Insurance regulator IRDA is satisfied with the investments of LIC in public sector banks. After a scrutiny of its investments in PSU banks, the regulator has given a clean chit to the largest domestic institution with assets of close to Rs 18 lakh crore.
According to an official, the regulator did not find anything wrong with its investment pattern in PSU banks. Earlier, the RBI had expressed concern over LIC making huge investments in PSU banks, saying it can “affect the financial stability”.
VR Iyer, Member, IRDA, led the team which held discussions with LIC. IRDA along with regulators, including the RBI and the Sebi, is conducting regulatory scrutiny of large institutions which can pose systemic risk in the economy.
According to IRDA officials, in a total investment portfolio of around Rs 22,00,000 crore, LIC’s equity investment is just 6-7 per cent and investments in banks are still a smaller portion. LIC has followed the due diligence while making investment in the banks, they said.
LIC had made a profit of Rs 24,373 crore from the equity market in 2014-15 as against a profit of Rs 21,257 crore in the financial year 2014, which is a gain of 14.65 per cent.
According to Prime Database, LIC’s aggregate shareholding in PSU banks declined to 11.01 per cent. As the share prices of these banks came under pressure, LIC — which is also the biggest investor in these banks — saw a sharp decline in the market value of its holding in these banks and it hit a four-year low. The market value of LIC holdings in the 23 banks declined 30 per cent from Rs 38,373 crore in December 2015 to a four-year low of Rs 26,837 crore.
The RBI which has asked banks to clean up their balance sheets by March 2017 has given them a list of some 150 accounts which had either become NPAs or are on the verge of becoming NPAs. Bad loans of PSU banks rose by Rs 94,666 crore during the nine months ended December 2015. Gross NPAs of PSU banks increased from Rs 267,035 crore in March 2015 to Rs 3,61,731 crore in December 2015. This is as much as 7.30 per cent of their total advances.
“We do our due diligence and check that prudential norms are observed. The insurance regulator IRDA has allowed us to have equity holding beyond 10 per cent in any company. We are subscribing to both Tier-I and Tier-II capital of the banks,” a senior LIC official told The Indian Express in an earlier interview.
“We provide them equity and support and they sell our products very aggressively into the market. Currently, the sector is not doing well but will perform better during next year. This is a part of business cycle,” he said.
“LIC doesn’t believe in the principle of buying today and selling tomorrow. We normally subscribe a bond having a tenure of ten years or more. And all bonds are maturing in time and thus giving or giving us good returns. Also, equity in banks giving us fantastic rate of returns,” the official added.
The RBI had red flagged its concerns after the LIC increased its stake in several PSU banks last year. LIC hiked its stake in United Bank from 3.1 per cent to 12.12 per cent, Punjab & Sind Bank from 4.21 per cent to 10.49 per cent, Central Bank from 5.44 per cent to 13.41 per cent, Bank of Maharashtra from 5.31 per cent to 11.24 per cent, Canara Bank from 5.35 per cent to 14.4 per cent and Bank of India from 11.82 per cent to 14.93 per cent during the year ended March 2015. It reduced the stake in some banks recently.