the Life Insurance Corporation (LIC), India’s premier life insurer.

Two sets of questions arise as a result, both of which have been mixed up in a convoluted manner in most media commentary on the sensational disclosures made by the Post.

Two big questions

The first, more juicy, aspect raised by critics is the question: Is this revelation yet another instance of crony capitalism (whatever that may mean)? Did the Union Finance Ministry, which also happens to exercise control of LIC as its “owner”, use its muscle to favour a key business ally?

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But there is a second question that needs to be asked, simply because this case refers to an institution that is sui generis in the world of finance. Does this action jeopardise the life savings of millions of policyholders? This assumes significance because the vast majority of LIC’s policyholders are poor and may have never turned towards a life insurance policy if not for the existence of the pioneering institution.

Mixing the two sets of issues lies at the heart of most media commentaries.

With that as background, let us first unpack the allegations made by the Post.

The Adani bonds

The Post cited internal documents to allege that in May this year, the Department of Financial Services in the Finance Ministry orchestrated a scheme to get LIC to invest in $3.9 billion (Rs 33,000 crore) worth of bonds issued by Adani Group companies. The timing, the article alleged, was significant because the Group was still reeling under the after-effects of the Hindenburg attack.

In 2023, Hindenburg alleged that the group was significantly indebted and had used a network of share trades among connected parties to artificially boost the values of its shares, which, in turn, enabled it to leverage even more debt. Significantly, the grave allegations centred on the obscure identity of some of the “investors” based overseas, which was a serious violation of elementary know-your-investor (KYI) disclosure norms pertaining to securities market regulations.

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The swirl of controversy had abated somewhat, most notably because the Securities and Exchange Board of India (SEBI), the courts and the government, all in some manner or the other, appeared to give a clean chit to the Adanis.

But this relief proved short-lived. The Group faced fresh allegations in 2024, this time from US law enforcement agencies. The agencies accused the group’s boss, Gautam Adani, and his associates of bribery, fraud and other corrupt practices. The Post alleges that this was the immediate context in which the Finance Ministry acted as the conductor of the orchestra to bail out the Adanis.

Extraordinary support

It is a fact that within the same month (May 30, 2025), LIC turned up as the sole subscriber of the $585 million (about Rs 4,950 crore) bond issue floated by the ports subsidiary of the Adani Group. The issue was ostensibly to refinance existing debt.

The Post alleged that the Finance Ministry, the Niti Aayog and LIC participated in the deliberations. It quoted the Finance Ministry as justifying the bailout by terming Gautam Adani a “visionary entrepreneur”. The Ministry, according to the Post, said its strategic objectives ”were to signal(ling) confidence in Adani Group”.

Most significantly, the Finance Ministry is said to have justified the plan, ostensibly to “encourage(ing) participation by other investors”.

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These actions of the Finance Ministry, if true, are certainly extraordinary. Even if it did feel the business group — a key player now in large swathes of Indian infrastructure such as ports, roads, airports, cement and even data centres (in collaboration with Google) — to be worthy of support, what explains the un-bureaucrat-like language of terming Adani as a “visionary”? Why stoke further controversy by urging LIC to start “signalling confidence in the Adani Group”?

In fact, the Post alleged that the Ministry even suggested to LIC that the Adani bonds were considerably more attractive than its own securities issued on its behalf by the Reserve Bank of India.

LIC as a marquee investor

Those who have followed the affairs of India’s premier insurer know well that even today, government securities account for the overwhelming majority of LIC's investments; this mix in its portfolio reflects its client mix. The overwhelming majority of its policyholders subscribe to “small-ticket” life insurance policies. For them, safety and security matter far more than an illusion of higher return that is also characterised by higher risk.

What possibly explains the move, per the Post’s allegation, is that the Ministry used LIC as a grand marquee investor to draw in other reluctant investors — domestic and foreign — to Adani bonds, just at a time when the market players may have been reluctant to make the move.

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Indeed, this is exactly what happened after LIC invested in Adani bonds in May. Within a month of the LIC move, US-based Athene Insurance subscribed to $750 million worth of bonds issued by Adani Ports. Media reports indicate that since LIC’s bond purchase of May 2025, the group has issued bonds worth at least $10 billion. At least Rs 13,750 crore ($1.625 billion) worth of bonds of the Adani Group have been subscribed to by domestic investors, among them mutual funds, insurance companies and banks.

LIC the behemoth

Much of the media commentary in the aftermath of the latest controversy reveals ignorance of the specific nature, scale and significance of LIC as an institution.

In effect, LIC was not just another investor in the market, nor the bonds just another business opportunity.

Note that none of the other domestic investors in Adani bonds — including entities such as the leading public sector bank SBI, or the private ones such as the ICICI or HDFC — have an investment corpus that rivals LIC's. LIC’s Life Fund, the massive pool into which insurance premia flow in and from which all liabilities are to be met, amounted to a whopping Rs 47.85 lakh crore in March 2024.

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No Indian financial institution or any life insurer worldwide wields the kind of heft that LIC commands. The corpus, which has been growing at about 10 per cent annually in the past few years, is what provides LIC clout in the market.

Thus, when an entity like it is forced by the government to invest in the Adani bonds, other investors who were initially reluctant are now drawn to similar offerings by the group.

