LIC’s gross bad loans jumped nearly five times in eight years through FY19 to 6.15%

After a string of investments that went bad, increasing NPAs are weighing on LIC’s profits ahead of its proposed IPO.
LIC’s gross bad loans jumped nearly five times in eight years through FY19 to 6.15%
LIC’s gross bad loans jumped nearly five times in eight years through FY19 to 6.15%
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Even as the government has made its intentions clear that it wants to list Life Insurance Corporation of India on the stock exchanges, there are developments related to the state-owned insurance giant that will come into reckoning.

On top of the pile is the NPA the company has been carrying following investments in many companies going bad. These include DHFL, Reliance Capital and Reliance Home Finance. These have become basket cases and are struggling at the National Company Law Tribunal for insolvency resolution. LIC had a collective exposure of around Rs 11,000 crore in these companies by way of bonds, which have now turned out to be of junk value. The government’s decision to ask LIC to take over the stressed IDBI Bank has also cost the insurance company dearly since there has not been any qualitative improvement in the financial status of IDBI Bank so far.

For the record, LIC had already accounted for as much as Rs 23,761 crore in the last completed financial year ending March 2019. That has brought down to NPA to 0.27% something that will work favourably now, when it goes for the IPO. LIC would want to further clean up its balance sheet before going in for the listing and IPO.

LIC of India is the largest insurance company in India, with 66% market share. However, when you compare some of the performance factors, LIC does not fare as well as some of the private players, like SBI Life, ICICI Prudential and HDFC Life, among others.

The profit after tax that LIC posted in FY 19 is around half of these players. In terms of the growth of income through investments, it is 8.7% for LIC whereas it stood at 9.7% for the private players. The last year also witnessed the private players upping their insurance premium receipts by as much as 24.1% in FY 19 compared to FY 18, LIC had to be content with just 6.1% growth. To place this in perspective, LIC used to enjoy a market share of as high as 75% just 8 years ago. That has fallen to 66% now. The only parameter where LIC is able to score over the private players is in the area of operating expenses, which is 8.7%, whereas the private players end up spending up to 12.9% of their revenue as operation costs.

LIC’s pockets are deep with Rs 4 lakh crore in funds to make investments.

While the government will be happy to go in for this IPO where it can offer up to 10% of its stake and make a killing. The only matter of concern for the government is fi the market will be ready to make the purchase of 10% of LIC’s equity. The government may approach SEBI to make an exception to limit it to 5% or so.

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