With banks looking to raise Rs 15,346 crore over the next few months to bolster their capital-adequacy ratios, the Life Insurance Corporation (LIC) may turn out to be a key investor. The last time banks raised capital in 2012, LIC was a big participant. For instance, it bought 2.73 crore shares in Bank of India for Rs 1,084 crore; 1.95 crore shares in Punjab National Bank Rs 1,640 crore and 1.52 crore shares in Dena Bank for Rs 160 crore.
LIC typically invests around Rs 40,000 crore in equities annually. In a media interaction last year, LIC chairman S K Roy had said that the insurance major is “looking for investing in the vicinity of about R40,000 crore” in FY14. The life insurer may also invest in some PSU divestments —IOC for example.
In the last three months, bank stocks have outperformed the benchmark by a wide margin. While the benchmark 30-share Sensex has gained 3.73%, the Bank Nifty has gained nearly 9% in the last three months.
According to a recent report by Morgan Stanley, insurance companies remained net sellers for the fourth consecutive month in December at $1.03 billion.
LIC has been steadily increasing its stake in many banks, with its holding already in excess of 10% in entities like Corporation Bank, Vijaya Bank, Bank of Baroda, Bank of India, Syndicate Bank, Allahabad Bank and UCO Bank.
Six banks, including SBI, are expected to raise R15,346 crore through QIPs. Incidentally, in 2012, even the Sebi had amended the norms to allow any listed entity to make a preferential allotment to an insurance company even if the insurance entity had sold the company’s shares in the last six months.
This alternate resource mobilisation is over and above the R14,000-crore capital infusion to be made by the government for the public sector banks during this fiscal to boost the capital base to maintain future growth and capital adequacy ratio (CAR) under new global risk norms. Apart from banks, the government also plans to dilute its stake in a few listed PSUs as part of its attempts to bridge the fiscal deficit gap.
While the FY14 disinvestment target has been set at R40,000 crore, the government has been able to raise only around R5,000 crore till date.
With only three months to go in the current fiscal, the government is expected to fast-track the offerings to meet its divestment target. In the past, LIC subscribed to