However, the insurance behemoth, which holds 12-15% stake across PSBs, has Irda support
At a time when public sector banks (PSBs) again set to approach Life Insurance Corporation of India (LIC) for a capital infusion before the end of this financial year, the Reserve Bank of India (RBI) is understood to be uncomfortable with the insurance behemoth’s exposure to the banking sector.
LIC holds 12-15 per cent equity in all PSBs put together. According to the latest data, the insurer’s stake in banks such as United Bank, Dena Bank, Central Bank of India, Punjab & Sind Bank and Indian Overseas Bank increased substantially between September 2013 and September 2014.
Senior central banking sources said if a company had high exposure to a particular sector, it posed a risk of contagion. “Since we regulate banks, we have to ensure the kind of investments made in these entities,” said a source.
With the finance ministry indicating banks won’t raise capital from the market due to valuation issues, lenders might once again have to resort to LIC for capital.
While the banking regulator is not comfortable with this, the insurance behemoth has the support of the Insurance Regulatory and Development Authority of India. According to sources at the insurance regulator, as long as LIC remains healthy, there is no cause for concern. “RBI could review the health of the insurance company periodically,” sources said.
Last year, when the Indian stock market fared the best since the global financial crisis, banks had approached LIC for capital. Many private banks have raised equity capital, primarily through qualified institutional placements (QIPs). But PSBs were unable to do so, due to subdued valuations. A host of such banks had planned to raise money through QIPs but had postponed such issuances.