Life Insurance Corporation, a government-owned investment and insurance company based in Mumbai, has invested in nine state-owned banks. The investment gainers include banks like Vijaya Bank, Oriental Bank, Syndicate Bank, Indian Overseas Bank, Andhra Bank, Central Bank of India, Dena Bank, Allahabad Bank, and IDBI Bank.
The Indian-based insurance group has invested around ₹2,750 crore in shares of these nine banks in order to strengthen their cash reserve, THE ECONOMIC TIMES said quoting a data report from Angel Broking. The government-run banks in India have been battling with the growing number of bad loans since last few years, which led investors to bail out from these banks.
The insurance group is likely to invest in more state-owned banks before the end of this financial year, according to two sources familiar with the matter. Rajiv Mehta, India Infoline Financial Services' banking expert, said state-owned banks face capital scarcity as lenders hesitate to hold their shares in the bank. He added that these banks are in need of capital to offset bad debts and that this move by LIC gives temporary relief for ailing banks.
Total bad loans in all state-owned banks amounted to ₹8 lakh crore, the highest in 13 years. The banks are unable to expand their credit level owing to these bad loans. The LIC spending approach comes at a time when these banks are seeking for capital back up to enhance their capital reserve. According to Vaibhav Agrawal, Angel Broking's research chief, this share capital backup may boost IDBI's capital capacity ratio by around 50bps and by five to 10bps for other banks.
LIC purchased 28.07 crore shares at a price of ₹53.44 per share from IDBI Bank for net transaction proceeds of ₹1,500 crore. IDBI Bank's shares ended Thursday's trading session at ₹66.05 on Bombay Stock Exchange. IDBI is the largest market gainer among the nine banks while Dena Bank is the only one to lose in the market race, with shares yielding a loss of 4.6% for the insurer.
According to THE HINDU BusinessLine, the net investments of LIC amounted to ₹19.46 lakh crore in the fiscal year 2015, an increase of 18% from ₹16.48 lakh crore in the FY14 end. The insurer's overseas investments totalled ₹3,042 crore in FY15. The insurance group's net return from investments approaches increased 8.22% in fiscal 2015. LIC also earned ₹18,949.44 crore from the sale of government securities, equities and other related securities.
Meanwhile, the insurer is anticipated to book a 40% drop in profit on share investments for 2015 - 2016 owing to bad economic weather in the nation. LIC expects its profit on share investments to be ₹15,000, two people familiar with the source told livemint.
LIC has 250 million policyholders across the country and total assets valued at about ₹20 trillion. The insurer's investment approach helps many state-owned banks to boost up their capital. In addition, Arun Jaitley, finance minister of India, has promised to infuse ₹25,000 crore into the struggling public banking sector.
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