Life Insurance Corp. of India (LIC) disclosed weakening financials and a surge in bad loans, hit by high exposure to stressed sectors such as real estate, the growing inability of borrowers to repay loans and downgrades of certain investments amid the covid-19 pandemic.
This may pose a challenge to the government’s plan to divest its stake in the insurer through a mega share sale.
The government is likely to divest up to 10% stake in LIC to meet its divestment target and compensate for the widening fiscal deficit.
According to the latest data issued by LIC, the state-run insurer’s gross non-performing asset (NPA) ratio in its debt portfolio jumped to 8.17% at the end of March 2020 from 6.15% in fiscal 2019. On a net basis, the NPA ratio has risen to 0.79% during fiscal 2020, from 0.27% during fiscal 2019.
LIC’s balance sheet grew to ₹31.24 trillion at the end of fiscal 2020 from ₹30.56 trillion in March 2019. A closer look at the latest financials showed LIC’s total real estate exposure plus loans as a percentage of cash and invested assets rose to 4.22% in FY20 from 4.09% a year earlier.
In fiscal 2020, LIC extended total loans of ₹1.08 trillion, up from ₹1.04 trillion in fiscal 2019. It disbursed loans worth ₹98,894.63 crore against insurance policies during the year, higher than the ₹92,087.54 crore loans sanctioned against policies in fiscal 2019.
In a conference in February, LIC chairman M.R. Kumar had said the gross NPA ratio of LIC should not be compared to that of banks. He said the stress threshold for banks is different from that of life insurers. Most of LIC’s investments have been in government securities, equity and a small portion of corporate debt, Kumar said.
LIC usually discloses its list of downgraded investments every quarter, but the insurer did not make any public disclosure on investment downgrades for the March quarter.
It, however, said it has made provisions worth ₹12,561.37 crore for bad and doubtful debts, and ₹12,131.22 crore for non-standard loans in FY20.