‘LIC wants long-term bonds of up to 50 yrs’

LIC has been the driver of growth for the life insurance industry for the last two years and projects 15-17% growth in FY18. It has added Rs 4 lakh crore to its assets in 12 months and expects to end the year with assets under management (AUM) of Rs 30 lakh crore — an addition of Rs 5 lakh crore. In an interview with TOI, LIC chairman V K Sharma speaks of how the corporation’s share in domestic savings is inching up. Excerpts:
Of late, there is a constant reference to LIC’s investment in PSU bank shares given their fall in prices...

These are the same public sector banks that received accolades for their systems and procedures because of which they were unaffected by the global crisis. Our view is that we are invested in banks for the long term and, by and large, the systems and processes in PSUs are safe and stable.

What about other public sector investments?

So far as other PSUs are concerned, we invest only after proper evaluation and we have made good gains in almost all the investments. For instance, we have seen good appreciation in our investments in SBI, Neyveli Lignite and our secondary purchases in Coal India, GIC Housing Finance, Indraprastha Gas, ONGC, and Oil India. Even in New India and GIC, we have invested because we know these businesses and we believe we will make money.

Our advantage is that we can take a contrarian position and buy when others are selling. Overall, we are in surplus. Also, now more and more investors are coming into equity and the number of companies that are long-term investments are few. In our case, the limit also becomes an issue. To that extent, PSUs provide an investment opportunity.

Now that yields are rising, will you look at improving annuity rates? What are your plans for the pension segment?

If yields continue at present level for the next two quarters, we will be able to improve returns for new entrants. We had reduced returns twice (since demonetisation).

Of late, our annuity investors are growing. We have 48-50 lakh annuity holders and we are the largest pension distributors after the government. Those who are joining us for pension want long-term stable income. This will grow as investors in the National Pension Scheme (NPS) will come to buy annuities. It is our duty to create the fund in such a way that there is no investment risk on that. We have requested the RBI as well as the government to give us long-term bonds of 25, 30 or even 50 years if it is at a slightly lower rate. Not only would this help pensioners, it would also benefit the economy by reducing interest rate volatility. We have a huge appetite for long-term bonds, considering that we collect around Rs 20,000 crore from annuity.

Several private companies offer lower rates on term insurance than LIC...

Our rates are slightly higher because we are in the mass market and premium reflects mortality rates for the overall market. Also, we have an excellent claims-settlement ratio. But we are going to review the rates, and hopefully for the lower. While we have to be competitive, the rates also have to be sustainable. For instance, in the Prime Minister’s Jeevan Jyoti Bima Yojana, private companies quoted lower. But today, we are the only ones selling. Originally, our share was 52% and now it has gone up to 66%.

Banks are seeing close to a fifth of their corporate loans come under stress. What is the position of LIC’s non-performing assets (NPAs)?

Of our total investments of Rs 4 lakh crore in corporate bonds, we have gross NPAs of 5.75%. The net NPAs are only 1.6% as we have made adequate provisions.

Have you decided what you would be doing with your stake in UTI MF? How do you plan to grow your own MF?

We had a meeting of investors and are looking at how to handle this. Ultimately, everyone would like to unlock value. Our investment mandate prevents us from taking over any businesses. After our partnership with Nomura, we were seen as neither a public nor a private sector AMC (asset management company). As a result, we lost a lot of public sector business. Now we are again positioning it as government sector and focusing on retail.