Business sense?

LIC rebutted the Washington Post story and denied the existence of any document that showed its participation in the plan alleged by the newspaper. It claimed that its investments were purely based on its board’s decisions.

The coverage of the controversy by Indian media has skirted the most important question: why should the government direct the business decisions of India’s biggest financial entity? The suggestion that LIC’s investments in the Adani Group makes business sense is besides the point.

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So is the suggestion that LIC’s investments in the Adani Group are a fraction of its investments in other groups such as ITC, Tata or Reliance for the simple reason that these other conglomerates are much older. LIC’s legacy investments in these entities have been built over a much longer period. In contrast, the Adani Group’s meteoric rise has coincided with the arrival of Narendra Modi at the helm in 2014.

Policyholders’ interests

Now, turning towards the other important question: do these investments by LIC pose a threat to its policyholders? The short answer, if one knows LIC, is, no, not immediately, at least.

Amanulla Khan, former president of the All India Insurance Employees’ Association, the biggest union of white collar workers in India, says the LIC policyholder need not worry for three main reasons. One, the institution’s “diversified portfolio” of financial assets provides a measure of insurance against risk arising from exposures to a narrow band of assets. LIC invests in about 350 Indian companies, accounting for about 4 per cent of the entire market capitalisation of Indian listed entities. The diversified nature of its holdings ensures that risk is mitigated to a great extent, Khan says.

Two, LIC’s investment procedures are robust, “with checks and balances” built into them, says Khan.

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The third and most important feature, missing completely in the commentary, is the fact that every life insurance policy issued by LIC enjoys a sovereign guarantee; no other policy issued by any other insurer enjoys this advantage. The government guarantees not just the sum assured of every policy but also the accrued annual bonuses.

Unique historical context

Of course, testifying to the strength and dynamism of LIC is the all-important fact that such a guarantee has never been invoked since LIC’s birth in 1956.

Amanulla Khan points out that the sovereign guarantee has to be seen in the unique historical context in which LIC was born.

In 1956, LIC was created by the amalgamation of 245 private insurers, many of whom were fly-by-night operators. The sovereign guarantee was necessary to not just stabilise the life insurance business in India but also to promote its expansion in a society that had no other avenue of social security.

LIC’s 'contrarian' streak

The total investments of LIC in 2024-25 were about Rs 52.89 lakh crore, of which 97 per cent came from funds provided by policyholders. Nearly two of every three life insurance policies in India are issued by the institution; it enjoys a market share of 57 per cent of the Indian life insurance business.

More than 60 per cent of all its investments are in government securities, which enjoy the highest rating levels.

Amanulla Khan points out that LIC’s investments in corporate bonds constitute just about 2.5 per cent of LIC’s total investments. Moreover, he points out that much of the commentary has ignored LIC’s historical conduct as an investor.

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LIC, says Amanulla Khan, has a “contrarian” streak in that, unlike others, its sights are set on the long term. It tends to pick securities when their prices fall and then sell smaller lots in order to book profits at an opportune time later, in order to generate surpluses for policyholders. This strategy works well for the institution because these align with its long-term liabilities (payouts to policyholders) that are typically the case in the life insurance business.

“The losses that the Post refers to are purely notional; LIC has not lost anything,” Amanulla Khan argues.

Where to invest?

LIC’s latest annual report (2024-25) shows that between 2023-24 and 2024-25, the institution’s investment increased by about Rs 3 lakh crore. The overwhelming portion of this, 86.5 per cent, came from investments made possible by the accrual of funds mobilised from policyholders.

So, where does a behemoth like LIC, which needs to invest funds of this magnitude every year, turn to to generate revenues that would match its long-term liabilities, especially to policyholders, invest?

Unfortunately, despite much hand-wringing over the past two decades about the lack of suitable instruments such as bonds with longer maturities, nothing has happened. As a result, an institution like LIC, which badly needs something like a 30-year debt instrument in order to match its asset and liabilities over the long term — which is what a life insurance product is a classic example of — is forced to turn to other avenues like corporate bonds. But even this is to a great extent mitigated by the fact that the most significant part of its investments is still in government-backed securities.

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“There is no doubt that Adani represents a classic instance of crony capitalism in India, but this issue needs to be separated from the question of whether this latest move represents a danger to policyholders,” says Amanulla Khan. Whether the union likes it or not, LIC is constrained by the fact that it has to operate within the “existing system”. Fighting crony capitalism is part of a larger political battle, one from which his union has not shied away, he claims. But to create panic among policyholders does the institution a great disservice, he says.

Urgent need for oversight

That the Finance Ministry, as the “owner” of LIC, would have a say in LIC’s affairs cannot be wished away. After all, it enjoys a significant presence on the LIC board simply by virtue of its “ownership”.

So long as LIC was subjected to Parliamentary scrutiny, there was hope that public scrutiny would keep mala fide actions in check, but since its transformation into a company, just prior to the IPO of 2022, these guardrails have been removed.

There is an urgent need to reestablish a more accountable process — one that reflects the gravitas of its fiduciary responsibilities to millions of Indians better.

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the article are of the author and do not necessarily reflect the views of The Federal.)