The gross non-performing asset (NPA) ratio in the debt portfolio of Life Insurance Corporation (LIC) has risen to 7.5 per cent at the end of December 2019, from 6.06 per cent at the end of December 2018. However, if LIC’s entire asset base of over Rs 32 trillion is considered, the gross NPA ratio is around 1 per cent.
The gross NPA ratio of LIC in the debt portfolio at the end of September 2019 stood at 6.10 per cent.
In absolute terms, the outstanding book value of NPAs of LIC in the debt portfolio across life, pension and unit linked funds is to the tune of Rs 32,685.39 crore at the end of December 2019. At the end of September 2019, this number was Rs 25,554.52 crore.
While the gross NPAs have seen a rise, the net NPAs have remained fairly stable. At the end of December 2019, the net NPA ratio of LIC in the debt portfolio stood at 0.36 per cent compared to 0.35 per cent a year ago.
This essentially means LIC has made provisions for its NPAs. The insurer has made provisions of Rs 31,232.26 crore for NPAs in its debt portfolio at the end of December 2019.
“In case of banks, there entire portfolio is loans so the NPA percentage is on loans. In LIC’s case, debt is a small portion of LIC’s total investment. So, if the NPA is Rs 30,000 crore then it is on an asset base of Rs 32 trillion thereby the total NPA ratio is close to 1 per cent. Also, LIC has made 95 per cent provisions on the NPAs thereby the net NPAs is almost zero,” said a senior executive of a life insurance company.
For big corporate accounts like Dewan Housing Finance Limited (DHFL), Reliance Communications, ABG Shipyard, Reliance Naval and Engineering, and others, LIC has provided for 100 per cent of its exposure. For IL&FS group companies, the provision made by LIC ranges from 25 per cent to 100 per cent.
LIC extends credit to corporates via terms loans or by investing in their non-convertible debentures, which reflect in the debt portfolio.
“There are lot of sectors which are facing huge stress so that is getting reflected everywhere be it banks, mutual funds or LIC. What is happening is reflecting the situation in the economy and LIC is actively engaged in following up with the recovery process whether it is through debt recovery tribunal, SARFAESI Act or insolvency and bankruptcy code and hopefully a large part of it will be recovered,” the executive added.
Insurance experts said unlike banks, insurance companies are not into lending business. They make investments and in case of LIC, almost 68 per cent is in government securities and state development loans (SDLs) which are guaranteed by the government. Then they have a huge real estate portfolio and an equity portfolio.
In the current financial year (FY20), LIC has made equity investments to the tune of Rs 49,046 crore and debt investments of Rs 57,000 crore. The insurer has made gains to the tune of Rs 24,000 crore from its equity investment in the present financial year.
The government in the Union Budget of 2019-20 announced that they will pare a part of their stake in the state-owned insurance behemoth by listing LIC. The government is expecting close to Rs 1 trillion from dilution of its stake in the insurance behemoth.
LIC has reported a solvency margin of 1.52 at the end of December 2019 against the regulatory requirement of 1.5. This ratio indicates the amount by which the assets of an insurer exceeds its liabilities.