Even as Life Insurance Corporation of India (LIC) readies itself for an initial public offering in FY21, the insurer’s gross non-performing assets (NPAs) in its debt portfolio has risen to 7.49 percent as of December 31, 2019. The figure was 6.06 percent in the year-ago period.
This is the highest gross NPA (debt portfolio) level for LIC so far. Peers like ICICI Prudential Life Insurance and HDFC Life Insurance have nil gross NPAs.
Net NPA stood at 0.36 percent, similar to levels seen at the end of December 2018.
These figures are crucial as though LIC has an adequate base with a balance sheet of Rs 32.5 lakh crore as of December-end, there will be a deeper scrutiny into its investments and subsequent returns.
Among banks, State Bank of India (SBI) and ICICI Bank had a gross NPA ratio of 6.94 percent and 5.95 percent for the December quarter, respectively.
Being a life insurance that invests in long term instruments, the performance of these instruments will be closely watched by the market.
In its non-linked book, LIC's debt investments between April 1 and December 31, 2019 stood at Rs 58,615.30 crore, or 73 percent of its FY20 target of Rs 80,000 crore.
Another Rs 2.81 lakh crore was invested into government securities (of non-linked book), which exceeded its FY20 target of Rs 2.55 lakh crore.
For H1 FY20, its gross non-performing assets (NPA) ratio stood at 6.1 percent compared to 5.95 percent in the year-ago period.
An email sent to LIC has yet to elicit any response.
However, LIC Chairman MR Kumar had on February 7 said that stress threshold for banks is from that for insurers. For LIC, he said, most investments comprise government securities, equity and a small portion of corporate debt.
“If you look at overall NPAs, it is hardly a percent. We make provisions for everything and the net (NPA) is just 0.04 percent. Bad loans may be rising, but our assets are much higher at over Rs 31 lakh crore,” he added.
The total investment assets of LIC stood at Rs 32 lakh crore as of December 31, 2019, up from Rs 29 lakh crore year-on-year.
Data shows LIC earmarked Rs 35,466.10 crore as provisions for doubtful debt in its investment asset statement, up from Rs 25,825.73 crore provided for in the year-ago period.Downgrading of investments
Source: Public disclosures
There was downgrading of investment in LIC’s life fund. Between October and December 2019, a slew of instruments in companies like IFCI, Yes Bank, Dewan Housing Finance and Indiabulls Housing Finance witnessed a ratings downgrade. The insurers exposure to these instruments stood at Rs 5,753.48 crore as per its balance sheet as of December 31, 2019.
Source: Public disclosures
In the unit-linked fund as well, a Yes Bank instrument was downgraded. Here LIC’s exposure was Rs 322.16 crore.
In its pension fund, Rs 5,222.92 crore was invested in instruments of firms like IFCI, Yes Bank and Indiabulls Housing Finance that had seen a downgrade by rating agencies between October and December last year.
LIC, however, unlike a few of its PSU general insurance peers has consistently fared well as far as solvency ratio is concerned. At the end of December 2019, LIC’s solvency ratio stood at 1.52 times as against the regulatory requirement of 1.5 times.The government announced divestment of its stake in LIC through an initial public offer in FY21. The government is likely to sell up to 10 percent stake in the insurer.