LIC may buy UTI pie in ITC, UTI Bank

The Life Insurance Corporation of India (LIC) will be given the first choice to buy the government's strategic holdings in ITC and UTI Bank, which are currently part of UTI-I's investment portfolio.

S B Mathur, administrator of UTI-I, told Business Standard, "LIC will be offered a maximum of 10 per cent of UTI-I's 28.2 per cent stake in UTI Bank and the balance will be sold to other institutions, banks and the public," he added.

"In case of the 11.18 per cent ITC stake, LIC will be given the first preference, and then institutions and banks. The stake, however, will not be sold in the market," Mathur added.

With the Specified Undertaking of the Unit Trust of India (UTI-I) being wound up, the government has decided to sell its stake in 'sensitive' stocks. Part of the holding in UTI Bank, L&T and Crisil will be sold in the market in small lots. will, however, not be sold in the market.

UTI-I's entire 10.14 per cent holding in L&T will first be offered to the company's employee welfare trust. In case the trust is not willing to pick up the entire stake, then the balance will be offered to institutions, banks and the investing public through secondary market sales.

"We are actively considering the proposal and are interested in picking up stake in the various companies looking to long-term prospects," said a senior LIC official.

The sale of these holdings to LIC and other institutions and banks comes with a rider "" once the stakes are sold, the acquirer cannot resell it in the market to make a quick buck. In other words, investing players will not be allowed to trade in these stocks. They need to treat them as long term investments.

This may make it difficult for LIC to go for these stocks. Considering the low return on such type of investments, there could be an impact on LIC's distributional surplus.

"This, in turn, could affect LIC, especially at a time when it has to provide for 150 per cent solvency margin," said an institutional source.

LIC is evaluating the pros and cons of picking up government stake in these sensitive scrips. Even if LIC were to pick up the 10 per cent offered in UTI Bank, and thereby raise its stake to 20.67 per cent, the institution's holding would continue to be treated as a strategic investment, said sources.

LIC had in the past proposed to get into banking as is very common case overseas where insurance companies set up banks.