Tag: Life Insurance Corporation of India

Govt may block Chinese investment in LIC IPO as company a ‘strategic asset’, BFSI News, ET BFSI

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The government wants to block Chinese investors from buying shares in Life Insurance Corp (LIC), underscoring tensions between the two nations.

State-owned LIC is considered a strategic asset, commanding more than 60% of India’s life insurance market with assets of more than $500 billion.

India has sought to limit Chinese investment in sensitive companies and sectors, banned a raft of Chinese mobile apps and subjected imports of Chinese goods to extra scrutiny.

“With China after the border clashes it cannot be business as usual. The trust deficit has significantly widen(ed),” a government official said, adding that Chinese investment in companies like LIC could pose risks, according to a report.

FDI in IPO

Meanwhile, the government is mulling allowing foreign direct investment (FDI) in LIC, a move that would help overseas investors take part in the company’s proposed mega IPO, sources said.

The proposal is under discussion between the Department of Financial Services and the Department of Investment and Public Asset Management (DIPAM).

According to the current FDI policy, 74 per cent foreign investment is permitted under the automatic route in the insurance sector. However, these rules do not apply to the Life Insurance Corporation of India (LIC), which is administered through a separate LIC Act.

Change of rules

Govt may block Chinese investment in LIC IPO as company a 'strategic asset'

As per Sebi rules, both FPI and FDI are permitted under public offer. However, sources said since LIC Act has no provision for foreign investments, there is a need to align the proposed LIC IPO with Sebi norms regarding foreign investor participation.

The Cabinet had in July approved the initial public offering (IPO) of LIC.

The DIPAM had in January appointed actuarial firm Milliman Advisors LLP India to assess the embedded value of LIC ahead of the IPO, which is touted to be the biggest public issue in Indian corporate history.

The government expects to come out with the LIC IPO by the end of the current fiscal. Up to 10 per cent of the issue size would be reserved for policyholders.

The government has already brought in the required legislative amendments in the LIC Act for the proposed IPO.

Deloitte and SBI Caps have been appointed as pre-IPO transaction advisors.



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DIPAM seeks bids for transaction advisor for IDBI Bank strategic disinvestment, last date July 13, BFSI News, ET BFSI

Banking & Finance

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The department of investment and public asset management (DIPAM) Tuesday issued a request for proposal for appointing transaction advisor for strategic disinvestment and transfer of management control in IDBI Bank Limited.

Among several criteria listed for eligibility, bidders should have completed at least one transaction of strategic disinvestment, strategic sale or merger and acquisition of Rs 5000 crore or more in size, between April 2016 and March, 2021. The last date for submissions is July 13.

The professional financial consulting firm, investment banker, merchant banker, financial institution or bank bidding for the contract, should have at least five years’ experience in providing advisory service in such transactions.

“The Transaction Advisor (TA) will be required to undertake tasks related to all aspects of the proposed strategic disinvestment culminating into successful completion of the transaction and would, inter alia include but not limited to advising and assisting government of India on modalities of disinvestment and the timing,” the department said as it set out terms of reference for the advisor in the RFP.

The advisor would recommend the need for other intermediaries required for the process of sale or disinvestment, help in identification and selection of the same with proper terms of reference, prepare documents such as the Preliminary Information Memorandum (PIM), Confidential Information Memorandum (CIM), Request for Proposal (RFP), Confidentiality Agreement et al.

It will also structure the transaction, organize roadshows, suggest measures to fetch optimum value, position of the strategic sale, invite and evaluate bids, assist and professionally guide during the negotiations with prospective buyers, draw up the sale or other agreements and advise on post-sale matters on a continuous basis.

DIPAM has barred a person or company owning more than 50% equity interest in the merchant banker or controls the merchant bankers, from participating in the competitive process for acquisition of IDBI Bank.

“For clarity, parent entity cannot participate in transaction process in case the selected bidder is subsidiary of an existing retail bank.

In case the interested Transaction Advisor is a subsidiary of an existing retail bank, they need to provide documentation explaining firewall or Chinese-wall structure to maintain confidentiality and conflict of interest.

DIPAM has also barred public sector banks cannot participate as bidders for acquisition of IDBI Bank in the transaction process. Subsidiaries of IDBI Bank – IDBI Capital Markets – cannot participate as bidders for transaction advisors.

The Cabinet Committee on Economic Affairs had given an in-principle approval for the strategic divestment of IDBI Bank in May this year. The extent of shareholding to be divested by the Indian government and Life Insurance Corporation of India will be decided at the time of structuring of transaction in consultation with Reserve Bank of India, it had said.

IDBI Bank is classified as a private sector bank by RBI with government shareholding at 45.48%, LIC of India shareholding at 49.24% and non-promoter shareholding at 5.29%.



