'We will close the year with positive growth'

Q&A/ R N Bhardwaj

R N Bhardwaj

It is going to be a tightrope walk for R N Bhardwaj who has his hands full and less than six months to accomplish the numerous priorities he has set himself.

Appointed chairman of the Life Insurance Corporation of India (LIC) on December 8, Bhardwaj takes charge at a time when the state insurer is losing market share.

Marketing officers, discontented with the new incentive package proposed by the management, have been going slow. With the last quarter usually accounting for 50 per cent of LIC's annual business, Bhardwaj must ensure comradeship if state mammoth is to regain its past glory.

In his first interview as chairman, Bhardwaj spoke to Business Standard

on various issues that would decide the future of LIC.

Exuberant and confident, the new chief seems to have put aside the capital issue surrounding LIC's ability to meet the required solvency margin. Looking ahead, Bhardwaj is asking the government for Rs 700 crore to drive LIC's overseas expansion plans. Excerpts:

Now that you have taken charge at this crucial juncture what will your first priorities be?

My priorities must be decided according to the time available to me, which is less than six months [Bhardwaj will retire from LIC in May 2005].

Having been part of the senior management team, my first priority is to complete the set up of the four strategic business units (SBUs), and get them into working shape.

We are also in the midst of revamping our investment management through the set up of the asset-liability committee (ALCO), which will look into matching assets with existing liabilities, and try to ratify the same.

On the marketing side, we will need to concentrate on alternate distribution channels, which should contribute 5 per cent to the total premium income. Today, it is less than 1 per cent. We also need to arrest the erosion of our market share following the agitation of development officers.

The finance minister has supported the management decision on the incentive package for development officers, and has said on the floor of the House that development officers have to come back to work and restore normalcy at LIC.

We have also to finalise the wage negotiations, and I expect another one or more round of talks will take place.

As the year comes to an end, and usually the last quarter accounts for 50 per cent of new business, we will need to manage this and redouble our efforts.

At the same time, I would like to build up competency and upgrade skill in the current year's posting. We will give a lot of importance to trading, which will help us compete better, motivate our people and increase productivity.....

LIC is looking at expanding its overseas operations. Recently, international regulators have called for assignment of capital. How will LIC meet the capital requirement, or will it have to cancel its plans?

When the finance minister came for a review meeting (in October), certain issues were discussed including servicing policyholders, information technology, investment management, product plans and the impetus of international operations.

There is a growing non-resident Indian (NRI) population worldwide which is well-off and can contribute to LIC's growth. This is provided we can offer competitive returns and comparable service as they would get overseas.

The finance minister approved of our plans to penetrate greater into the overseas markets and said that capital would not be a problem. We would require a total investment of Rs 700 crore over one year.

Incidentally, the income from our foreign operations will partly go to the government in the form of a 5 per cent dividend.

In the first stage, we are looking at markets in West Africa, South Africa, West Indes, New Zealand, Australia, the US and also Saudia Arabia.

Since policyholder funds cannot be utilised for this purpose, we will ask the government for capital based on the opportunity outside, or if we can be permitted to use the dividend proceeds (to be given to the government). If we do not have the capital, we will not be able to foray further overseas.

What about meeting the required solvency margin. Will the government fund that as well?

We will be able to manage the required solvency margin. This year we will not need further capital because we have already put aside Rs 14,000 crore as on March 31, 2004 and the balance will easily be achieved.

As far as next year is concerned, we will see. The IRDA [Insurance Regulatory and Development Authority] may change the rules, and this will then bring down the amount of capital required. Both the government and the IRDA have many options and can make exceptions in the case of LIC.

The IRDA does not believe in making exceptions as it wishes to maintain a level playing field for all players concerned.

Level playing field is a misnomer, because there are a number of things we have to do that a private sector player does not. For instance, we are drafted for election duty; in some branches the entire staff goes not just for the Lok Sabha but also for state elections.

Then, LIC being a creation of Parliament has to follow the official language; it is obligated to follow the schedule caste and schedule tribe commission, and also needs to recruit handicapped people as well as released armed force personnel.

We are not saying it is wrong to meet obligations as this is good for the nation, and we do it ungrudgingly. But this should be appreciated when one talks of a level playing field.

The stock market has been rising largely on the back of strong FII (foreign institutional investor) inflows. Has LIC been encashing and booking profits?

Today, we are net buyers in the stock market. We are long-term investors and hence need to book profits every year as our liabilities may mature next year.

Besides, the market may also come down if we sell aggressively. It is thus in our interest to improve valuations and keep the market at good levels.

Bank stocks have rallied considerably. Has LIC exited from this segment?

We have not sold much bank stocks as we expect a further rise in prices. This year while we have booked profits, it has not been as much as last year.

This is because the markets have recently started rising as opposed to what happened last year. However, we hope to book more profits by the end of this year assuming the current trend continues.

Do you expect markets to be as bullish going forward? What if FIIs turn sellers in the beginning of the year; does the Indian market have the depth to circumvent this possibility?

IC will purchase when the market comes down. In a way FIIs need a counterparty and LIC is the counterparty. One thinking is that FIIs are bullish about India.

The Indian economy is on the growth path and valuation of Indian companies is still comparatively cheaper. Companies have performed, cut down overheads and increased profitability.

Today, it is more money chasing few shares and with promoters having increased their shareholding, this has brought down the floating stock. This is perhaps why the index is on the rise. Still the outlook appears to be good and money will continue to pour in.

Considering the current scenario both within LIC and the competition you face, what are your expectations in terms of closing the current fiscal year 2005?

I see our market share going up, as we see our growth in premium income rising by over 45 per cent. This is as we see greater contribution coming from alternate distribution channels.

The number of policies will also increase especially in the areas of pension and superannuation policies. On the investment front, our profits will be better this year as yield on investments and returns would have gone up with rising interest rates.

We propose to bring in more new products in the last quarter of the year, which would address the market flavour in terms of unit-linked plans.

Overall, we will close the year with good, positive growth as opposed to the negative growth in the last two years.