LIC among top lenders with largest bad loan

Newslaundry.com, which claims to have sourced a secret Reserve Bank of India (RBI) list of top corporate loan defaulters, had one interesting statistic (among others) in its report; Life Insurance Corporation of India (LIC) is owed Rs 65,700 crores by these defaulters.

At the end of December 2015, LIC’s gross Non-Performing Assets (NPAs) as a percentage of its debt portfolio stood at 4.23% compared with country’s largest lender State Bank of India’s (SBI) 5.1%.

Now, LIC is not in the business of lending. However, it has a loan portfolio of Rs 1 trillion, and held corporate debentures and bonds worth at least Rs 2.7 trillion at the end of March 2015. Thus, at the end of last financial year, gross bad loans were Rs 12,213 crores and constituted 3.3% of its debt portfolio.

As per estimates, using its NPA ratio of 4.23% and assuming a 10% growth in its debt portfolio since March suggest a gross bad loan number of close to Rs 17,000 crores at the end of December 2015.

While that is nowhere close to SBI’ gross NPAs of Rs 72,791 crores, it is enough to place it in the top lenders with the largest bad loans.

But the problem with LIC is that its debt investments are a black box, apart from the suspicion that successive governments have used its balance sheet to bail out disinvestment programmes and prop up equity markets.

Moreover, it has to deploy 15% of funds raised from traditional plans in infrastructure. Now that is the industry which is responsible for close to 30% of banking NPAs, almost double its share of advances. This scenario can also lead to massive conflict of interests.

There are prudential norms that insurance companies have to follow like how they recognize NPAs, what kind of instruments they can invest in,

Etc. But then, banks too have such norms and still showed a 28% sequential rise in NPAs in December quarter after RBI asset quality review.

Thus, leave alone its investments in shares of public sector banks, which RBI has raised concerns about, LIC’s loans and infrastructure investments merit a closer look because of the systemic implications it has on financial stability.