Life Insurance Corporation of India, which owns 49.24 per cent stake in IDBI Bank, has said it may have to ensure that either IDBI Bank or LIC Housing Finance stops conducting housing finance activities in order to meet regulatory requirements.

“...the RBI in its Approval Letter has stipulated that either IDBI Bank or LIC Housing Finance, our associates, will have to cease conducting housing finance activity within a period of five years from the date of the Approval Letter and that housing finance activity shall be conducted only by one entity,” LIC said in its draft red herring prospectus, which was filed with SEBI on Sunday.

RBI had through a letter on November 2, 2018 granted approval to LIC to acquire the additional equity shares in IDBI Bank, subject to, among others, LIC adequately capitalising the lender to ensure it meets the minimum capital requirements for a period of at least five years so that it could move out of the prompt corrective action framework. 

Outlining possible risk factors, LIC said the impact of complying with this requirement of the RBI may have an adverse effect on its financial condition, results of operations and cash flows.

IDBI Bank became a subsidiary of LIC with effect from January 21, 2019.

LIC is however, confident that IDBI Bank does not need to raise further capital at the moment due to its improved its financial condition and results of operations.

“However, if IDBI Bank requires additional capital prior to the expiry of the applicable five-year period and it is unable to raise capital, we would be required to infuse additional funds into IDBI Bank, which may have an adverse effect on our financial condition and results of operations,” it said.

LIC said it is also keen that LIC Asset Management completes the proposed takeover of the scheme of IDBI AMC as soon as practically possible.

It, however, noted that there is no assurance that it will be completed, given the process involved.

As a result, it may continue to be in breach of SEBI Mutual Fund Regulations, which prohibit any shareholder from holding 10 per cent or more of the shareholding or voting rights in any asset management company, or the trustee company of a mutual fund from holding 10 per cent or more of shareholding or voting rights in the asset management company or the trustee company of any other mutual fund.

Impact of pandemic

In the risk factors, LIC also highlighted the adverse impact of the Covid-19 pandemic on its operations.

Insurance claims by death has shot up in the pandemic to ₹21,734.15 crore in the six months ended September 30, 2021 of the current fiscal on a consolidated basis, compared to ₹17,128.84 crore in 2018-19.

The pandemic and the related lockdowns also adversely affected sales of its individual policies primarily in the fourth quarter of 2019-20, which declined by 22.66 per cent year on year to 63.5 lakh, and the first quarters of 2020-21 and 2021-22, it said.

The pandemic also impacted persistency ratios. In the case of individual business, persistency ratio in the 13th month was 72 per cent as at March 31, 2020 compared to 77 per cent as at March 31, 2019