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LIC King Khan of personal loans
Sangita Mehta
The Economic Times

Mumbai: Not banks, largest insurer and FI is the biggest provider of secured loans The biggest provider of `secured personal loans' is not any high-street bank with thousands of branches and an army of direct sales agents. It's Life Insurance Corporation (LIC), the country's largest financial institution.

Indeed, the insurer has given more personal loans against security than all banks taken together.

In June, LIC surpassed the banking industry with secured personal loan outstanding of around . 60,000 crore.` In comparison, commercial banks disbursed secured personal loans amounting to Rs58,000 crore, according to Reserve Bank of India data and numbers shared by LIC officials.

While LIC lends against insurance policies sold by the insurer, banks give secured personal loans against fixed deposits and securities. LIC, unlike banks, does not give unsecured personal loans -a segment dominated by banks.

“Whenever a customer in difficulty approaches us to surrender hisher policy , we encourage the person to take a loan instead.This benefits us as well as policyholders. The policy continues to be on our book while the policyholder gets liquidity and does not lose life cover,“ a senior LIC official told ET.

LIC charges an interest of 10% on such loans -about a quarter or half-a-point less than the interest charged by most banks.The loan tenure is linked to the remaining life of the policy and the maximum amount disbursed is 90% of the surrender value of the policy . In case of death, the amount is adjusted against the loan and the balance is given to nominees.

LIC officials typically advise policyholders that it makes sense to continue with a policy rather than cancel it and take a new one as the premium outgo increases with age.

Loan against policy can be st policy can be availed against traditional pol icy where re turns are link ed to the bonus declared every year. Bulk of LIC's premium income is from traditional pol icies unlike private life in surers for whom unit-linked plans constitute a substantial portion of the assets under management. Nearly Rs 54,200 crore is disbursed by banks as loan against fixed deposits (FDs) and . 3,600 crore is provided as loan ` against equity , according to data compiled by the central bank.Banks lend up to 80-90% of the FD value at an interest that is one percentage point higher than the return on the FD.

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