Finding value amid market corrections, LIC increasing its stake in lenders

By: | Updated: March 5, 2016 8:24 AM

LIC will infuse nearly Rs 200 crore into IOB through a preferential issue

With the sharp fall in state-owned lenders’ stocks, Life Insurance Corporation of India (LIC) has been increasing its stake in the PSBs. Since January this year, LIC has bought into preferential allotment of as many as five banks, in turn, supporting fund-raising requirement of these banks.

While the state-run insurance company bought preference shares of Bank of India and Corporation Bank in the first half of January, it also participated in a Rs 1,500-crore preferential allotment by Oriental Bank of Commerce (OBC) in early last month. On Friday, LIC purchased preference share of two more PSBs — Indian Overseas Bank (IOB) and Allahabad Bank — showed BSE filings.

IOB, in a note to shareholders on Friday, said LIC would infuse nearly Rs 200 crore into the Chennai-based bank through a preferential issue. LIC would thus increase its stake in the bank to14.5% from 10.21% at present. In the note, the bank said LIC agreed to subscribe to equity capital of the bank on a preferential basis to the extent of 8,62,99,771, shares, i.e. 14.5% of the post-issue capital of the bank.

Allahabad Bank will raise Rs 58 crore by issuing more than one crore shares to LIC on a preferential basis, the bank said in a BSE announcement. The issuance of shares will result into a rise of LIC’s shareholding in the bank to 14.5% from 12.61%.

During the last three quarters, the life insurance giant increased its stake in eight banks, including PSBs such

as State Bank of India and Bank of Baroda and private lenders like HDFC Bank and ICICI Bank.

A senior LIC official on condition of anonymity had earlier 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.

Twelve of the state-owned lenders have posted a collective loss of Rs 13,562 in the quarter ended December 2015. With below-estimate performance and sharp decline in profits, PSBs are also trading below their estimated book value, which is on an average between 0.28 and 0.82 times, amid the ongoing market correction.


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