GST hit HDFC Life’s profit, but we will neutralise it soon: Vibha Padalkar – News Air Insight

HDFC Life Insurance posted muted third-quarter profit growth of 1%- to ₹421 crore-as the GST impact and one-time costs tied to labour code revisions weighed on the earnings. Individual annualised premium equivalent (APE) climbed 12% in the quarter, driven by an increase in term insurance after the GST exemption on individual protection plans. Term APE jumped 70% year-on-year, taking the share of protection in the retail business to 11%, the highest so far. Value of new business (VNB) margin declined about 200 basis points from a year ago to 24% in the quarter due to removal of input tax credit post GST exemption on individual life insurance policies. Managing director and CEO Vibha Padalkar tells Shilpy Sinha how the insurer is gradually neutralising the GST impact through a mix of distributor commission adjustments, cost rationalisation, vendor renegotiations and product mix changes.

Your profits are subdued for the quarter?

The PAT on the face of it looked muted at 1% growth, but as you know, we have had a GST impact and impact of the wage code. Backing that out, it would be 15% growth. Our growth in this standalone quarter three individual APE was 13%, and we continued to retain our overall market share with number two position in the private space and number three overall. Our term APE grew by 70%. What is noteworthy is that new-to-HDFC Life customers buying term plans were 80%.

Margins fell to 24%. Is this the new normal or will it improve?
Our margins expanded if you take out the impact of GST. However, the margins ended at 24% standalone for Q3 largely because of GST. That is about 200 basis points (2 percentage points) lower margin than Q3 of FY25, which is identical to the GST impact. Ex-GST, we would have been flattish. The fourth quarter should be better than the third quarter.

Will the GST and wage code impact continue in coming quarters?

On the wage code, there was a one-time impact. There will not be an ongoing impact on our overall wage bill. As far as GST is concerned, when it was introduced, I had mentioned there was a 300 basis point impact if we did nothing. We have now reduced it to about 190 basis points. Over the next two quarters, we will reduce it further and neutralise it. We are slightly ahead of plan.

What are you doing to offset the GST impact?
There are about four or five things we are doing. One is distributor commissions, including clawbacks where premiums do not continue. Second is our own cost rationalization and vendor renegotiations. Third is repricing, which we have put on hold but will have to do in the normal course. Product mix is another one, where we are selling more profitable unit-linked products and increasing rider attachments. Protection contribution to retail business now stands at 11%, the first time we have hit double digits. Solvency has dipped to 180% from 188%. Are you looking to raise capital to boost solvency?
We have stated that our solvency pegging is not less than about 170%. We are comfortably at 180%. If I back out the GST and labour code, we have managed to fund all our new business expansion in quarter three by back book accruals. Also, RBC is around the corner, and as that gets rolled out, it will aid solvency for the sector and for us.