LIC seeks first right on UTI Bank stake

Life Insurance Corporation (LIC), the public sector life insurer, wants the government to provide it the first right to purchase the 27.47 per cent stake held by Specified Undertaking of Unit Trust of India (SUUTI) in UTI Bank, a mid-sized private sector bank.

A senior LIC official said, "It makes sense for an insurance company to own a bank or a bank to own an insurance company. LIC should be given the first right (to buy SUUTI's stake) as it was the co-promoter of the bank." LIC already holds 10.39 per cent stake in UTI Bank and also about 27 per cent in public sector Corporation Bank.

LIC is keen to acquire SUUTI's stake in UTI Bank and hold it as a strategic investment, even as the government is considering options that include a public offer.

"The government has to take a decision on how they wish to divest SUUTI's stake in UTI Bank. We have given our suggestions which include divesting the stake to LIC and other financial institutions, selling it to the public, or a combination of domestic public offering and overseas offering. It's a decision the government has to take,'' said S B Mathur, administrator, SUUTI.

When asked if LIC would be willing to buy UTI Bank stake at the market price, the LIC official said, "Investment in UTI Bank will be a strategic investment. Our board will have to take the decision after which the due diligence will be done. We will pay a premium if necessary as we will look at the strategic value."

UTI Bank closed 4.72 per cent down at Rs 495.70 per share on the Bombay Stock Exchange today. At this price, LIC will have to pay about Rs 3,830 crore for the 27.47 per cent stake. Banking sources said, "the government is evaluating various options but is yet to take a final decision.''

There are not many takers for the UTI Bank stake as the sources indicate that the government wants the buyer of the stake to hold the shares for at least a certain period. Apart from LIC, there is no other government financial institution which has the capacity to buy the stake.

HSBC Bank, in June 2004 had brought over 10 per cent stake in UTI Bank. However, it had to divest its holding as the Reserve Bank of India (RBI), in its ownership guidelines stated that foreign banks operating in India can hold a maximum of up to 5 per cent stake in a bank.

LIC will need to seek approvals from both the the Insurance Regulatory and Development Authority (Irda) and the Reserve Bank of India if the government agrees to sell the stake in UTI Bank to it.