‘We have three or four things in place to bridge the negative impact of GST’

HDFC Life Insurance’s net premium income grew 13.32 percent year-on-year in the second quarter of the current financial year. However, net profit grew by only 3.27 percent. Was this because of the GST exemption on life insurance policies?

Yes, absolutely. If I exclude the GST impact, our profit after tax would have grown by about 15 percent. For H1FY26, the impact of GST on our Embedded Value (EV) was 50 basis points. That’s a one-time hit. The EV is a sum of our power and the current value. That prevailing value is nothing more than all the policies we have sold over time that people will pay their premiums for. Policyholders will now pay us a lower premium because of the reduction in VAT. So my current value will be lower than what I will receive in future premiums. This is currently in our backbook. It will be a one-time blow to the profit and loss account. We are confident that we will take action to reverse that impact by the end of this fiscal year.

Insurance companies cannot claim input tax credit on GST paid on inputs such as commissions and brokers. What will be your future strategies? Are you reducing the cost of commissions to distributors?

We have three or four things up our sleeve to negate the impact. We had a 50 basis point impact on our margins. We are confident that we will reduce that negative impact to zero in the coming quarters. How are we going to get that? We will try to reduce our expenditure on things that attract GST. We will have conversations with our partners [distributors] for selectively lowering it [distribution costs] because we have to be honest when it comes to sharing the pain between the partners and us. We can’t share everything. Partners cannot share everything. It will have to be fair. We are also going back to some of our suppliers to say that we paid you earlier because we received the input tax. That is not the case. So we cannot increase outsourcing costs. In addition, we are looking at how we can sell a more profitable mix of products, for example by selling more term policies.

What kind of increase in demand are you witnessing after the GST exemption on life insurance policies?

There was an upturn in term policy in September. The retail installment grew by around 50 percent in the month following the GST announcements. This will therefore help with any downward impact on margins, because the inherent margins in the term policy are higher.

The board has in-principle approval to raise up to ₹750 crore through the issuance of non-convertible debentures (NCDs). Why does the company need to raise capital in the future?

Our solvency has fallen as we have paid off old partial debts of around ₹600 crore. It had an impact of almost 6 percent on our solvency. So this is simply topping up that amount.