LIC has been losing market to private insurers, and now also has to turn around IDBI Bank
MR Kumar has taken charge as the Chairman of Life Insurance Corporation of India at a time when the country's largest insurer faces the twin challenges of managing the growth of its core insurance business and turning around its new acquisition, IDBI Bank.
Kumar was named LIC Chairman on March 13 and took over from Hemant Bhargava, who had been serving as the interim chairman since January 2019.
Kumar has been with LIC for 36 years, having joined the insurer in 1983 as a direct recruit officer. This gives him the in-depth experience required to steer LIC.
Premium figures volatile
Kumar’s appointment coincided with the release of the monthly premium collection numbers. As in previous quarters, private life insurers outpaced LIC in first-year premium collection. LIC's market share has also slipped to 66.26 percent as of end-February from 70 percent four years ago.
When it comes to individual business, the adjusted market share of LIC is 41.2 percent compared to 58.8 percent for the private sector. One year ago, private insurers had 56.8 percent share in this category.
Though LIC continues to be the country’s largest insurer, the market will keenly watch how Kumar is able to turn around the premium growth story of the corporation. This includes both the premium numbers as well as the number of policies being sold.
Since Kumar has worked as a sales manager in LIC, company insiders believe he understands the dynamics of sales, especially in the smaller towns. This will also be a key area where his insights will come handy.
With a balance sheet of Rs 29.67 lakh crore, LIC is also an active player in the equity as well as debt markets. Considering the investment corpus of the insurer, its non-performing assets (NPA) are also under watch.
At the end of Q3, the gross NPA ratio (debt portfolio) stood at 6.06 percent compared to 5.74 percent a year ago.
LIC also has exposure in debt-laden IL&FS group through a 25.34 percent equity stake making it necessary to maintain adequate provisions for debt defaults by IL&FS group companies.
The immediate task for Kumar will be to ascertain how much is the actual provisions that will have to be made for all the possible future defaults in the debt instruments.
LIC is now the largest shareholder and promoter of IDBI Bank. It has been handed over the task of helping the bank reduce its bad loans.
IDBI Bank's third-quarter loss widened sharply to Rs 4,185 crore, a near three-fold increase from the Rs 1,524 crore loss posted a year ago due to higher provisions. Lower NII, other income and operating income also dented bottom-line.
On asset quality front, gross non-performing assets (NPA) as a percentage of total assets declined to 29.67 percent in Q3 against 31.78 percent in Q2FY19 and net NPA also dropped to 14.01 percent against 17.30 percent sequentially. But the NPA ratios are still very high compared to the peers in the banking sector.
LIC has already infused about Rs 14,500 crore in December 2018 into IDBI Bank. The bank has sought another Rs 10,000 crore from LIC to spruce up its balance sheet, on which LIC is yet to take a decision.
Further, the insurance regulator has sought a detailed plan on how and by when LIC will bring down its stake in IDBI Bank to 15 percent. Kumar will be entrusted with the responsibility of detailing LIC's vision on the bank.While IDBI Bank may help LIC fulfil its banking aspirations, it comes at a cost. How the new chairman brings the bank back in the black while ensuring its insurance growth numbers stay intact, will be a development keenly watched by the BFSI sector.