After banks, bad loans in the life insurance sector are also rising despite tight investment norms. Non-performing assets (NPAs) or bad loans of the life insurance segment has gone up by 26 per cent from close to Rs 18,000 crore (provisional) in the fiscal ended March 2017 to Rs 22,700 crore (provisional) for the year ended March 2018, according to figures available from the Life Insurance Council, the apex body of all life insurers in the country.
A major chunk of the NPAs are accounted by Life Insurance Corporation (LIC), the largest insurer in the country. However, as the total asset base of the industry is currently around Rs 34 lakh crore (provisional) and the assets under management (AUM) is around Rs 32 lakh crore (provisional), these bad loans are not expected to be a major challenge for the sector, said an insurance sector official, adding, “it is well under control and not a major issue.”
Total life insurance NPAs are less than half of IDBI Bank’s gross NPAs of Rs 55,588 crore as of March 2018. Some of the corporate loans extended by the sector, mainly LIC, have become NPAs. “There are several factors involved in the increase in NPAs. The corporates, while availing debt would have factored and projected as if the present condition will prevail in the future too and on that basis they would have availed the debt. Subsequently there may be changes on account of socio-political and economic conditions resulting in demand and supply mis-match leading to a decline in revenue without a corresponding decline in other parameters,” he said. “In the absence of requisite revenue flow, servicing of the debt gets severely affected leading to delay and default in debt servicing which results into NPAs.”
“Every year investment portfolio of life insurers is growing at around Rs 3 lakh crore,” said V Manickam, Secretary General, Life Insurance Council. As of March 2018, it was around Rs 32 lakh crore (provisional). Out of it, Rs 25.3 lakh crore (provisional) are relating to public sector insurer and the remaining Rs 6.6 lakh crore (provisional) are pertaining to all the private life insurers.
According to the Council, the total investment in central and state government securities was Rs 19.42 lakh crore (provisional) which constitute more than 60 per cent of investments. This is over 10 per cent of the mandatory investment norms set by insurance regulator IRDAI.
The sector’s infrastructure investment, housing and loans to state government for housing was Rs 3.84 lakh crore (provisional) for the latest fiscal. Approved investments such as equity and corporate bonds were at Rs.7.58 lakh crore (provisional) and other investments are over Rs 1.06 lakh crore (provisional). The AUM has gone up by Rs 3.3 lakh crore during FY 2017-18. Meanwhile, the exposure of the life insurance sector to poorly rated companies and instruments has not been disclosed by the insurers.