Insurer to raise stakes ahead of consolidation. | |
| The Life Insurance Corporation of India (LIC) plans to buy out some of the existing stakeholders in banks where the insurance major itself holds an equity stake. LIC holds stakes in 17 listed banks and its holding varies between 1.01 per cent (Vijaya Bank) and 26.32 per cent (Corporation Bank). |
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"We will facilitate the consolidation process by increasing (our) shareholding in the merged entity if we feel the merger is viable and adds value," said SB Mathur, chairman, LIC.
| LIC's stakes in commercial banks | | Bank | % | | Corporation Bank | 26.32 | | UTI Bank | 13.41 | | ICICI Bank | 10.09 | | IDBI Bank | 6.37 | | OBC | 6.23 | | HDFC Bank | 5.34 | | State Bank of India | 5.00 | | UCO Bank | 5.00 | | Dena Bank | 2.00 | | Syndicate Bank | 2.00 | | Bank of Baroda | 1.82 | | Bank of India | 1.81 | | United Western Bank | 1.50 | | Indian Overseas Bank | 1.19 | | State Bank of Mysore | 1.15 | | Bank of Maharashtra | 1.09 | | Vijaya Bank | 1.01 | | Source: BSE As on June 30 |
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| Asked how the company stood to benefit from the bank consolidation process, Mathur said, "A stronger bank will create value for shareholders and thereby enhance returns for policyholders." |
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| LIC, however, does not intend to take over any bank. Going by the |
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| Insurance Regulatory and Development Authority (IRDA) norms, an insurance company cannot hold more than 20 per cent in a bank. However, Mathur pointed out that it could always move the IRDA for relaxation in the norm if it wished to raise its stakes in banks. |
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| LIC would be willing to buy out existing shareholders and thereby act as a 'sugar daddy' since most public sector banks would not have the financial muscle to fund mergers, said a banking sector consultant. |
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| As LIC is a shareholder in most banks, many ambitious bankers are lobbying hard with the financial institution to flex its muscle and 'facilitate' acquisitions. |
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| The state-owned insurance company has over 10 per cent stake in ICICI Bank, over 6 per cent each in IDBI Bank and Oriental Bank of Commerce, and over 5 per cent in HDFC Bank, State Bank of India and UCO Bank. |
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| It also has more than 1 per cent in Bank of Baroda, Bank of India, Bank of Maharashtra, Dena Bank, Indian Overseas Bank, State Bank of Mysore, Syndicate Bank, United Western Bank and Vijaya Bank. |
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| Many bank chairmen have started the consolidation ball rolling. For instance, Corporation Bank has already got board approval to 'study' banks that could be acquired. Chairman Cherian Verghese recently told Business Standard that LIC would not be averse to the idea of putting in money in Corporation Bank's acquisitions. |
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| There has been talk of a possible merger between UTI Bank (where LIC's shareholding is 13.41 per cent) and Corporation Bank. However, until the government decides where UTI Bank stands in terms of its parent holding, the talks cannot fructify. |
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At the same time, there have also been rumours that the Industrial Development Bank of India (IDBI) --- which is on the verge of merging its subsidiary IDBI Bank with itself --- will be eyeing UTI Bank in course of time. This would help put IDBI in the top league.
Playing hardball with banks
THE GAMEPLAN Stronger banks will create shareholder value, enhancing returns for LIC policyholders. But LIC won't take over any bank | | | | THE HITCH As per IRDA norms, an insurance company cannot hold more than 20% in a bank | | | | THE WAY OUT The insurance major could move the IRDA for relaxations in the norm | | | | ACQUISITION ALLY Ambitious bankers are already lobbying with LIC to leverage its financial muscle. Corporation Bank says LIC may fund its acquisitions |
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