Life Insurance Corp. of India’s ₹31,500 crore share sale this month has revived an old fault line in investment banking: just how low is too low for a marquee mandate. The four banks managing India’s largest-ever secondary share sale are said to be splitting fees of just up to ₹4 lakh, reigniting concerns over aggressive undercutting as banks take up so-called 'zero-fee' mandates for prestige, rankings and future business.
The investment banks—IIFL Capital Services Ltd, BNP Paribas Securities India Pvt Ltd, Goldman Sachs (India) Securities Pvt Ltd and Motilal Oswal Investment Advisors Ltd—thus, took home just about 0.0001% of the deal value. IIFL also acted as the settlement broker on the deal.
"LIC was an important mandate, but this zero-fee practice undermines the core economics of capital markets advisory," said a senior executive at a domestic investment bank in Mumbai, who asked not to be identified. “A fee of around ₹100,000 per bank does not even cover basic legal expenses, due diligence costs, or regulatory compliance overhead required for a $3.3 billion transaction.”
Usually, investment banks can charge anywhere between 0.01% and 5% fee for public market transactions, depending on the issue size.
While 'zero-fee' mandates are not usually free of charge, they are done for such little compensation that they essentially drive negligible revenue for the investment banks. They occur when merchant bankers offer a client, often a public sector undertaking or a bellwether firm, financial advisory or initial public offering (IPO) underwriting tasks without charging standard advisory fees.
Cut-throat rivalry
Two executives from the abovementioned investment banks that Mint spoke to, on the condition of anonymity, defended the pricing decision, characterizing the deal as a strategic investment to boost global league table rankings and secure future public- and private-sector investment banking business.
"In public-sector transactions of this magnitude, direct fee generation is not the main objective," one of these bankers said. "Securing a lead manager role on such an issue provides global institutional visibility and validates execution capabilities. That credential then helps us win private equity mandates, cross-border merger advisory, follow-on government issues and corporate equity raises where fee pools do reflect standard market rates."
A second participating banker noted that competition from other banks forced them to match the aggressive pricing structure of the LIC deal. "Someone came in and quoted a low bid. When we found out, we matched it because the trade-off made sense from a reputation perspective," this person explained.
This drew criticism from rival investment bankers, including the first person mentioned in the story, who declined to submit nominal bids, citing the financial unfeasibility of executing large-scale public equity transactions without standard commercial compensation.
State-backed investment banks, which usually offer advisory services to public sector undertaking (PSU) listings, were also absent from the LIC mandate due to the abnormally low fee the final syndicate quoted.
One such banker at a state-backed investment bank told Mint, "We usually don't charge PSUs our typical advisory fees, and often quote lower fees to them. But the LIC mandate was severely undercut even for us to have a competing chance."
Emails sent to LIC, IIFL, BNP Paribas, Goldman Sachs and Motilal Oswal did not elicit responses until press time.
The ₹400,000 total payout for LIC's offer-for-sale means each of the four managing banks will collect less than the administrative cost of executing the deal. Travel, legal filings and marketing costs incurred during the execution are expected to result in net financial losses for all four syndicate members on the transaction itself.
Despite this, participating banks maintain that managing India's largest insurer provides indispensable access to sovereign wealth funds and global institutional investors, generating downstream commercial benefits and mandate opportunities across their broader capital markets operations.
‘Zero-fee’ history
Before the LIC issue, the practice was seen across a few major deals.
In 2025, six banks selected for SBI's ₹25,000-crore qualified institutional placement (QIP) charged just ₹1 to manage the transaction, which was seen by many as a prestige battle. Earlier, SBI’s QIP in 2017 also saw merchant banks charging a nominal fee to manage the ₹15,000 crore deal. Even before that, Coal India Ltd's 2010 IPO worth ₹15,000 crore saw bankers quoting just ₹1 for every ₹1 crore raised.
And then, in 2023, the $64 billion HDFC-HDFC Bank merger yielded a mere 0.0002% advisory fee for the bankers advising on the deal.
The fallout
According to capital markets lawyers, a cut-throat zero-fee landscape, while not illegal from a competitive perspective, ultimately pushes smaller players to the sidelines. "This may not be illegal, but repeated near-zero pricing deprives smaller advisers from participating, and thereby build credentials," explained Rohit Jain, managing partner at Singhania & Co. “Also, concentrated government mandates to same set of bankers may weaken independent diligence.”
Another lawyer explained that no policy backstop exists to ensure that investment banks don't continue undercutting each other in state-backed mandates.
“The Department of Investment and Public Asset Management's (Dipam) framework does not appear to impose a universal percentage based minimum fee linked to the value of every disinvestment,” said Alay Rizvi, managing partner at corporate legal advisory firm Accord Juris. "Accordingly, the framework may permit extremely low bids unless the particular request for proposal contains a higher floor, a reserve fee or a quality-based evaluation mechanism."
Following advice from its bankers, the government chose to sell 6.5% stake at a floor price of ₹382 per share on 4-5 August. The OFS was subscribed 1.2 times, with institutional investors' bids at ₹36,400 crore. Following the offer, LIC’s public shareholding will rise to 10%, and ensure that the insurer meets the threshold required by India's market regulator well ahead of the May 2027 deadline.