The Hindu Business Line : LIC shows appetite for bank stocks

India’s largest life insurer’s investment pattern in bank stocks indicates that it, to an extent, acted as a counterbalance to foreign institutional investors who were relentlessly hitting the sell button in the Indian market to salvage their investments in the wake of the sub-prime crisis in the US and elsewhere.

In FY09, LIC gradually increased its stake in State Bank of India, the country’s largest bank, to 9.56 per cent as of March-end 2009 (4.21 per cent as of March-end 2008) even as FII holding in the bank dipped to 7.97 per cent (12.82 per cent).

The insurer’s shareholding in ICICI Bank, India’s largest private sector bank, rose to 9.38 per cent (7.7 per cent) even as FII holding in the bank came down to 35.47 per cent (40.30 per cent).

LIC’s holding in HDFC Bank, India’s second largest private sector bank, jumped to 7.5 per cent from under 1 per cent. FIIs appear to have kept faith in this bank as they pared their holdings just a tad to 25.70 per cent (25.89 per cent).

While FIIs diluted their stake in Allahabad Bank to 10.26 per cent (18.52 per cent), LIC substantially upped its stake in the bank to 11.64 per cent (5.81 per cent).

Some of the other banks in which the insurance company significantly increased its stake in FY09 include Syndicate Bank: 9.46 per cent (5.14 per cent); UCO Bank: 7.19 per cent (4.94 per cent); Indian Overseas Bank: 6.08 per cent (2.65 per cent); Bank of Baroda: 8.72 per cent (5.27 per cent); and Bank of India: 6.40 per cent (4.16 per cent).

surrogate holding

Analysts liken LIC’s stake in various banks to surrogate holding by the Government as the latter is the sole owner of the insurance company. “Some banks, especially those in the private sector, have grown by leaps and bounds in the last few years. They have now become systemically important. So, it makes eminent sense for the Government to have a foothold in the banks via the State-run insurance company,” said an analyst with a broking firm.

In the context of global banks across US and Europe receiving bail-out packages from their respective Governments and regulators and in a way getting ‘nationalised’ to survive the adverse fallout of the sub-prime crisis, LIC’s holding in private sector banks augurs well, said the analyst. Besides the strength of the Indian banks, LIC’s holding in them could well assure stakeholders about their soundness.

“We are long-term investors. We are trustees of our 23 crore policy holders’ money. We don’t get swayed by market movements,” LIC Chairman, Mr Vijayan, said at a press meet in December 2008.

LIC has an asset base of around Rs 8.50 lakh crore and is a force to reckon with in the domestic equity markets. Some of the state-owned banks in which LIC marginally upped its stake as of March-end 2009 include Vijaya Bank: 4.61 per cent (3.13 per cent); Punjab National Bank: 3.08 per cent (2.51 per cent); Canara Bank: 1.77 per cent (1.08 per cent); Union Bank of India: 2.53 per cent (1.87 per cent); and IDBI Bank: 5.70 per cent (5.56 per cent).

The life insurer continued to maintain its stake in Corporation Bank at 26.32 per cent (unchanged vis-À-vis the position obtaining as of March-end 2008).

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