Govt likely to fund LIC's foray overseas

An investment of Rs 700cr needed, Centre may forgo the Rs 540 cr dividend.

The government may either forgo the Life Insurance Corporation of India's (LIC's) 2003-04 dividend of Rs 540 crore or infuse fresh capital into the company, the state-owned insurer's chairman, RN Bhardwaj, told Business Standard.

He said LIC would need to invest Rs 700 crore for expanding its overseas operations and that the finance ministry had assured him capital would not be a problem.

"We will ask the government for additional capital or to permit us to use the dividend proceeds to meet this requirement," the LIC chairman said.

If the Centre decides to forgo the dividend, paid annually by LIC at 5 per cent of its surplus funds, it will be the first time it will be doing so.

LIC wants to move into Africa, South Africa, the West Indies, New Zealand, Australia, and California and New York states in the US. It is also looking at Saudia Arabia, and has identified a total investment of Rs 700 crore over a year based on the capital requirement in individual countries.

The capital requirement was much less overseas than the minimum laid down by the Insurance Regulatory Authority of India (IRDA), Bhardwaj pointed out.

"We are eyeing opportunities to go with a partner, as this will reduce the capital requirement, and at the same time enable us to understand the local market and its laws," said Bhardwaj.

In the US, it is mandatory for companies to take statewise licences. "If we do not get the capital, we will not be able to foray further into the international market," Bhardwaj said.

Capital has been a major issue for LIC. The company today operates on a measly Rs 5 crore capital base. IRDA regulations do not permit it to utilise policyholders' funds as investment capital for new operations.

Bhardwaj said the government's investment in new foreign operations would result in additional income for the exchequer. "Like today, the Centre will get a 5 per cent dividend and the remaining 95 per cent surplus funds will go to non-resident Indian (NRI) policyholders," said Bhardwaj.

If LIC is pushing to expand overseas aggressively, it is due to Finance Minister P Chidambaram's visit in October to review the operations of the corporation, and its own resolve to compete with global players on their home turf.

"The government feels the growing number of NRIs worldwide can contribute to LIC's growth, provided we give competitive returns and comparable service as exists in their own home countries," said Bhardwaj.

Insuring growth

CAPITAL WOES LIC has a capital base of just Rs 5 crore. It cannot use policyholders' funds for new operations

NEW MARKETS LIC wants to move into the US, Africa, S. Arabia, New Zealand, Australia, the West Indies

FUNDS REQUIREMENT The corporation needs Rs 700 crore over a year for this

PARTNER HUNT A partner will reduce LIC's capital requirement and enable it to understand the local market