Do you really see the rally continuing into 2021? What is your outlook on equities as an asset class for the year ahead?
What is happening now is a very healthy thing. What happened in March 2020 was something which had set everybody back a lot, including LIC. But now we have recovered all those losses and have made a very good profit. A very focused, growth-oriented Budget has been presented by the finance minister and the general state of the economy is moving forward after the initial setbacks due to Covid. I expect the equity market to grow a lot and that would be a good thing for all the people collectively.
The concern seems to be that the bond yields are rising as well as the price surge in crude. Is that not going to hamper the equity rally?
The Indian situation is different. Two things are there; one, the fundamentals are strong which has always kept us in good stead earlier also. The second thing is the international economy may not be doing so well and there is a lot of liquidity in the system. There is also a lot of optimism on the part of the foreign investors because of which I feel our performance could be different from the other economies. Definitely the Indian equity market is in for some very good times henceforth.
The government has hiked the FDI in the insurance sector to 74%. How positive is this news for the insurance industry? Is there a possibility that a foreign player could enter LIC?
The hike in FDI is a very good thing for life insurance especially. The insurance sector is a highly capital intensive industry and considering the kind of solvency margins which are required, it is necessary that a lot of capital inflow should be there. The Indian promoters will have some kind of limitations as far as their own involvement in this industry is concerned, because they are not only insurance companies.
The second thing which is very positive is that a lot of good private players from foreign countries held back because they were concerned about the control and the governance issues. Their concerns have been addressed. The response to this 74% hike is going to be much more than what happened when it was raised to 49%.
If we really want to increase the penetration intensity in the country, we need a lot more insurance companies in life as well as in the general sector. Just to put things in perspective, when the life insurance business was nationalised in 1956, India had as many as 245 life insurance companies and provident societies doing this business. Today we have just about 23 operating and out of that also, other than the top 10 who are doing more than 90% of the total private sector business, the others are virtually not in the game at all.
For the Indian insurance industry to develop further and to become larger, this kind of initiative will help us tremendously.
The finance minister has announced plans for the LIC IPO. Do you think we can expect this to be completed this year itself?
One thing which is there is that the IPO is essentially being handled by DIPAM from the government side. But we are the major party involved and whenever disinvestment occurs, we are doing our part of it. As far as the progress is concerned, from both the parts; from DIPAMs part and from our part also, progress is highly satisfying. I expect that we will be able to complete this exercise in the current year. There is a lot of work to be done but all the structure has been put in place from all sides and the activity has started in earnest.
It should be possible to complete the IPO process in the current year. As far as investor sentiment is concerned, we have not got actively involved with it. Some views from anchor investors may be taken by the government at a later stage. I do not think that will happen till the embedded valuation is complete and the picture is slightly clearer as to what are going to be the parameters for the IPO.
But yes, whatever we have heard so far, whatever feelers we have got from different sectors, especially from the retail segment, there is a hugely positive sentiment in the market. Despite the large size, the LIC IPO may be hugely oversubscribed.
The government has announced very ambitious disinvestment plans of over Rs 2 lakh crore. Would LIC be participating in the same?
When this government took charge, they had very clearly spelt out their intentions; there will be more in governance and less in business. In the long term, it is a good strategy for any government. Definitely, it will require a lot of money in the market and we will be doing our share.
In fact, we do have a lot of cash flows coming in and we would be looking for good opportunities whether they are in the private sector or whether they are in the public sector.
In the current year so far, we have already made total investments of Rs 4,30,000 crore which is 7% more than the total of last year. We have already crossed that figure and with these kinds of cash flows, definitely we could for a major part depend on the quality of the assets which are going to be available.
Reports suggest that you would be paring stake in IDBI Bank by March or April. Is that a possibility and how much would you like to reduce?
If we are talking about March or April, I really am not sure whether this kind of thing is really possible because the very first thing for a stake sale is that we should be in a position to realise our investments, which currently is not really the situation.
The one prerequisite for this would be that the bank comes out of PCA. They have completed all the parameters required for it and we are hoping that RBI will take a considerate view and very soon they will come out of PCA. Ultimately we are committed to reduce our stake to a very large extent but I think that will depend on the kind of acceptability in the market and the kind of valuation and prices which might be available.
IPO listing would mean amending the LIC Act. What are the changes that could be expected in terms of the LIC Act and would there be any changes that need to be made for distributing the surpluses?
The ministry has put up all necessary changes which are required in the LIC Act as a part of the finance bill document which is available in the public domain. I do not think it will be possible to summarise or go into it at this stage. If anybody is interested, they can always go to the finance bill and check.
Covid has certainly changed the way businesses have been done. What are the changes that LIC has made towards its business model? What are the consumer trends that you have observed post Covid?
As a company, we are very strong on IT. In fact, we are one of the largest spenders on IT in the country. This was an opportunity and a way forward and what Covid has done is that it has accelerated the digital processes. Today we are at a stage where our entire servicing functions are available online for those who are tech savvy. 42% of our total renewal premium collection is now coming online. The base challenge for us was that the agents were not moving in the field or the customers were not able to meet them. We have found a solution to this challenge also. We have recently introduced an app which we have named Atmanirbhar Agent New Business Development App and this app enables the agent to sell new business to a customer from his home. It allows him to collect the proposal deposit online. It allows him to complete all the paper online. The medical can be done through a video medical and the customer and the agents sitting in their home can complete the deal and the policy may also be issued online.
That is a very big step forward and we are hoping that in the coming years, it will be a game changer. As far as customer queries were concerned, we have a chatbot called LIC Mitra which is available in English and in Hindi. It is an artificial intelligence and machine learning enabled chatbot. In the last one year, we have addressed one and a half crore queries on this chatbot and with the kind of machine learning, the accuracy of reply has reached 96%. With these kinds of digital movements, we are on a fast track and I am sure that in the coming months and years, the insurance market in India will develop at a much faster pace.
