MUMBAI: Life Insurance Corporation (LIC) is looking at the HDFC model, where IDBI Bank will distribute loans of LIC Housing Finance (LIC HF) to comply with RBI guidelines. The corporation is not keen on a merger of the two and wants to keep its options open.
LIC chairman M R Kumar said the insurance giant was happy with the progress made by IDBI Bank, in which it has 51% stake, as it had reported profit for two successive quarters and has emerged as the largest bancassurance partner for the insurance giant within a short time.
“If they come out of RBI’s prompt corrective action, it will make a difference to their banking operations. We are working on that. The RBI has given approval subject to the condition that we bring down our stake in 12 years. They have also said that the bank or LIC have to cease housing finance,” said Kumar.
Kumar said that LIC does not want either institution to lose out. “How can we ensure that both continue… We will figure this out in one or two weeks. They will continue their operations and LIC HF will continue to provide loans,” said Kumar.
“This model will help the bank if in future it becomes independent of LIC, after dilution of stake, and wants to restart home loans. Once the LIC IPO happens and IDBI Bank comes out PCA, we will continue to have a partnership but we would like to give them the independence to act on their own,” said Kumar.
According to a report by ICICI Securities, LIC Housing Finance franchise is still a major strength despite concerns on leverage. “Low capital adequacy and high leverage mean the balance sheet is vulnerable to any stress and imminent equity infusion is needed. Still the company scores high on franchise strength (quasi-sovereign status) and consistency of return ratios,” the report said.
Although banks have made major inroads into the housing finance business, HDFC, the country’s largest mortgage lender, has managed to hold on to its own largely because of a partnership with HDFC Bank.