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CCEA clears strategic disinvestment of IDBI Bank, BFSI News, ET BFSI

Banking & Finance

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The Cabinet Committee on Economic Affairs, chaired by Prime Minister Shri Narendra Modi, has given its in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank Ltd. The extent of respective shareholdings to be divested by the Government of India and the Life Insurance Corporation of India (LIC) will be determined at the time of structuring of transaction consultation with RBI.

Government of India (GoI) and LIC together own more than 94% of equity of IDBI Bank (GoI 45.48%, LIC 49.24%). LIC is currently the promoter of IDBI Bank with Management Control and GoI is the co-promoter

The LIC Board of Directors have passed a resolution to the effect that LIC may reduce its shareholding in IDBI Bank Ltd by divesting its stake in conjunction with a strategic stake sale proposed by the government, with the goal of relinquishing management control and considering price, market outlook, statutory requirements, and policyholder interests.

It is expected that strategic buyer will infuse capital, new technologies, and best management practises for the optimal development business potential and growth of IDBI Bank Ltd.’s and will generate more business without relying on LIC or government assistance/funds.



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‘Offloading of LIC stake in IDBI Bank will hit policyholders’

Banking & Finance

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The All-India IDBI Officers’ Association has cautioned that any move by the Life Insurance Corporation (LIC) of India to offload the stake held in IDBI Bank could hurt the interests of policyholders of LIC. The public sector life insurer was permitted to acquire up to 51 per cent equity in IDBI Bank, breaching the cap of 15 per cent originally stipulated for such transactions.

In a letter to the Chairman, Insurance Regulatory and Development Authority of India (IRDAI), Vithal Koteswara Rao AV, General Secretary of the Association, said that various reports in the media have suggested that LIC has been making repeated efforts to offload the stake it holds in IDBI Bank.

Also read: We will try to grow our business in a very calibrated way: IDBI Bank CEO

Loss may be distributed

Any loss that the LIC incurs in the transaction will, in turn, be distributed among the policyholders while declaring bonuses. The stake it holds in the bank was purchased at an average price per share of about ₹60 in 2019 whereas the current market price of the IDBI Bank share is at ₹40, Rao said.

The LIC of India holds 529,41,02,939 shares of IDBI Bank currently. When seen in absolute terms, the deal, if allowed to go through, will cause a loss that could runs into several thousands of crores, Rao said in the letter. It will only force the policyholders of the LIC to bear the brunt of this humongous loss.

“As most of our members are also policyholders of the LIC, we are obliged to make this request on behalf of our members to arrange to initiate suitable measures to see that none of the policyholders is subjected to any financial loss when the LIC seeks to pare the stake it now holds in IDBI Bank,” the letter said.

Series of worrying events

The Association expressed its worry over a series of events initiated with the acquisition of 51 per cent of stake in IDBI Bank in January 2019, followed by an announcement by the Reserve Bank in March that year that the status of IDBI Bank stands changed from a public sector bank to a private bank.

The next was the unilateral modification of service conditions of IDBI Bank officers by the management linking their performance with prospective termination, which the Association feels has been made with a clear intention of subjecting them to victimisation ‘as per the whims and fancies of the management’.

The Union Finance Minister’s observation that interests of the workforce of any public sector bank being privatised would be protected, attracts interest. But the ground reality prevailing at the bank versus the Finance Minister’s pronouncement are contradictory, the Association says.

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RBI pulls IDBI Bank out of the PCA framework, bank to resume normal lending, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) on Wednesday said IDBI Bank has been taken out of the prompt corrective action (PCA) framework after it found the state-run lender was not in breach of its rules on regulatory capital, bad loans and leverage ratio.

The Life Insurance Corporation of India (LIC)-owned lender has given the regulator a written commitment that it shall comply with the norms of minimum regulatory capital, bad assets and leverage ratio on an ongoing basis. Coming out of the PCA framework would allow the bank to resume it’s normal lending operations including corporate loans.

IDBI Bank was placed under the so-called PCA framework in 2017 over its high bad loans and negative return on assets, at a time when Indian lenders battled record levels of soured assets, prompting the RBI to tighten thresholds.

The RBI said that the performance of IDBI Bank was reviewed by the board for financial supervision (BFS) in its meeting held on February 18. After taking everything into consideration, it was decided that the bank be taken out of the PCA framework.

“It was noted that as per published results for the quarter ending December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, Net NPA and Leverage ratio. The bank has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments,” the central bank said.

IDBI Bank posted a net profit of Rs 378 crore in the third quarter (Q3) ended December 2020-21 (Q3FY21), aided by a rise in net interest income. This is the fourth consecutive quarter of profit for the lender. It had booked a net loss of Rs 5,763 crore in Q3 of 2019-20.

IDBI Bank had met three out of four key criteria needed to exit the prompt corrective action framework. IDBI Bank’s gross bad loan ratio, which was among the highest, has also eased in recent quarters, standing at 23.52% as of end-December.

