LIC pumps in Rs 2,317 cr in four PSU banks

Life Insurance Corporation (LIC) has pumped in Rs 2,137 crore in four public sector banks through the preference share route. Life insurance monolith LIC, according to separate filings in BSE, has pumped in Rs 1,037 crore in Bank of India, Rs 650 crore in Union Bank of India, Rs 302 crore in Indian Overseas Bank and Rs 148 crore in the United Bank of India.

The infusion of capital is expected to help the PSU lenders to enhancing their lending activity and meet the capital adequacy norms.

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LIC has not been very fortunate in its decision to buy the shares of 12 other public sector banks recently either. The shares which LIC agreed to buy or has already bought, lost between 0.8 per cent and 8.4 per cent of their value.

Such mark-to-market losses have cost LIC roughly around Rs 423 crore. Taken together with the price at which it bought the shares of ONGC, the total loss works out to Rs 1,800 crore.

While the latest new premium collection figures are not available, such losses work out to almost 9 per cent of new premium collected by LIC until November 2011.

LIC is confident about its investment in the oil major, the single largest cause of its mark-to-market losses. “We have no regrets about the ONGC issue as we are a long-term investor. The oil company has sound fundamentals,” said an official from LIC.

According to an insurance analyst with a domestic brokerage, these are all ‘safe’ investments. “Do you think, ONGC will quote below Rs 300 for ever?” he retorted, adding all these companies had sound fundamentals and there was nothing wrong in giving some ‘premium’ to buy these shares in bulk.

However, as Mr Shriram Subramanian, Founder and Managing Director at InGovern Research Services Pvt Ltd, in which Mr Mohandas Pai, the former whole-time director of Infosys and a shareholder activist, is an investor, said, “The larger problem is that LIC is adhering to the dictates of the Government to subscribe to the preferential allotments of PSU banks. Earlier, it was the Government which would recapitalise the shares, but now because of the fiscal deficit, they are pushing LIC to recapitalise the shares. This is not the correct precedent.”