Post IDBI Bank deal, LIC may have to pare stakes in other banks

Post IDBI Bank deal, LIC may have to pare stakes in other banks

New Delhi, Jun 28: If Life Insurance Corporation of India’s IDBI Bank buy goes through, it could be asked to cap its equity stake in several banks — public sector and private — at 15 percent.
This will be done, multiple sources said, for regulatory compliance and to avoid conflict of interest.
“Till now, LIC had breached the 15 percent limit in companies on some occasions and it was being given time to bring down its stake. However, once it owns a bank, it will have to ensure that its stake in other banking entities remains much below 15 percent at all times,” a senior official from the industry said.
As per regulatory norms, an insurance company cannot hold more than 15 percent equity stake in one company. At present, LIC has a 10.83 percent stake in IDBI Bank.
The life insurance company holds equity stakes in several other banks, including State Bank of India, Bank of India, Bank of Maharashtra, Vijaya Bank, Punjab National Bank among others. The holdings range from 10 percent to 15 percent. In cases like Corporation Bank, LIC held 30 percent stake which has now slowly been brought down to 13 percent over the last three quarters.
A contrarian investor
Unlike other players in the equity markets, LIC takes a contrarian view on stocks. This means that when the other players are selling during falling market, LIC buys equity during that period. It sells during a rising market.
Apart from participating through the regular market buy and sell, LIC is an active participant in the offer for sale issues as also private placement by banks. However, if it acquires majority stake in IDBI Bank whereby the bank could become its subsidiary, the insurance giant will have to keep a close watch on these transactions in the future.
The regulator has given time till December 2018 for LIC to bring down its stake to below 15 percent in all companies where it has exceeded the limit. Sources however say that this deadline could be extended.
But once it has IDBI Bank in the kitty, the public sector insurer will be required to avoid a potential conflict of interest.
IRDAI board is meeting on June 29, where the LIC stake purchase in IDBI Bank will be on the agenda among several other matters.