  • Technically classified as a private bank after its takeover by LIC, IDBI Bank continues to struggle with recoveries from stressed corporate NPAs. However, with aggressive positioning, Net NPA ratio has improved to 1.94% against 5.25%.
  • Provision Coverage Ratio, a key financial parameter, improved to 97.08% in the third quarter from 92.41% in the previous fiscal
  • Its leverage ratio has also surpassed the 4% threshold and currently stands at 5.71%.

Its capital to risk-weighted assets ratio (CRAR), including counter cyclical buffer (CCB) stood at 14.77%, against the regulatory minimum of 11.5%. It’s return on assets (RoA) for Q3 stood at 0.51%. Retail loans accounted for 60% of the total loan book, with the rest being corporate loans. IDBI Bank’s total deposits rose 2.85% y-o-y to Rs 2.24 lakh crore at the end of December 2020. The share of current accounts savings accounts (CASA) in total deposits was 48.97% as on December 31, 2020.

However, shares of IDBI Bank have lost more than 50% of their value since RBI brought it under the framework in 2017. They have surged sharply since the federal budget in February on expectations New Delhi intends to sell its stake in the bank to help India’s depleted coffers.



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Siddhartha Mohanty takes charge as MD of LIC

Banking & Finance

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Siddhartha Mohanty took charge as the new Managing Director of Life Insurance Corporation of India on February 1.

“He was appointed as Managing Director vide Government of India notification dated January 20, 2021,” LIC said in a statement.

Also read: FM blows the privatisation bugle

Before this, he was Managing Director and Chief Executive Officer of LIC Housing Finance. He started his career as a direct recruit officer with LIC of India in 1985

Mohanty replaces TC Suseel Kumar, who retired on January 31, 2021.

LIC has four MDs and one Chairman.

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How to revive a lapsed LIC policy?

Personal Finance

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To offer some respite to life insurance policyholders, LIC recently launched a revival campaign to ensure benefits of the policy continue. The revival campaign encourages people to renew their policy by offering concession on late fees. So, if you have a policy with LIC, then you can revive your (individual) policies between August 10 and October 9, 2020. It is applicable for eligible plans subject to certain terms and conditions. Here is what you should know.

A life insurance policy offers continued financial security to you and your family, provided you, as a policyholder, pay the premium regularly. If the premium dues are left unpaid over a long period of time, the policy may lapse and you may lose all or part of its benefit. As part of its claim clearance offer, LIC is also encouraging policyholders to get their maturity amounts if they have missed making a claim on time.

Revival

Until premium dues are settled, with interest (penalty) chargeable by the insurer as a late fee (from the due date) along with the premium amount due, the policyholder will not receive the benefits of a life policy. A policy is said to have lapsed if the premium dues are not paid even after the grace period (30 days for yearly, half-yearly and quarterly premium payment and 15 days for monthly premium payment). In case of death of the policyholder when a policy has lapsed, if the policy has acquired surrender value, then claims will be settled to that extent by the insurer. If not, the policy loses all its benefits and no claims would be settled.

Usually, insurers allow you to revive your life policies within a period of five years along with penalty. Note that the penalty will vary with each insurer. For instance, LIC charges 9.5 per cent per annum as late fee penalty on premium dues. HDFC Life, too, charges 9.5 per cent per annum as interest on premium outstanding. At the time of revival, policyholders will have to pay total premiums due plus the penalty (interest) amount to reinstate the policy benefits.

Your policy document will state whether your policy is eligible for revival if it has lapsed. Beyond five years, insurers may allow for policy revival on a case-to-case basis.

In the case of LIC, in its recent revival campaign, you get to revive certain policies within five years from the date of the first unpaid premium (from the date you stopped paying premium). It is not applicable for high risk plans, including some term insurance, health insurance and multiple risk policies. High risks policies are those that, for instance, involve repayment of double/triple sum assured on maturity. LIC is offering late fee discounts to encourage policyholders to make the premium payment. If your total premium is up to Rs 1 lakh, then you get a late fee discount of 20 per cent (on late fees) with maximum concession amount limited to Rs 1,500. For premium amount between Rs 1 lakh and Rs 3 lakh, the late fee discount is 25 per cent (maximum concession is up to Rs 2,000) and for premium above Rs 3 lakh, the late fee discount is 30 per cent (concession capped at Rs 2,500).

How to revive

Policyholders can revive the policy with the insurer directly by paying the interest charges for late payment. Keep in mind that it is left to the discretion of the insurer to accept or reject the policy (although rejection is rare). Once the policy is revived, the benefits from the policies are also reinstated.

In the case of LIC policies, you can contact the agents or visit the branch to complete the revival process. It is more or less the same for other insurers as well. You can also call your insurer’s customer care to find out about revival procedures.

But, generally, it is better to keep the policy active by paying premium dues on time. Insurance companies usually send a premium reminder through mail or message or both.

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