Articles 777 views February 20, 2020

LIC and its NPAs: LIC Reported its NPA Worth INR 30000 Crores

Life Insurance Corporation of India or better known as LIC is India’s largest and the most popular insurance provider and the most reliable brand in the insurance sector. LIC provides wide range of products and inexpensive premiums to all the segments of the society and reaching out to the rural by offering them sufficient financial protection against any untoward incidents.

Over the years LIC has made a very strong presence in India with a robust insurance portfolio. LIC has been leading the insurance market by taking 66.24% of the total Market Stake in the total first year premium and 74.71% in new insurance plans. LIC reported an upsurge of around 5.68% in its New Business Premiums for the financial year 2018-2019 which is INR 1.42 lakh crores in comparison with more than INR 1.34 lakh crores for the financial year 2017-2018 *.

Even though the annual reports show a positive trend, a recent disclosure by LIC about its Non-Performing Assets or NPAs, is a matter of concern. Let us study this aspect briefly.

LIC reported its NPA worth INR 30000 Crores

LIC has confirmed in a press release about its gross NPA as on September 2019 which is INR 30000 crore. LIC’s gross NPA was at 6.10% for the initial 6 months for the financial year 2019-2020 and also have witnessed a doubling over the past five years. On the contrary, LIC has always been successful in maintaining a steady rate of 1.5% to 2% gross NPAs. Similar examples can be taken for Yes Bank, Axis Bank and ICICI Bank where their NPAs also showed a rising trend of 7.39%, 5.03% and 6.37 respectively.

Reason for the increase in NPAs in LIC

When we talk about LIC, the possible reason for the increase in the NPAs is the fact that like many other financial institutions and banks, LIC with its total assets worth INR 36 lakhs crores also lends to companies by giving them term loans and also non-convertible debentures or NCDs. The biggest reason for the increasing trend in NPAs is corporate defaults. Few names of defaulter are common for LIC as well as the banks and are big business giants like Deccan Chronicles, IL & FS, Essar Port, Bhushan Power, Alok Industries.

Buckets of NPAs

The majority of LIC’s reported NPA lies in the traditional business sector. The face value of the outstanding loans under default category is worth about INR 25000 crores of which pension business sector contributes INR 5000 crores and unit-linked insurance plans, commonly known as ULIPs is near about INR 500 crores.

Immediate Corrective action by LIC

From the past history, it is obvious that LIC is not expecting to recover the default amount and hence has made a strategic move by making sufficient provisions in its books. LIC earning profits of more than INR 2600 crores yearly, has made provisions over 90% for these defaults. Furthermore, there will be cases for bankruptcy as well and the amount under this category needs to be written off.

Conclusion

LIC has always been a market leader in the insurance business in India and hence rules the insurance market from all possible aspects. LIC will still continue to remain so and rightfully so. Hence, keep investing in LIC insurance and protect yourself and your family from unwanted financial crisis.

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