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Trichy, Tamil Nadu, India
Working as an Assistant in LIC of India, Rockfort BO, Trichy, TN. Having a strong belief that LIC's welfare is our welfare and always trying to work towards that. Also functioning as an office bearer of AIIEA Thanjavur Division.

Friday, July 18, 2014

LIC's Rs 1,280 crore rescue act for 3 banks

Source: DNA
A clutch of public sector banks are knocking at the doors of state-owned insurance giant Life Insurance Corporation (LIC) to raise funds.

At least three banks -- Central Bank of India, United Bank of India and Bank of Maharashtra -- will make a preferential allotment to LIC to raise funds urgently needed for expansion. Banks need more money to fund their growth and meet regulatory requirements.

Under preferential allotment, shares are allotted to a preferred institution without going to the open market.

Finance minister Arun Jaitley had said during
budget presentation that banks need to go to the equity market to raise money.

LIC's infusion of money into the three banks will mean that the government will continue to indirectly hold a major shareholding.

Some other banks, in which LIC has already hit its regulatory limit of 15%, are planning to raise money through the Qualified Institutional Placement (QIP) route. Under this arrangement, shares of a company are allotted to select institutional investors.

Three of those banks are Union Bank of India, Canara Bank and Corporation Bank. LIC has the highest stake in Corporation Bank, where it holds 22%. Though it is above the upper limit, it's considered a strategic investment.

Central Bank of India is holding an extraordinary general meeting on Tuesday (today) to get shareholder approval to raise Rs 580 crore. United Bank of India is expected to raise Rs 300 crore and Bank of Maharashtra Rs 400 crore. All this will be done through a preferential allotment to LIC.

So, wherever banks have regulatory headroom, they are following preferential allotment. If they are nearing limits, they prefer QIP.

Wherever LIC has not reached the 15% limit, banks prefer to utilise the limit first before exercising another option.

The government holding in these banks are much higher. It holds 88.63% in Central Bank of India, 85.21% in Bank of Maharashtra and 82.23% in United Bank of India. In most other banks, the government holds between 58% and 64%.

Deepak Narang, executive director, United Bank of India, told dna, "We will be shortly undertaking a preferential allotment of Rs 300 crore to LIC. The government holding will come down and LIC holding may be a little under 10%." LIC holds 4.6% and the government holds 82.23% in the bank.

Bank of Maharashtra, in which the government holds 85.21% and LIC holds 5.3%, will raise about Rs 400 crore. It will take the LIC stake in the bank to 10%. The bank is also converting about Rs 588 crore worth of perpetual bonds (long-term debt) held by the government into equity for their capital requirements.

"Going to LIC is the fastest and the most cost-effective method of raising funds," said a senior official.

A Central Bank of India official told dna, "We have got government approval for preferential allotment. On July 15, we will take shareholders' approval for preferential allotment."

LIC has already breached regulatory limits in State Bank of India (SBI), after subscribing to one-fourth of the bank's QIP.

In Bank of Baroda, it holds 10.48% and 12.79% in Punjab National Bank. Even these big banks may take the preferential allotment route as a speedier option to raise funds, said another official.

When SBI raised Rs 8,032 crore though a QIP in January 2014, LIC had stepped in and bought around 40% of the offering, and raised its stake to 14.99% from the earlier 12.15% it held in the state-run lender.

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