The government at present is in the process of finalising the structure of recapitalisation bonds and a notification in this regard is expected to come by the end of this month. Last month, the finance
ministry announced a Rs 2.1-lakh-crore PSB recapitalisation plan. It constituted issue of Rs 1.35 lakh crore worth of recap bonds, Rs 18,000 crore of budgetary support and Rs 58,000 crore to be raised from the markets through share sales.
Sources say the government is keen to seek LIC’s help when it comes to equity investments in some of the banks’ qualified institutional placements (QIPs) or rights offerings. LIC’s participation in share sales by government-owned entities is a common phenomenon.
“LIC has often been used as a white knight. We see the insurer picking up shares that remain undersubscribed during government disinvestments. At times the guidelines have to be amended to allow its participation. We should remember that while it is the government which owns LIC, the funds it has are of the common man. Judicious and prudent decision-making is as such warranted in investments by LIC,” said Prithvi Haldea, founder, Prime Database.
“Irdai relaxation will provide regulatory clarity to LIC for participation in the recap programme. But at the same time, the proposal should be critically examined so that policyholders don’t get negatively impacted,” said Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services.
In the past, LIC has been big subscriber of shares issued by state-owned lenders through QIPs.
Earlier this year, LIC had bought additional stake of more than three per cent in Bank of India for about Rs 451 crore. Similarly, UCO Bank, IDBI Bank, United Bank of India, Dena Bank and Indian Overseas Bank also issued preference shares to LIC in the past few years as part of their efforts to shore up their capital. It had bought shares worth over Rs 5,800 crore in the State Bank of India’s (SBI)’s Rs 15,000-crore QIP. Following the investment, LIC’s shareholding in SBI has increased to nearly 10.6 per cent from the earlier 8.6 per cent. However, shareholding data show that in the September quarter, LIC had brought down its stake in SBI to 8.2 per cent.