The largest domestic capital player and financial institution with over Rs 11,000-crore assets suddenly found itself embroiled in many controversial issues which saw its officials and some of the deals being investigated by the Central Bureau of Investigation (CBI). In an exclusive interview with FE?s Sitanshu Swain & Kumud Das, Thomas Mathew, managing director of LIC, explains the company?s stand on these unprecedented developments.
LIC has been hit by too many negative developments suddenly? How do you explain this?
We are very clear that we have not done any wrong as far our own investment is concerned. Our risk management committee takes a look at all our investment at every regular interval. Apart from it, insurance regulator Irda conducts system audit too. Moreover, our compliance report goes to the Irda and other competent authorities. The investment department is managed by 200 officials. Our investment committee, which comprises finance ministry officials, among others, meets every month to take major investment decisions.
In the process, a single person can?t do it. In the LIC Housing Finance case also, our facts are very clear. It has a total loan book size of Rs 44,000 crore mainly in the retail segment. The project loan is only 11.87%. The investigation is about eight companies and outstanding balance is only Rs 388 crore, a very small amount compared to overall book size and all these are performing assets. There is no systematic failure nor have any rules or procedures been violated. comparatively quite low. An internal enquiry by a committee has proved that all procedures for sanction of loan, consistent with board approved guidelines, have been followed.
We are fully cooperating with all the agencies that are investigating into the matter. Media has talked about LIC?s investments in some real estate companies. Out of a sum of Rs 11 lakh crore assets, our exposure in the real estate sector is merely at 0.68%. Our equity exposure to reality exposure companies is only 0.66% of our total equity and in loan only 2.38% of our total corporate loans. More interestingly, our entire exposure in the real estate sector was in the form of standard assets and all are backed by proper securities. Not a single case in real estate portfolio has turned NPA as yet. Even some of them have started repayment too. We are very correct to say that we are not wrong at any front. Still, if we find that some improvement was required in the proceedings, then we will surely look into it. We have formed a high-powered committee comprising three ED-level officers to look into the matter. For LIC Asset Management, we are waiting for the completion of Nomura Securities and will provide all the support to revive its business.
If you think that the officials who were arrested by the CBI have done nothing wrong, will you support them fighting their case in court?
We will take a call on this.
How are you handling this unprecedented situation from the business point of view?
We immediately reported the matter to the government. More importantly, we have already been given a clean chit by the finance minister, finance secretary and our regulator, Irda. The ministry is fully satisfied with our reply.There is no investigation in to any of our deals by capital market regulator Sebi. We have also communicated to our 1,15,000 staff and 14,00,000 agents, telling them the truth since the case of bribe-for-loan came to the light. We are trying to instill confidence among our 27 crore policyholders.
How does LIC decide on loan sanctions?
We go for giving loans to corporates through consortium and depend upon appraisals of banks like ICICI and IDBI. We also ask for proper security cover before finalising loans. Normally, we take assets cover 1.25 times of the loan that too on the basis of book value. We have got exposure worth Rs 2.5 lakh crore in corporate loans, NCDs and bonds. Currently, the corporate investment has slowed down as many of the corporates are not borrowing as of now. We normally go for rated papers and project finance only, when it comes to corporate investment. This year, we have given a sum of Rs 500-600 crore in the corporate investment. But our total sanction is more than Rs 2,500 crore. Nearly 90% of our investments are in power projects. Some of them may be in road projects too. Also, we have our own interest rate charging system which we charge from our corporate borrowers. We have invested Rs 14,000 crore in NCDs during the current fiscal so far. The NPA part in our loan portfolio is around 0.19%. Our NPAs are coming down year after year and we want to bring it down by 4-5 basis points by the fiscal-end.
Do you involve a middleman in finalising loan deals?
May be during the initial stage. But we always finalise the deals with the borrowers directly.
Would you talk about your capital market investments and profit during the year ?
Our average yield has been in the range of 9.5% to 10%. It has improved a little bit this year .So far, we have invested Rs 25,000-26,000 crore both in primary and secondary markets as well. It may touch Rs 40,000 crore this year.We have invested a very small amount in IPOs as it has not been possible to get largescale allotment as there are more of retail investments in the IPOs. For example, we might have invested a sum of Rs 500-600 crore in Coal India IPO. Normally, we invest in PSU IPOs only. We have made a profit of Rs 13,000 crore till December 3 as against a profit of Rs 9,400 crore in whole of the last year. Most of the investments made by us are in top 200 BSE stocks alone. Going forward, we will more be focusing on secondary markets and very selectively on the primary markets too. Similarly, we will be very selective in investing in private sector IPOs. Out of a total fund of Rs 11 lakh crore, life fund comprises Rs 7.5 lakh crore.
How are you ensuring that your guaranteed products are not having asset liability mismatch?
Every year, we provide for losses, if we have any. As regards the notional loss in the three of our guaranteed pension products, it may or may not arise to the extent of Rs 13,000-14,000 crore. Even if it happens in the worst case, then also the yearly loss will not be more than Rs 300-400 crore. Last year, our valuation surplus was at Rs 23, 000 crore.
How are you keeping a watch on your investment in other companies ?
As a part of corporate governance norms, we have our officials who are sent as nominee directors. They are trained by us on yearly basis.
