Banks, FIs will have to factor cross-holding norms for investing in LIC IPO

State-owned insurer is a significant investor in banks' capital, especially in public sector lenders.

Banks and financial institutions investing in the initial public offer (IPO) of the Life Insurance Corporation of India (LIC) have to consider deduction from their capital as the state-owned company has put money in such organizations, said experts.

Under Basel III norms for banks investments--like if done in LIC’s IPO--are considered reciprocal cross-holdings artificially propping up capital adequacy. Hence, a cross-holding has to be fully knocked out from the capital base, said senior bank executives.

LIC is a significant investor in banks' capital--equity, additional tier I bonds and Tier II bonds—and especially in public sector lenders. When the same banks and institutions