Most of us think that 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, but it seems like that dream doesn’t last long.
How Did This Happen?
As per the reports, the Life Insurance Corporation of India (LIC) reported total gross non-performing assets (NPAs) at around Rs 30,000 crore as of September 2019.
The state-owned insurer’s gross NPAs stood at 6.10 percent for the first six months of FY20 (April to September 2019), and have witnessed a doubling over the past five years, according to a report.
LIC usually had limited gross NPAs between 1.5 percent but With this development it reaches 2 percent, which is the same league as private lenders like Yes Bank, Axis Bank and ICICI Bank.
Talking about these banks, they ended the first half of the current fiscal year with gross NPAs at 7.39 percent, 5.03 percent and 6.37 percent respectively.
Analyzing the latest financial numbers, LIC mirrors the bank-like blunder in doling out loans to private sector entrepreneurs.
Why Would This Happen?
According to the report, the reason behind LIC’s NPA woes are similar to those of banks, namely corporate loan defaults.
If we talk about some of the big names that feature on LIC’s list of major defaulters include Infrastructure Leasing and Financial Services (IL&FS), Essar Port, Videocon Industries, Bhushan Power, Deccan Chronicle, Unitech and a few others.
The private sector lenders, once known for best asset quality, are now battling with rising NPAs due to the challenging operating environment.
That can be observed in the second quarter of 2019-20, YES Bank ended with gross NPAs of 7.39 percent, ICICI Bank with 6.37 percent and Axis Bank with 5.03 percent.
Coming to LIC, which usually had limited gross NPAs between 1.5 percent to 2 percent, in the same league as private lenders like Yes Bank, Axis Bank and ICICI Bank.
What Is LIC’s Response?
The national insurer, which owns a total assets of over Rs 36 lakh crore, lends to corporates via two means- terms loans and non-convertible debentures.
LIC has both kinds of exposures in some of these defaulting companies, according to the report.
LIC has already made provisions in its books for these defaults, which includes some cases where the companies have files for bankruptcy and hence would involve some write-offs where amounts owed are not received as mentioned in the report.
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