LIC to avoid big gilt buys in March as guidelines met

When it comes to premium inflows, March is a key month for Life Insurance Corporation of India (LIC). However, the state-owned behemoth says it may side step big investments in government bonds because it has already met its investment requirements as mandated under the guidelines.

LIC will look for high-yielding non-statutory liquidity ratio papers as well as equity investments, a senior official said today. “With the correction in the equity market sustaining, this can be a good time to invest in the equity market. LIC invests for two to three years,” the official said.

LIC’s equity investment is 8-10 per cent of the total premium income. According to norms, insurance companies have to invest at least 50 per cent of their inflows into SLR securities. “As of February-end, LIC’s SLR investment is 59 per cent. So, there is a cushion also,” the official said.

The weighted average yield on investment in government bonds is 8.50 per cent and on non-SLR papers it is 11.50 per cent, he said. LIC’s policy premium base is around Rs 3.5 lakh crore.

The government is scheduled to borrow another Rs 34,000 crore between now and March-end from the market. The huge government borrowing programme has dampened the sentiment and pushed up gilt yields since January.

The 10-year 2018 paper has risen by around 110 basis points since January to 6.33 per cent today. In the current financial year, the government has more than doubled its borrowing programme to Rs 3.06 lakh crore from Rs 1.45 lakh crore.

While traditionally, the country’s largest life insurer’s investment is much more than the minimum mandated amount in government bonds, in the last one year, the company has been a large investor in corporate bonds. “Traditionally, the SLR portfolio used to be 80 per cent. Now, it is much less. Now, our non-SLR portfolio is 35 per cent,” the official said.