Life Insurance Corporation of India (LIC) has, over the last three months, added to its stake in three public sector banks. Data from Capitaline show the life insurer has upped its stake in Bank of India and Corporation Bank through preferential allotments in the first half of January.
LIC has been buying into state-owned lenders for more than two years now. However, given the sharp drop in the market capitalisation of public sector banks, the collective value of LIC’s ownership at Rs 6,251 crore has declined by a third since March 31, 2015.
The valuation is based on data on ownership patterns of banks announced in the last three weeks.
During this period, the stock prices of these public sector banks have declined anywhere between 15% and 49% and most are trading well below their book values. Over the past year the combined market capitalisation of public sector banks has fallen from approximately Rs 5 lakh crore to Rs 2.5 lakh crore.
The fall has been attributed to the deteriorating asset quality at these banks and the fact that the central bank has asked them to step up provisioning requirements. In fact, apart from Bank of Baroda, every PSB from the considered sample currently trades at 20% to 40% of book value, Bloomberg data show.
A senior LIC official on condition of anonymity told FE that while PSB stocks may have performed poorly in the last few months, over a longer horizon of five to seven years the investments made sense. “If we see a dip in share prices and find enough value, we won’t hesitate to buy,” the executive observed.
He also confirmed LIC might invest in the bonds issued by some banks; the insurer is understood to be assessing an investment of around Rs 6,000 crore in 10-year bonds of State Bank of India (SBI).
PSBs are looking to raise capital to meet Basel III guidelines over FY16-FY19. According to ICRA, PSBs would need to raise tier I capital of close to Rs 3.3 lakh crore during the period as against government’s estimate of Rs 70,000 crore.