The bribery scandal could be a turning point for LIC Housing Finance (LICHF), which has the solid backing from the Life Insurance Corporation, its biggest shareholder and the nation’s biggest life insurer. Yesterday the Central Bureau of Investigation (CBI) alleged that the lender’s chief executive officer R R Nair took bribe from an official of Money Matters Financial Services and showed undue favour its clients including DB Realty and Mantri Realty.
The allegations, if proven correct, could dent the company’s ambition of turning itself into a commercial bank, say analysts.
Life Insurance Corporation and its unit LIC Housing Finance were both confident they had a chance better than any other institution to get a licence for a new private sector bank when the Reserve Bank of India begins giving them out next year. The company, though, still has time to come out clean as the RBI may not come out with its final guidelines until first quarter of 2011.
The Life Insurance Corporation has already begun damage control announcing its intention to appoint a new chief executive in two days in place of R R Nair.
Nair joined LIC in 1977 and worked his way across life insurance, mutual fund and housing finance. He was LIC’s country head in Mauritius 1997-2001 and was deputed to set up a joint venture insurance company at Riyadh in 2005-2007, until he took over as the chief executive of LIC Housing in April 2008.
LIC Housing Finance was set up in 1989 and is 36.54 percent owned by Life Insurance Corporation of India, and about 42 percent by Foreign Institutional Investors.
The mortgage lender was the half a century old insurer’s answer to Housing Development Finance Corp’s success in serving a growing and large segment of middle class individuals that needed loans to buy house. on Thursday, the lender is the second biggest finance company after HDFC and the fourth biggest if one includes banks such as State Bank of India and ICICI Bank Ltd.
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From April 2008, around the time when Nair joined the company until now LICHF’s loan disbursals rose to Rs 14,853 crore from Rs 8,762 crore and in the first half of the current fiscal, disbursements rose to Rs 8,493 crore. The lender had little impact of the economic slowdown.
From April 2008 until now, its outstanding loans grew to Rs 43,385 crore from Rs 27,679 crore, while trimming non-performing assets (NPAs) to 0.74 percent from 1. 07 percent. Net profit in the first half of 2010-11 rose to Rs 446 crore compared with 2008-09 full year Rs 531 crore.
Its performance has support of its investors as reflected in almost six times rise in its share prices to Rs 1,053.8 on Thursday from Rs 188 in March 2009.