LIC keen on stake buys in banks

Life Insurance Corporation of India is interested in picking up stakes in banks that have good financials and performance, with the insurer likely to prefer banks with which it has bancassurance tie-ups. Bancassurance enables the insurer to distribute insurance products through a bank's network.

D K Mehrotra, managing director, LIC, however, said that bancassurance was not the only criterion. "It will not be the only criterion for picking up a stake in a bank. We pick up stakes in banks for purely commercial reasons and not strategic ones. Though we have tie-ups with over 30 banks, we are not looking at all the banks. We will look at banks that have good financials and performance," he said.

"We will consider banks with good investment opportunities. We look at banks with proven record, performance, management, dividend paying history, returns to investors, and also whether it can be helpful in bancassurance," a senior LIC official added.

With the company already having stakes in the UTI Bank, Corporation Bank, Oriental Bank of Commerce (OBC), State Bank of India (SBI) and City Union Bank, experts associate the insurer's move with its interest to get into banking.

This month, LIC picked up 15,00,000 equity shares at Rs 169.15 per share in the City Union Bank, which has tied up with LIC for offering insurance-linked banking products.

According to market sources, LIC's interest in the City Union Bank is part of its larger design to pick up stakes in small private sector banks, as it would have a greater say in the management of small banks, unlike the bigger ones such as UTI, OBC and Corporation Bank in which it has stakes. For smaller banks, a tie-up with LIC would help them raise the much-needed funds for revival, sources added.

The LIC and Corporation Bank have planned a strategic partnership in various areas, including reverse mortgage and financial inclusion.

While LIC will provide its expertise on mortgage-related activities in case of reverse mortgage, the Corporation Bank will focus on the retail part of it. A working group has been constituted to work out the details.

However, the UTI has its own insurance plans though LIC is the second largest shareholder in the bank.

UTI, which also has a tie-up with LIC for distributing pension payments, is likely to become LIC's competitor in the life insurance business.