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LIC Improves Its Asset Quality Ahead of Its IPO

08 August 20236 mins read by Angel One
LIC Improves Its Asset Quality Ahead of Its IPO
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According to its latest annual reports, LIC (Life Insurance Corporation) had lowered its net NPA (Non-Performing Assets) to 0.05% in the financial year ended in March 2021. Its NPAs as of 31 March 2021 stood at Rs. 35,129.89 crores out of a total portfolio of Rs. 4,51,303.30 crores.

This is lower than the net NPA of 0.79% in the previous fiscal. Out of it, loss assets are Rs. 14,506.35 crores, doubtful assets are Rs. 20,369.17 crores and sub-standard assets are Rs. 254.37 crores. The percentage of gross NPA in FY22 is 7.78% compared to 8.17% as of the previous fiscal.

LIC has made full provisions for all its NPA in their debt book. It has made provisions of Rs. 37,341.6 crores towards its liabilities, of which Rs. 34,934.97 crores towards loss, doubtful and sub-standard assets.

Now, let us take a deeper look into the public corporation and its financials.

About Life Insurance Corporation of India

LIC is India’s only public sector life insurance company. Created in 1956 by the Government of India (GOI), it remains the largest life insurer in the country. It has a 72% market share with an investment portfolio of Rs. 31 trillion.

LIC offers a range of life insurance plans, including term insurance, pension plans, children’s plans, ULIPs, etc. The brand has also built its online presence offering many savings and investment products.

This public company is well-established in cities and towns of the country, having a vast network of 2048 branch offices, 1381 satellite offices, 113 divisional offices and 8 zonal offices. It also has subsidiaries and joint ventures in Bahrain, Bangladesh, Kenya, Nepal, Saudi Arabia and Singapore.

A Brief Overview of the Public Insurer’s IPO

The primary objective behind LIC’s upcoming IPO is to let GOI achieve its ambitious disinvestment target of Rs. 2.1 trillion via PSUs (Public Sector Undertakings). The government will roll out the IPO right after it completes its disinvestment in 3 other PSUs, including National Fertilisers, Rashtriya Chemical and Fertilisers and Mishra Dhatu Nigam.

The filing of the DRHP (draft red herring prospectus) will take place sometime within December 2021. This would allow GOI to open the IPO by March 2022, in line with its ambitious targets.

Through this Mega IPO, the government, which currently owns a 100% stake in the company, will offload a 5-10% stake. As a result, the issue size will be somewhere in the median size in the range of Rs. 70,000 to Rs. 1 lakh crores. Of this, a 10% stake would be reserved for policyholders, and another reservation would be made for the employees.

Due to its very large size, LIC will split its IPO into two parts with a gap of a few months. This is because the government considers that the issue size may be too large for the market to absorb in one go.

The government has appointed 10 merchant bankers for the issue. This included both global and Indian merchant bankers like:

  • Citigroup Global Markets India Pvt Ltd.
  • Goldman Sachs (India) Securities Pvt Ltd.
  • Nomura Financial Advisory and Securities (India) Pvt Ltd.
  • Axis Capital Ltd.
  • JP Morgan India Pvt Ltd.
  • SBI Capital Market Ltd.
  • JM Financial Ltd.
  • Kotak Mahindra Capital Co Ltd.
  • BofA Securities
  • ICICI Securities

LIC has appointed Arijit Basu, the former MD of SBI and SBI Life Insurance, as a consultant for the IPO. Other recent appointments include Cyril Amarchand Mangaldas as legal advisor and KFIN Technologies as registrar.

Current Financial Status of the Company

LIC is the largest life insurer in India, having a total first-year premium of more than Rs. 1.84 lakh crores as of March 2021. Its balance sheet at $500 billion makes it one of India’s largest in the equities and debt space. It also has a market cap of around Rs. 9-10 trillion, making it one of the country’s top 3 valuable companies.

As of the second quarter of FY2022, its total revenues from operations is at Rs. 4,708 crores compared to Rs. 4,969 crores in the same quarter of FY21. Its PAT (profits after tax) is at Rs. 247.86 crores, less than Rs. 790.90 crores in the previous fiscal.

LIC’s total outstanding loan portfolio stood at Rs. 2,37,660, up by 11% from the previous year. While its total disbursement has grown by 29% from the previous fiscal to Rs. 16,110 crores against Rs. 12,443 crores, the company’s net interest income has also decreased to Rs. 1,173 crores from Rs. 1,238 crores in the previous year.


Frequently Asked Questions

  1. How many insurance agents does LIC employ?

LIC has a massive network of 22.78 lakh agents and 2.9 lakh employees. With so many agents, the company can add huge volume even if each agent adds a single policy in a year.

  1. Will the government offload all LIC shares in the future?

For the foreseeable future, it will not. The government plans to hold 75% of its stake in LIC five years after the upcoming IPO. After that, it will hold a 51% stake at all times.

  1. Will LIC continue its sovereign guarantee on claims after its listing?

Yes. At present, LIC will continue giving the sovereign guarantee on its claims after the listing. According to this, if the company cannot pay claims, the government will take responsibility.


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