LIC, the pillar of PSU bank fundraising

LICs accounted for almost a quarter of ??7,800 crore raised by five state banks by selling shares to institutional investors during this fiscal year.

The data highlights the heavy reliance of capital-strapped public banks on LICs to raise funds to build capital reserves and improve lending. Boosting credit flows to the economy is a cornerstone of Finance Minister Nirmala Sitharaman’s strategy to revive the economy which has contracted the most since independence last year.

After meeting with heads of public sector banks in Mumbai on Wednesday, Sitharaman said recent fundraising shows that banks can raise funds in the markets without depending on the government for the injection of funds.

However, the breakdown of underwriting figures for their transactions shows the role played by LIC in helping banks raise capital. The nation’s largest insurer is used to rescuing struggling financial institutions, government divestment programs, and capital-strapped banks.

This year, LIC has committed nearly 23% of the capital raised by the five state-owned banks – Canara Bank, Punjab National Bank, Indian Bank, Bank of Maharashtra and Union Bank of India – according to data from stock exchange records. In almost all transactions, LIC was also the largest institutional investor.

For example, in the case of Bank of Maharashtra, LIC participated with 50% of ??403 crores that the bank raised thanks to its qualified institutional placement.

Although the amounts committed by LIC do not constitute a bailout and some banks have been successful in raising capital from a wide range of investors, industry experts said almost all deals took off with LIC as the lead investor. .

“These aren’t the typical LIC bailouts we’ve seen in the past, but in these deals, investors want to see an anchor investor, and there’s no better option than to use LIC as anchoring. Almost all of these deals were started with LIC as the lead investor, ”said one investment banker, who declined to be named.

Another investment banker, who also spoke on condition of anonymity, added that support from the LIC and stronger PSU banks is essential for small lenders whose stocks are not liquid enough to attract investors. large institutional investors.

“For large PSU banks and those that are part of the M&O segment, it is easier to attract a broader set of investors. For the smaller ones, where stocks are not that liquid, you see LIC and other public sector banks need to be called, ”he said.

For the Bank of Maharashtra, 87% of funds raised came from LIC and six other public sector banks, according to stock documents.

“Some of the biggest banks, such as Punjab National Bank and Canara, have raised capital through QIP twice in the past 12 months; some of them are therefore able to exploit the markets to raise funds easily, and they have also observed an over-subscription in their transactions insofar as they should not have allocated any shares to LIC at all ”, said the second banker.