1. LIC brushes aside RBI worries on investment in PSU banks

LIC brushes aside RBI worries on investment in PSU banks

The banking regulator red flagged its concerns after the LIC increased its stake in several PSU banks last year.

By: | New Delhi | Published: June 10, 2015 8:11 AM
LIC of India

The banking regulator red flagged its concerns after the LIC increased its stake in several PSU banks last year. (PTI)

Life Insurance Corporation of India (LIC), the largest domestic investor with annual investments of over Rs 50,000 crore in the stock market, has brushed aside the concerns raised by the Reserve Bank of India on the insurer’s high equity investments in public sector banks, saying it has the permission from the insurance regulator to hold up to 15 per cent stake in any company.

RBI Deputy Governor SS Mundra had recently come out against LIC investments saying, “LIC on average holds 9.21 per cent stake in Indian banks, including private ones, making it the second largest shareholder after the government.

“There is a contagion risk or interconnected risk. Suppose the banking sector is not doing well and is in trouble, the equity holding of LIC will see a value erosion. This effects the capability of the insurer to serve their policyholders.”

“We do our due diligence and check that prudential norms are observed. The insurance regulator IRDA has allowed us to have equity holding beyond 10 per cent in any company. We are subscribing to both Tier-I and Tier-II capital of the banks. Do you think our investment in public sector banks will ever face any kind of business risk?” said a senior LIC official who did not want to be named. “We provide them equity and support and they sell our products very aggressively into the market. Currently, the sector is not doing well but will perform better during next year. This is a part of business cycle ,” he said.

“LIC doesn’t believe in the principle of buying today and selling tomorrow. We normally subscribe a bond having a tenure of ten years or more. And all bonds are maturing in time and thus giving or giving us good returns. Also, equity in banks giving us fantastic rate of returns,” LIC said.

The banking regulator red flagged its concerns after the LIC increased its stake in several PSU banks last year.

LIC hiked its stake in United Bank from 3.1 per cent to 12.12 per cent, Punjab & Sind Bank from 4.21 per cent to 10.49 per cent, Central Bank from 5.44 per cent to 13.41 per cent, Bank of Maharashtra from 5.31 per cent to 11.24 per cent, Canara Bank from 5.35 per cent to 14.4 per cent and Bank of India from 11.82 per cent to 14.93 per cent during the year ended March 2015.

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