LIC Chairman MR Kumar Says There’s Hardly Any Stress To Impact Insurer’s Valuation

LIC Chairman MR Kumar says hardly 1 percent of India’s largest insurer’s loans are stressed.

LIC building. (Photo: BloombergQuint)
LIC building. (Photo: BloombergQuint)

Exposure to stressed firms won’t have an impact on the valuation of its planned initial public offering of Life Insurance Corporation of India, according to its Chairman MR Kumar.

Hardly 1 percent of India’s largest life insurer’s loans are stressed, Kumar said at a press briefing in Mumbai.

Finance Minister Nirmala Sitharaman in her budget speech announced that India planned to launch an IPO of the insurer fully owned by the government. That could contribute about a third of the record divestment target of Rs 2.1 lakh crore for 2020-21.

Kumar had told reporters in October that “it is too early for LIC to come out with an IPO and go public”. Asked what changed since then, he said, “Let me just put it this way that I did say that… I admit that I said but, perhaps, I have been overruled… What more can I say?”

He declined to give any timeline for the share sale. “We have not done our math for the IPO. Unless we do that, we won’t be able to give any specifics. The chronology of the IPO will be the same as any other IPOs.”

He said LIC’s perception very positive. “We have 29 crore policy holders and 12 lakh agents. I can’t think of any other organisation which has gone for an IPO with this kind of a base. So, this is the kind of trust people have on us,”.

After the budget announcement, LIC’s employees’ union opposed the government’s move to divest its stake in the insurer. Trying to allay concerns, Kumar said there was no question of privatisation. “The government is only possibly divesting the part of it. Most of the public sector banks are listed and they continue to be government companies,” he said.

“There is absolutely no problem for the staff and employees. They will continue to be LIC employees which is going to be (more or less) wholly controlled by the government,” he said, adding that LIC will talk to its employees.

For policy holders, there shouldn’t be any problem, he said. “The finance minister has gone on record to say that sovereign guarantee will continue. That being the case, I don’t think there is anything to worry for the customers as well.”

Budget 2020: 10% LIC Stake Sale Could Raise Rs 80,000-90,000 Crore, Says Former Top Bureaucrat 

On IDBI Bank Stake

Kumar said the state-owned insurer would have to find a way to unlock value once the bank is out of central bank’s prompt corrective action curbs.

The central bank has given LIC 12 years to bring down its stake in IDBI Bank but the insurer may not to wait that long.

“Specially, if we are also going to be listed. But we have to find some way of unlocking the value of IDBI. Once they come out of PCA and start lending, I believe the profitability will go up substantially.”

Last year, LIC bailed out IDBI Bank as the lenders had one of the highest bad loan ratio among Indian banks and it struggled to raise capital, forcing the RBI to place curbs on its operations under its prompt corrective action.

The government is also looking to sell its remaining 47.11 percent in bank.

LIC Financials

  • Total assets rose 8 percent year-on-year to Rs 32.3 lakh crore as of September versus Rs 29.9 lakh crore a year earlier.
  • Crossed Rs 1.5 lakh crore in new business premium for the first time in its history.
  • Total income grew 17.8 percent to Rs 2.97 lakh crore as of September.
  • In 2018-19, LIC generated total valuation surplus of Rs 53,214 crore and paid a dividend of Rs 2,611 crore to the government.