IPO-bound LIC improves asset quality, lowers net NPA to 0.05%

According to the latest Annual Report of Life Insurance Corporation of India (LIC) ahead of its proposed IPO, the non-performing assets (NPAs) as of March 31, 2021, are ₹35,129.89 crore out of a total portfolio of ₹4,51,303.30 crore. 

While the sub-standard assets are ₹254.37 crore, the doubtful assets are ₹20,369.17 crore and loss assets are ₹14,506.35 crore. 

The annual report stated that an amount of ₹34,934.97 crore is provided as per Insurance Regulatory and Development Authority of India (IRDAI) guidelines in the books of accounts towards non-performing assets.

The percentage of gross NPA is 7.78% while the net NPA is 0.05% at the end of March 2021. This is lower than gross NPA of 8.17% (as a percentage of its debt portfolio) and net NPA of 0.79% in the previous year. In absolute terms, the NPA was ₹36,694.20 crore out of a total debt of ₹4,49,364.87 crore in 2019-20.

Stress threshold for banks is different from that for insurers. LIC usually makes full provisions for all NPA in the debt book. The corporation has made provisions to the tune of ₹37,341.6 crore, of which ₹34,934.97 crore is towards doubtful, sub-standard, and loss assets. 

“The management has reviewed the asset quality and performance of investments in respect of real estate, loans, investments, other fixed assets etc and adequate provision for impairment/diminution in value of investments/assets have been provided for wherever necessary,” the annual report said. 

Earlier this year, the government amended the Life Insurance Corporation Act, 1956, to facilitate the listing of LIC. According to the amendment, the central government will hold 75% in the LIC for the first five years after the IPO and then it will subsequently hold at least 51% at all times after five years of its listing. Currently, the government owns a 100% stake in LIC. 

According to the amended legislation, the authorised share capital of the LIC shall be ₹25,000 crore divided into 2,500 crore shares of ₹10 each. As much as 10% of the LIC IPO issue size will be reserved for policyholders. 

In her Budget speech in February this year, Finance Minister Nirmala Sitharaman said the IPO of LIC would be floated in 2021-22. Once listed, LIC has the potential to become one of the biggest domestic companies by market capitalization with an estimated valuation of ₹8-10 lakh crore. 

Earlier this year in September, the government considered allowing foreign institutional investors to buy up to 20% of state-owned Life Insurance Corporation’s initial public offering.

The listing of LIC is set to be India’s biggest ever initial public offering, with the government aiming to raise up to 900 billion rupees ($12.2 billion) from its stake sale.