Lic Plans Merchant Banking Foray

After its strategic investments in Corporation Bank, IDBI Trusteeship and Corporate Securities, the Life Insurance Corporation of India (LIC) is now planning a foray into merchant banking.

"We are contemplating two options of either setting up a new merchant banking entity jointly with Corporation Bank or take a stake in an existing merchant banker," said G N Bajpai, chairman of LIC, today.

LIC has earlier picked a 27 per cent stake in Corporation Bank, a 30 per cent stake each in IDBI Trust and Corporate Securities as part of its plans to emerge as an integrated financial services provider.

"We wanted to enter areas such as primary market dealership, trusteeship, securities and other businesses. However, if we begin to acquire entities in these areas, it requires huge investments, time and it takes a long while to get returns on the investments. So we decided to adopt the relationship enterprise approach," Bajpai, who was here to participate in a conference organised by the Center for Organisation Development, said.

 

Instead of the traditional route of mergers and acquisitions, the corporation is planning to emerge as a financial super umbrella by way of strategic investments, entering into alliances and tie-ups with institutions that have the relevant expertise.

"An international consultancy organisation appointed sometime ago has advised us to bring down our fixed costs (primarily salary costs) and asked to downsize the staff strength. Our fixed costs as on March 2000 were at somewhere about 9 per cent of the total premiums and 7 per cent of the total income against the international average of 4-5 per cent," Bajpai said.

LIC has a total workforce of around 1.2 lakh in addition to an agent network of 8 lakh at its 2,048 branches across the country.

"However, we have decided against the voluntary retirement plan and instead targetted in September 2000 to achieve a 40 per cent CAGR of the premium amounts by March 2003, so that the fixed costs component will come down to the international norm. Luckily, we will achieve the target by March 2002 itself, with 65 per cent premium growth rate achieved in the last fiscal and 80 per cent growth expected in the current fiscal,' he added.

Between 1984 and 2000, the corporation's average growth rate was 20.6 per cent.

The threat of competition from private players made the corporation to actively market its services. In case the growth in the business requires additional manpower, the corporation is willing to increase the staff strength accordingly.

The corporation has sold 2 crore policies last year and is targeting to cross 2.3 crore policies this year. It has so far sold 80 lakh policies in the current fiscal. As part of harnessing human resource capital, it is now planning a tie-up with the International School of Business (ISB) to train its executives in general management principles.

It already has tie-ups ranging from three to five year timeframes with all the Indian Institutes of Management and Indian Institute of Technology-Chennai for training of employees in five different management functions of marketing, investment, information technology, human resources and legal.