The Life Insurance Corporation (LIC) has crossed the prudential limit of exposure in ICICI by increasing its holding in the institution to 67.74 per cent.
The jump in LIC's exposure in ICICI follows the insurance major's recent subscription of Rs 500 crore worth 10-year non-marketable bonds of ICICI "at a rate of interest not less than 11 per cent".
Going by the laid-down prudential norms, LIC's maximum exposure in a development financial institution can be 60 per cent of the net worth of the institution.
Also Read
The decision to pick up the ICICI bonds was taken at the 588 investment committee meeting of LIC last month. The meeting was attended by LIC chairman G N Bajpai as well as other members of the committee including S K Purkayastha, S A Dave and A Ramamurthy.
Keeping in view the dearth of investment opportunities and the high rating of the ICICI bond (triple-A), the committee agreed that there was a case for relaxing the internal prudential exposure norms.
Accordingly, the investment committee advised the corporation to go ahead with the idea of picking up the ICICI paper subject to negative pledge by the financial institution.
Most of the public sector banks have reached the Reserve Bank of India stipulated exposure limit in ICICI and hence cannot take fresh exposure in it.
ICICI is not placing bonds with new private banks to raise money. Against this background, LIC's decision to cross the exposure limit and pick up Rs 500 crore worth of bonds is significant.