In an interview with CNBC-TV18, TS Vijayan, Chairman, LIC, spoke about the benefits for customers and policy investors.

Below is a verbatim transcript of his interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy.

Q: Last time we spoke to you on CBI making its statements. Have there been any further updates, follow up questions or any decisions taken by either in LIC’s investments or corporate loans?

A: That was a time when the CBI took away some files pertaining to some of the companies. They did not ask many questions as they understood the functioning of our investment processes.

Q: What do you make of the way the markets are panning out? Would you be bullish on the markets in their Q1 of 2011 or for all of 2011? Are you worried about the way in which macros are panning out in terms of inflation, interest rates or the continued news of either a scam or a 2G investigation from New Delhi?

A: Having an understanding on the way LIC works is very important. We have our regular cash flow in terms of premium coming in from the customers, whether in a ULIP platform or traditional platform. If there is a regular cash flow with a very good net cash flow, we have to keep it invested. We have to keep on looking for several investment opportunities. We would be investors in the Q1 of 2011 as the cash flow is pretty good and is going as per our projections and expectations.

Q: The calendar Q1 is said to be one of the better quarters for insurance companies in general. What would be your projections for the Q1 itself? What will be your estimate in terms of inflows and how much will be earmarked for equities and bonds?

A: We should be getting somewhere around Rs 80,000 crore in the last quarter of this fiscal. January to March is considered as premium collection time from both individual policies and group policies. Most of them are expected to go to government securities, debt markets and equities.

Q: Sectors like banks observe a bit of trepidation due to inflation, interest rate, hiked deposit rates, liquidity pressures, etc. In terms of sectorial allocation, where will this money be pumped-in? Will this space have more of concerns or will it continue to see the kind of movement that it saw last year?

A: We are expecting around Rs 80,000 crore in January to March quarter and some part of it will go to equity. We do not take a public position like allocation. We will look at it when such opportunities come.

Q: How do you think, would be the interest rates? Though, do you think that you are going to see 10 year bond or the bond prices start dipping significantly as we saw the 10 year go towards the 8% and below mark? Liquidity pressures are also continuing to keep yields higher or do you see them dipping below 8%? How do you expect Q1 to be?

A: The yield will be more or less the same. We have liquidity coming in the longer term papers which is affecting the shorter-terms whereas; bonds in the longer-term would be more or less same.

Q: What will be the performance on the banking stocks which appears to be determining the movement of Nifty? What will be the investment decision within LIC at this point of time? Are you positive on the way banking stocks are expected to perform?

A: At LIC we look at long-term prospects. Banks in the longer-term are going to be very good investments.

Q: Can you tell about the fundamental business and Life Insurance business out of which the premiums can be enjoyed? How much does the industry plan to mop up in terms of any numbers? About investments in the equity markets, how is the LIC business as a whole?

A: We have set a target of more than Rs two lakh crore in this financial year only due to which we are expecting around Rs 80,000 crore in the last quarter. At LIC, we are progressing on projected lines. We have seen good growth so far and it is also likely to continue. It is likely to surpass the Rs two lakh crore target for the year.

Q: You were a member of the Deepak Parekh Committee which had put together an infrastructure fund. A lot of the big players in the financial sector were present in that committee. Would you be interested in investing in a fund like that if it is coming up?

A: There is another committee come up, under the Chairmanship of Dr Rakesh Mohan in the planning commission. They are also looking in to bring Rs 41 lakh crore in the next five-year-plan. We are in the planning procedure of creating separate funds and ways to augment them where one has to wait for its interest.

Our investment decision depended upon benefits to the customer. Our investments should give a good yield, which will be on the lines of customer expectations. We will see to it that the customers and policy holders get good opportunities and are benefited. If the rates are also acceptable to the investors, we would definitely be interested. We are mopping up the household savings from the market. Savings will be preferred by investors if he/she is going to get good investment returns on that.

Q: In the days to come, the IRDA will perhaps move the way Sebi has moved. They might put some restrictions on the upfront payment or on the money that is paid to insurance agents. Do you see a period where the commissions that are paid to agents will be paid to the insurer himself? What are you hearing from the IRDA?

A: I did not hear anything like that from the IRDA. The IRDA has already brought out regulations in ULIP products and variable life products. The margins given in the products are very thin. I do not think there is any scope for cutting down the margin.

As far as going to the agent and paying for them, whoever pays for that ultimately comes from the customer himself. The company is not going to pay from its pocket and that will affect the customer. The expenses allowed on a particular product is more relevant to the commission paid to the agents.

Q: The Sebi asked you to state upfront what is being paid to the agent and there are chances that the IRDA may do the same. What are the updates on that?