Ahead of IPO, LIC lowers net NPA to 0.05%, improves asset quality

Ahead of its proposed initial public offering (IPO), insurance behemoth LIC has improved its asset quality for the financial year ended March 2021.

The non-performing assets (NPAs) as of March 31, 2021, are Rs 35,129.89 crore out of a total portfolio of Rs 4,51,303.30 crore, according to the latest Annual Report of Life Insurance Corporation of India (LIC).

The sub-standard assets are Rs 254.37 crore whereas the doubtful assets are Rs 20,369.17 crore and loss assets are Rs 14,506.35 crore. An amount of Rs 34,934.97 crore is provided as per IRDAI guidelines in the books of accounts towards non-performing assets, it said.

The percentage of gross NPA is 7.78 per cent while the net NPA is 0.05 per cent at the end of March 2021. This is lower than gross NPA of 8.17 per cent (as a percentage of its debt portfolio) and net NPA of 0.79 per cent in the previous year.

In absolute terms, the NPA was Rs 36,694.20 crore out of a total debt of Rs 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 Rs 37,341.6 crore, of which Rs 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.

The government earlier this year amended the Life Insurance Corporation Act, 1956, to facilitate the listing of LIC.

According to the amendment, the central government will hold 75 per cent in the LIC for the first five years after the IPO and then it will subsequently hold at least 51 per cent at all times after five years of its listing. The government currently owns a 100 per cent stake in LIC.

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

Finance Minister Nirmala Sitharaman in the Budget speech had said the IPO of the LIC would be launched in the current financial year.

LIC, once listed, has the potential to become one of the biggest domestic companies by market capitalization with an estimated valuation of Rs 8-10 lakh crore.

On LIC IPO and strategic sale of BPCL, Sitharaman recently said, "We are progressing with each one of them...the detailing requires a lot of time."

The tying up of loose ends among different departments consumes its own time and this is being expedited, she added.