Life Insurance Corporation of India (LIC) is all set to begin the process of initial public offering (IPO) where the government will divest a portion of its 100 percent stake.
Finance minister Nirmala Sitharaman in her Budget speech had said that the government will divest its stake in LIC through an IPO.
It is likely that LIC will be listed on the stock exchanges in the second half of FY21. However, LIC Chairman MR Kumar said that he was not entirely surprised by the decision since this option was under consideration for the last three to five years.
In his first media interaction after the Budget announcement, Kumar spoke about a slew of issues ranging from listing, business performance, IDBI Bank stake, among others.
Edited excerpts:
On proposed IPO
We have not done the math yet for the IPO. Unless we do our internal discussions we wouldn’t be able to come out with the number. But I believe that the valuation has to be reasonable, and has to be done properly and scientifically.
We are talking to the government and will have series of discussions on this matter. The finance ministry officers have given second half of FY21 as a timeline and I think it is possible.
On employee protest against proposed IPO
The LIC IPO does not mean privatisation as some people are suggesting. The government is only divesting a part of its stake. Most of the private sector banks are listed and so are PSU general insurers. But these entities continue to be government-owned. There will no problems for LIC employees, they will continue to be staff. We will be talking to them (protesting staff) and clarify this.
On brand perception ahead of IPO
The perception is very positive for us as of now. We have 29 crore policyholders and 12 lakh agents. I cannot think of any other organisation that has gone for an IPO with such a base. If there is any negative perception among some employees and any investor we will address it. With a listing, both transparency and corporate governance will improve.
On changes to be done prior to IPO
A basic amendment will be required in the LIC Act. Legislative actions will also have to happen. The areas that will need to be looked include sovereign guarantee, classification of LIC as company or a corporation as well as matters related to payment of dividend.
On IPO timing
The second half of FY21 has been given as the official timeline by the govenrment. But we have to work it out. We don’t have any chronology right now. But we will borrow lessons from the PSU non-life insurers that have been listed.
On rise in bad loans and NPAs
If you look at the stress, for banks it is much different than what it is for insurers. For us, most of our investment is comprised of government securities, equity and a small portion of corporate debt. If you look at non-performing assets (NPA) overall for us it is hardly 1 percent. We make provisions for everything and the net (NPA) is just 0.04 percent.
The bad loans could be rising but assets are much higher at over Rs 31 lakh crore.
On IDBI Bank stake and subsequent reduction in shareholding
IDBI Bank crossed Rs 500 crore of new business premium for us. The bank was originally targeting Rs 2,000 crore but at this stage they may cross Rs 1,000 crore. This will be the highest ever done by a bancassurance partner for us.
With 49 percent with government and 51 percent with us, there is hardly any float. With the government announcement to sell its stake in IDBI Bank, some private partners may come in. With this, it is likely that people will show more interest in the scrip.
Reserve Bank of India (RBI) has given us a 12-year period to bring down the stake in IDBI Bank to 15 percent. But we may not want to wait that long especially since we will also be listed. We need to look at options to unlock value. Once they come out of the prompt corrective action framework and start lending, their profitability will go up substantially.
On offloading IDBI Bank stake currently
Since the government is going to offload, LIC will not be offloading stake. We will wait for a better price because our acquisition price is much more than what it is today. But o more capitalisation is required at the IDBI Bank. I am of the view that RBI might waive that profitability clause for IDBI Bank to come out of PCA. In the next quarter, IDBI Bank may come to the green side on their books.
On business growth
For the first time in its history, LIC crossed Rs 1.5 lakh crore in new business premium. The market share has also increased in number of policies to 77.61 percent as of January 31 compared to 73.54 percent a year ago. Further, we have invested Rs 46,850 crore in equities between April 1 and January 31. and have booked profits of Rs 23,273.85 crore in this period from equity investments.
If you look at non-single premium space, there are two parts to it. As of now, we are not present in the unit-linked insurance plan (Ulip) portion. But if you look at the non-Ulip portion of the non-single premium, about 80 percent of the market share is with us. We are going to get into the Ulip segment in a very strategic and aggressive manner. We are also awaiting product approval from the regulator. I would personally like to see it launched by the end of this month.
On single premium products
We took a conscious decision to step up the sale of non-single premium policies and number of policies. We believe that the coverage will be more important than penetration or density of premium. We need to more people covered in India and we have succeeded. Earlier there was an overhang or fear of losing market share if we didn't sell single premium. Our field force has managed to balance both single and non-single premium business.
On impact of Budget 2020 new tax slab option on LIC sales
Section 80C has been there in some form of the other in India. I don't think anyone buys an LIC policy purely for tax deductions. I don't think there will be any impact of the new tax regime option proposed in Budget 2020.
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