If you thought the Life Insurance Corporation (LIC) is in the business of life insurance, buying safe-haven government securities and bailing out public sector companies and banks intermittently, you could be wrong.
Going by latest financial numbers, LIC mirrors the bank-like blunder in doling out loans to private sector entrepreneurs. The LIC's gross NPAs at 6.10 per cent for the first six months (April-September) of 2019-20 are comparable to banks such as YES Bank, Axis Bank and ICICI Bank. The private sector lenders, once known for best asset quality, saw rising NPAs due to challenging operating environment. In the second quarter of 2019-20, YES Bank ended with gross NPAs of 7.39 per cent , ICICI Bank with 6.37 per cent and Axis Bank with 5.03 per cent.
The state-owned insurance behemoth also lends to corporate sector by way of term loans and non-convertible debentures (NCDs). The corporation with total assets of over Rs 36 lakh crore has its own share of woes trusting the private sector entrepreneurs. The LIC has reported total gross NPAs of around Rs 30,000 crore as on September 30, 2019. The gross NPAs at 6.10 per cent in September 2019 have almost doubled over the last five years. The LIC always maintained a stable 1.5-2 per cent gross NPAs.
The big defaulters are the same as for banks. The names include Deccan Chronicle, Essar Shipping, Gammon, IL&FS, Bhushan Power, Videocon Industries, Alok Industries, Amtrak Auto, ABG Shipyard, Unitech, GVK Power and GTL etc. The LIC has both kinds of exposures - term loan and investment via NCDs - in many of these companies.
In many of these defaulting cases, the LIC is not expected to get much. In fact, the LIC, which earns profits of over Rs 2,600 crore annually, has already made provisions in the books. The provisioning is over 90 per cent in these defaulting cases. There are some bankruptcy cases where the amount not received will have to be written off, as restructuring would result in massive haircuts.
The bulk of the NPAs are in the traditional business. The book value of outstanding loans under default is about Rs 25,000 crore. This is followed by pension business with Rs 5,000 crore and unit-linked insurance plans (ULIPs) with nearly Rs 500 crore.
Despite competition, the LIC dominates the life insurance market share with over two-third share in first-year premiums.