LIC averse to paring UTI Bank holding

Life Insurance Corporation of India (LIC), the promoters of UTI Bank, is undecided on whether to support the bank's forthcoming public issue, which would see its stake decline to 11 per cent from 13.5 per cent. Sources close to the development said that LIC was not too keen on diluting its stake in the bank.

In a parallel development, the board of UTI-I will meet on December 31 to decide on the stake dilution issue which will bring down its stake in the bank to 27 per cent from 33 per cent.

"We are hopeful that UTI will allow the stake dilution because they understand our requirement for capital raising for maintaining capital adequacy under the Basel-II norm as well as the growth in business that we have targeted," said P J Nayak, chairman and managing director, UTI Bank.

"The capital we intend to raise will be enough for the next three years at the rate we intend to grow, because we would not like to raise Tier-I capital every year," he added.

Despite UTI Bank having set up a March 2005 deadline for the issue, top executives in charge of investment at LIC said that the insurance major was still undecided on the issue.

"We have not considered the issue," he said.

There has been instances earlier when LIC had expressed its intention of holding on to its stake in the bank. LIC had gone to the extent of requesting the Reserve Bank of India for allowing it to hold on to its stake once RBI had come out with draft guidelines on holding on equity cap.

HSBC which picked up a 14.6 per cent stake in UTI Bank through a cash deal which will also see its stake come down to 11.5 per cent after the 20 per cent equity dilution through ADS through which it would raise $200 million.

"The 20 per cent equity dilution that we have planned will also bring down HSBC's stake in the bank from 14.6 per cent to 11.5 per cent," he added.

"HSBC and LIC's stake in UTI Bank are strategic ones which has helped both the entities enhance their business through UTI Bank. These two entities have 10 per cent voting rights each and the success of the issue will depend on these two entities allowing equity dilution," explained sources close to the development.