Country’s largest financial institution Life Insurance Corporation’s (LIC) higher stakes in a clutch of state—run and private banks could potentially create a contagion effect on the system, Reserve Bank deputy governor S S Mundra said today.
“LIC’s stake is more than 9 per cent for the banking system as a whole. So, from the point of inter-connectedness and contagion, as a probability, it is something that affects financial stability. It’s not that it’s affecting today or it’s going to affect tomorrow, but these are probabilities,” he said when asked about why he is worried about LIC raising holding in banks.
But Mundra, talking to reporters on the sidelines of an event organised by the National Payments Corporation of India (NPCI), was quick to add that he did not name any entity in his previous media interaction this week wherein also he had warned about such risks.
When asked what the central bank is doing on this, he said, “There are inter—regulatory frameworks. And what we do in our financial stability report, we flag these issues.”
According to Mundra, with 9.21 per cent stake in banks, including private lenders, LIC is the largest shareholder in the banking sector after the government.
Some of the large holding that LIC has include a whopping 22.5 per cent in Corporation Bank, 21.4 per cent in Allahabad Bank, 13.9 per cent in the nation’s largest lender SBI, 16 per cent in IDBI Bank, 12.7 per cent in Punjab National Bank and 11.33 per cent in Syndicate Bank.
It also holds 13.6 per cent in the private sector lender Axis Bank, in which the government also holds almost same stake and 9.7 per cent in ICICI Bank apart from some stakes in banks like HDFC, Kotak Bank and Yes Bank among others.