LIC mulls IDBI-LIC Housing relationship; hopes to list before March-end

Chairman MR Kumar said LIC has time until November 2023 to make the change if IDBI Bank does not find a buyer by then. Making IDBI source loans for LIC Housing is the second option if the sale does not materialise by then, Kumar said.

“RBI has given us a five-year time frame which ends in November 2023. If the IDBI divestment happens before that then this does not matter. The second option is LIC Housing can source business from IDBI,” Kumar said. LIC Housing is India’s second largest non bank home financier with a Rs 2.43 lakh crore loan book.

In its conditional approval in 2018, while allowing LIC to acquire a majority stake in IDBI Bank, RBI had stated that either IDBI Bank or LIC Housing Finance Limited will have to stop their housing finance business within five years from the date of the letter because housing finance activity shall be conducted only by one entity.

LIC bought a 51 per cent stake in IDBI in January 2019, by purchasing 82.75 crore shares from the government. It further infused Rs 4743 crore into IDBI on October 23, 2019. LIC’s stake in IDBI is now down to 49.24 per cent after raising Rs 1,435 crore through a qualified institutional placement in December 2019.

Kumar said LIC would like to keep some stake in IDBI even if the government sells it.

“I will like to keep at least some stake because when we bought we saw it as a strategic stake. IDBI now is the largest bancassurance channel for us so we want this relationship to continue,” Kumar said.

IDBI is also part of the government’s divestment agenda along with the Rs 65,000 crore jumbo IPO of LIC in which the government plan to sell 5 per cent of its stake.

He expects LIC to list in the market before the end of the fiscal year ending March. He also said that over 70 lakh policy holders have linked their PANs to demat accounts in anticipation of allotment from the IPO. One-tenth of the LIC issue size has been reserved for policyholders. Both LIC employees as well as policy holders will be offered a discount to the issue price.

Kumar said people holding policies until February 13, the date the draft red herring prospectus (DRHP) was filed will be eligible for a reservation. He clarified that people who have bought policies through the PM Jeevan Jyoti Bima Yojana will also be eligible for a discount since it is considered as an individual policy and not a group one.

Dipam-appointed actuarial firm Milliman Advisors has pegged the embedded value (EV) of the company at Rs 5.39 lakh crore, up from Rs 95,605 crore at the end of March 2021 mainly because of an increase in shareholders’ interest in the non-participating funds to 100 per cent.

Earlier, LIC had a single fund and the valuation surplus from the participating (par) and non-participating (non-par) business was distributed between policyholders and shareholders in a ratio of 95:5. Participatory policies are where investors partake in the profits generated from the investments, these could be assured returns or ULIP plans. Non-participatory plans are where there are no profits generated like term plans.

Ahead of the IPO, an amendment to the Life Insurance Corporation Act has shifted all the surplus from non-participating funds to shareholders and the ratio in par business will eventually by 2024-25 reduce to 90:10 in line with private sector insurance companies.

Kumar said the change has been made to bring LIC on par with its private sector peers who have already made the shift and policyholders interest will still be protected.

“We plan to increase the share of non-participatory policies in our portfolio going ahead. The change in products, our digitsation and expansion of channels will help us going forward,” Kumar said.

LIC has a 58,000 bank network along with thousands of agents. It is the dominant force with more than half the share in a market that is grossly under-penetrated.

Kumar said the company plans to add a new digital vertical to its operations to expand its footprint and sell more policies online.