Monday, December 13, 2010

LIC's MD writes to LICians...

Managing Director
LIC of India

December 1, 2010
 My Dear LICians,  
The  109th  Division  of  LIC---Thrissur---  was  inaugurated  by  the  Hon’ble  Finance Minister, Govt  of  India, Shri Pranab Mukherjee on 27/11/2010.  In his  address,  the Hon’ble Finance Minister said “LIC is very strong and stable organization……LIC is one of the success stories of the Country’s Public Sector. Encouraging performance of LIC has  proved  that  a  Public  Sector  Institution  can  perform  well  even  under  tight competition  from  national  and  international  firms.”  Referring  to  the  recent  media reports regarding LIC and LIC HFL, Shri Pranab Mukherjee said “There is no cause for any anxiety for the investors as not a single paisa would be lost by them.”

Time and again we have affirmed that trust is the most valuable asset of LIC- Trust of Policy holders’, Trust of employees and agents and Trust of the nation at large. But the recent media  reports  alleging  lapses and  referring  to  investigations by Govt agencies into our investments and into project loans of our housing finance company-LIC HFL-- have created confusion & concern among the public. Friends, the truth is as follows:

LIC HFL is a big sized housing finance company with total loan book size of `44,000/- crore- mainly  in  the  retail  segment.  The Project  loan  is  only  11.87%,  comparatively quite  low.  The  Gross  NPA  in  Project  loan  is  only  0.08%--among  the  best  in  the Industry. All the loans of the company are performing assets and backed by adequate security cover as per valuation. An internal enquiry by a committee has proved that---- all procedures  for  sanction of  loan,  consistent with Board  approved  guidelines, have been  followed  and  that  there  are  proper  systems  in  place  for  sanction  and disbursement.  The  investigation  is  about  8  companies  and  Outstanding  balance  is only `388 crore, a very small amount compared to overall book size and all these are performing assets. There is no systemic failure; nor have any rules or procedures been Media  reported  also  about  investigation  into  LIC’s  investments  in  some  real  estate companies. The  facts…. The  total assets of LIC as on 30/09/2010 are `12  lac crore. LIC’s exposure to real estate is hardly 0.68% of our total assets. LIC’s equity exposure to  realty companies  is  only 0.66% of  our  total equity  and  in  loan only 2.38% of our total corporate  loans. All  these are performing assets  in our books backed by proper security cover.

In  corporate  loan  segment,  Gross  NPA  is  only  0.90%  showing  Standard  Assets  of 99.10% as per regulatory norms. Our Net NPA is only 0.19%-- perhaps the best among financial institutions. LIC has proper systems and procedures for investment of funds.
All  our  investments  are  decided  by/reported  to  the  Investment  Committee  and  no single individual alone can take investment decisions. All  investment decisions are on the  basis  of  Insurance  Act,  IRDA  Investment  Regulations,  Investment  Policy  duly approved  by  the  Board,  Investment  Committee  guidelines  and  Standard  Operating Procedures.  All  investment  proposals  are  backed  by  research  reports  from  Risk Management  &  Research  Dept.  All  these  show  how  foolproof  and  time-tested  our investment practices are. 
The media earlier reported also some valuation deficit of `14,000 crore under three of our  pension  schemes.  But  the  fact  is  that  this  deficit  is  only  notional,  actuarially estimated present value of future liabilities till the last annuitant is paid. It is a deficit which may arise over  future years. This estimated valuation deficit  is provided  for at the  time  of  actuarial  valuation  on  an  year  on  year  basis.  The  notional  deficit  as reported by  the media  is only a small  fraction of  the  total fund size. Chairman, IRDA also has given a ‘clean chit’ to LIC and stated that “there is no violation committed by LIC and  it is  just an actuarial shortage to current estimates, which  is not a real cash shortage.”

Total Assets of LIC are far more than LIC’s Total Liabilities and we have provided for a Solvency  margin  of  154%,  which  is  `46,718  crore  as  at  31/03/2010.  The  total valuation surplus of LIC increased from `10,949 crore in 2002-03 to `23,478 crore in 2009-10  after  providing  for  deficit  in  Pension  business  during  these  years.  Our Balance Sheet  is inherently very strong. With our prudent practices, we have built in mechanisms to manage all kinds of risks on behalf of our Policy Holders’

Shri  R  Ramakrishnan,  eminent  actuary  in  his  article  in  the  “Hindu”  dated 21/11/2010 titled “LIC Pension Fund, The Real Facts” has well clarified the confusion created by some newspapers and stated that “the perceived  loss  into Pension  fund  is only due to lack of understanding of the guiding principle of insurance.”

Friends,  let me assure you  that we are  fundamentally, structurally and  financially a very strong  organization. The nation  trusts LIC. All  attention  and expectation  of  the nation is on us. 
Yes, these are trying times….
but we shall not fall prey to malicious rumours…….
we shall stand united to defend the honour of our dear organization…….
we  shall  reiterate  our  commitment  to  the  nation  with  higher  business
performance and better customer service. 
We shall overcome……. 

Hum honge kamyaab……. 
Best Wishes and regards,
(Thomas Mathew

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