Life Insurance Corporation of India (LIC) is under invested in banking stocks compared to the overall market. These accounted for around 18 per cent of LIC’s equity portfolio at the end of March quarter. In comparison, banks stocks are the biggest component of the benchmark Nifty, with 23.3 per cent index weight at the end of the fourth quarter. LIC’s exposure in lenders is far below the sectoral limit of 25 per cent set for the banking sector by the insurance regulator.
“As a banking regulator, we should be worried for a variety of reasons. There is a contagion risk or interconnected risk. Suppose the banking sector is not doing well and is in trouble, the equity holding of LIC will see value erosion,” Reserve Bank of India (RBI) Deputy Governor S S Mundra reported.
In all, LIC owns equity stake of one per cent or more in 33 public and private sector banks, cumulatively valued at around Rs 70,000 crore at the end of the quarter. In effect, LIC owns around 6.55 per cent of the Indian banking sector, given banks’ combined market value of Rs 10.7 lakh crore at the end of the fourth quarter.
“Banking is a well regulated sector, so, from a governance perspective the risk of investing in the banking sector is less. As far as the economic risks are concerned, bank stocks, like any other sector, are vulnerable to the economic slowdown,” said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.
LIC’s exposure to banking stocks has hovered between 17 per cent and 21 per cent in the past three years. At the end of the December 2014 quarter, banking stocks accounted for 20.7 per cent of its portfolio.
