Mumbai: The Life Insurance Corp. of India (LIC), the country’s largest insurer, has sought regulatory approval to increase its stake in Axis Bank Ltd, pitching for a greater say in India’s third largest private bank’s operations.
LIC holds 10.36% in Axis Bank and needs approval from the Insurance Regulatory and Development Authority (Irda) as well as the Reserve Bank of India (RBI) to hike its stake.
Banking sector analysts said LIC may not get the regulatory nod and that the state insurer has been trying to raise its stake for quite some time now.
Greater play: Jeevan Bharti, the building which houses state-owned Life Insurance Corp.’s corporate office in New Delhi. Rajkumar / Mint
“It had moved the finance ministry with a proposal to raise its stake sometime back but did not find favour with the ministry,” said a person familiar with the development who didn’t want to be identified.
As per RBI norms, one bank cannot own more than 5% in another bank but institutions and promoters can hold up to 10% stake. Irda regulations, too, cap an insurance firm’s holding at 10% in any company, which applies only to instances of new investments.
R. Kannan, member, actuary, Irda, said the regulator is looking into LIC’s proposal. “We are looking at the various instruments and ways in which they could do it... My dilemma is whether to treat a 50-year-old person and a three-year-old boy similarly,” Kannan told Mint. “In these volatile times you need strong long-term investors. We need to be cautious and draw a trade off taking into account the importance of LIC (as an institution) in long-term saving.”
LIC officials did not respond to phone calls and emails.
“Any holding beyond 10% becomes a strategic investment. Currently, the bank is adequately capitalised and would not need capital anytime soon,’’ a senior Axis Bank executive said on condition of anonymity. “LIC comes up with this demand time and again... LIC had earlier approached the government to acquire SUUTI’s stake in Axis Bank. However, the government refused to do so.”
SUUTI, or the Special Undertaking of UTI, holds 27.08% stake in Axis Bank, formerly known as UTI Bank Ltd. The undertaking had last August hired investment banks to advise it on the sale of a 21% stake in Axis Bank, then worth Rs5,400 crore.
Any increase in LIC’s stake in Axis Bank will give the insurance company more control in the day-to-day running of the bank. It would also support its business growth as LIC can then sell its products and services through the bank’s network. Axis Bank has 749 branches and 3,171 automated teller machines across 454 cities and towns in India.
The net profit of the bank for the quarter ended 31 December was Rs500.86 crore, up by 63.24% year-on-year from Rs306.83 crore for the third quarter of last year. The total deposits of the bank stood at Rs1.06 trillion and advances Rs75,328 crore in December.
Some of the public sector banks are floating their own insurance subsidiaries, increasing competition for LIC, as the lenders prefer marketing their own products than tie-up with a third party.
Axis Bank has an arrangement with MetLife India Insurance Co. Ltd to sell its insurance products through its branches. For general insurance, the bank has a tie-up with Bajaj Allianz General Insurance Co Ltd.
LIC has always had a soft corner for banking stocks. It owns 26.32% stake in the Mangalore-based Corporation Bank, for which it got approval under special dispensation from RBI to hold beyond the stipulated 10%.
More recently, as bank stocks started testing new lows in past six months, LIC has been actively increasing its holdings in banks.
The insurer has in recent months hiked its stake in State Bank of India, the country’s largest, to 9.16% from 4.58%, and in ICICI Bank Ltd, India’s second biggest lender, to 9.38% from 0.93%.
In February and March, LIC bought shares worth Rs57.65 crore in Indian Overseas Bank through open-market transactions to hike its stake to 9.96% from 7.09%.
The insurer has also increased its holdings in HDFC Bank Ltd, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank and Syndicate Bank.