Life Insurance Corporation (LIC) of India has come to the Government's rescue repeatedly in the recent past. It held 4 per cent stake in 34 public sector undertakings (PSUs) in December 2008. This increased to 5.6 per cent stake in 42 PSUs at the end of 2011.
An analysis of the shareholding pattern of LIC in companies where it holds over 1 per cent shows that the value of its investments in PSUs amounts to more than Rs 68,000 crore at current prices. This value will increase if the smaller holdings of LIC are also included. We have excluded the holdings of ULIP and mutual fund products of LIC for this analysis.
LIC's role was highlighted in the recent ONGC episode. The insurance company invested more than Rs 15,000 crore in ONGC this quarter, which includes the shares divested by the Government recently. It is also planning to infuse Rs 7,800 crore into public sector banks in the coming months.
The insurance giant is, however, not showing a similar preference for private sector companies. Its stake in private companies during the three-year period ended December 2011 has more or less remained the same at 6 per cent.
Playing Atlas
The ONGC issue is not the first instance when LIC stepped in to play Atlas to Government. LIC's stake in companies such as NTPC, NMDC, Shipping Corporation and PFC that made public offers has jumped after the issue. An analysis of NTPC and NMDC shareholding patterns before and after the offer shows that LIC has picked more than half of the offer. In NTPC, the Government divested 5 per cent of its holding. LIC's stake in the company jumped to 3.51 per cent from less than one per cent. Similarly, in NMDC, where the Government divested 8.38 per cent of its stake, LIC's holding surged to 4.97 per cent. In both these issues, institutional participation was low.
In other PSU issuances where institutional demand was high such as Oil India, PowerGrid, MOIL, REC and CIL, LIC didn't figure in the list of institutions holding more than 1 per cent. This underscores the role of LIC in issues where participation is low.
Bank capital infusion
LIC will now infuse capital into fund-starved public sector banks too. Since the Government is already planning to infuse Rs 20,000 crore into banks this fiscal, there is little scope of further fund infusion from it.
LIC has, therefore, stepped in to invest another Rs 7,800 crore to help banks shore up their capital adequacy. Bank of Baroda, Punjab National Bank and Bank of India will be the key beneficiaries of LIC's capital infusion.