Banks seek LIC's helping hand

By March, insurer may infuse money in banks that had planned QIPs

Life Insurance Corporation (LIC) is getting several knocks on its doors from a host of public sector banks stuck with their fund-raising plans through the capital market route. Close to half a dozen lenders that were planning to raise capital via the qualified institutional investment route have now started approaching the insurance behemoth for capital, which will be infused by March-end.

Mumbai-based Dena Bank, which had plans to raise about Rs 600 crore via a QIP has now decided to allot shares on preferential basis to LIC and the board has approved it in a meeting last week. “After Rs 400-crore capital infusion by the government (in December), its stake in the bank has gone up to 66 per cent from 55 per cent earlier. So, we have headroom to raise close to Rs 700 crore by diluting the government’s stake,” a top Dena Bank executive said. Though according to current regulations, the minimum shareholding by the government is kept at 51 per cent, the government is keen to treat 55 per cent as the floor.

State-run lender Indian Overseas Bank’s board meet is scheduled next week to approve capital-raising from LIC, which has 6.5 per cent stake in the bank. A senior executive of LIC said funds should not be an issue but investment guidelines had to be complied with. Present norms do not allow LIC to pick up more than 15 per cent in any company. LIC is planning to invest a total of Rs 2.25 lakh crore in FY14 in government securities, bonds, infrastructure, debentures and equity, of which 15-20 per cent would be in equity. Earlier, in 2011-12, LIC had infused equity capital of over Rs 2,000 crore in a few public sector banks.

However, LIC’s stake in the banks that were planning to raise funds via QIPs is significantly lower than the norms (see chart). Another senior LIC official said banks, depending on their size, would take a view on when to initiate the fund-infusion process. “As we understand, there may be no urgency to raise funds in all state-owned banks. We will take a call on an individual basis,” the official added.

LIC subscribed to a large chunk of shares of State Bank of India – the country’s largest lender – which came out with a QIP recently. LIC’s stake in the bank is now close to 15 per cent. Banks will be required to raise capital to fund business growth and to comply with Basel-III norms.