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The Rediff Interview/ S B Mathur, chairman, LIC

LIC chief sees room for all players

Part I: LIC plans to woo the young executive

S B Mathur, chairman of the Life Insurance Corporation of India, says LIC will hawk some of its shares in the market.

LIC holds stakes in virtually all companies in India. Would you like to encash these holdings?

We would like to purchase liquid stocks. This will also lead to a rationalisation of our existing portfolio. There is no point in acquiring stock which is illiquid. We have a large basket of shares, which we are reviewing. If we get a good price, we will get out.

It will not be possible to get out totally, but we will be guided by what is in the best interests of the policyholder - because, worldwide, equities have to be kept for long-term growth.

How do you view LIC's role as a corporate watchdog?

We have our nominee directors on the board of companies. We have asked them to be very watchful and we get good reports from them. However, it is LIC's philosophy not to upset a professionally managed company.

Is LIC looking at any new income stream?

We have been relying on our core business of life insurance. Even in banking we have gone in for a strategic alliance, having decided not to get into the day-to-day micro-management of businesses we are not into. As a life insurance company, we are trying to be proactive internationally as well.

Do you see any serious asset-liability mismatch in the LIC portfolio?

Ultimately, our bonus policy will depend totally on the kind of returns we get from the market. Whatever our past liabilities, these have been quickly taken care of. Some adjustments will have to be made, but the problem is that a insurance company's business depends largely on the internal relationships between various businesses.

We are going for low-cost businesses. Over time, the percentage of high yielding business will come down in relation to the total business. Some correction will come about.

Has your investment strategy changed?

We have a large portfolio of existing investments, both debt and equity. Earlier the feeling was that we are long-term holders of these papers and we should not be very active buyers and sellers.

But now we feel that a certain percentage of investments will have to be traded in the market. We should increase trading not just in equity but also government paper and corporate bonds.

On the equity front, we are doing it on a selective basis. Gradually, as we gain confidence and we see that the market has the appetite for it, we will increase trade in equity.

Some time back, LIC wanted to become a financial powerhouse. What happened to that plan?

There is a rethinking to the extent that we would not like to get into the micro-management of businesses. Our relationship with Corporation Bank is only a strategic relationship. If at all we find some synergy (in any other areas), we will go in for strategic alliances.

Does this mean you have dropped plans to take over a bank?

There were some talks that, based on the volume of business we had, perhaps we, together with General Insurance Corporation of India, could start a bank.

But then the consensus was that we should not get into micro-management. We have a 27 per cent stake in Corporation Bank and a nine per cent holding in Overseas Bank of Commerce.

Basically we are watching the Corporation Bank model (of exploiting synergies in business). So far the bank has not started actively marketing our products as we had been waiting for the IRDA regulations on corporate agents.

Then, the bank is starting ATMs and extension counters at our offices. Corporation Bank has a branch network of 660. And for a country of our size, perhaps one could do with more branches.

Tell us more about your equity investments. LIC seems to be picking up whatever UTI is off-loading.

Not really. It may amount to that, but it is our conscious decision to invest in the equity market. Earlier, LIC used to be criticised for not investing in equity. In the beginning of the year, we had envisaged an investment of Rs 4,500 crore (Rs 45 billion) in the equity market.

In the first half, as the markets were low, we did overbuy, but within the norms. It just so happens that, with UTI being the biggest seller in the market, a lot of equity we have bought happens to come from the mutual fund.

But these are mostly market negotiated deals, while a couple were side deals. So far, we have invested Rs 2,600 crore (Rs 26 billion) in equity, though the net figure may be lower as we have also sold some stock.

How about investment in government papers?

This year, LIC will invest an additional Rs 50,000 crore (Rs 500 billion), of which Rs 25,000 crore (Rs 250 billion) will be in the government securities market. To date, LIC has invested about Rs 15,000-16,000 crore (Rs 150-160 billion) in G-Secs.

With the competition breathing down your neck, where do you see LIC two years down the road?

It is going to be a challenging task for us to maintain growth, retain market share and meet policyholders' reasonable expectations. In the first seven months of fiscal 2003, we continue to have a 97 per cent of the incremental market share. The new players have a larger share of the pension market, which is very small.

The market is quite deep and there is room for all. We want to grow by 40 per cent in terms of new premium income, but our total assets and income should reflect a growth rate of 20 per cent.

We would like to take our growth rate to 25 per cent next year. New premium income, usually 16 per cent, sets the pace for future growth. Last year, our growth rate of 137 per cent was an aberration.

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