NEW DELHI – The government is not in favour of state-owned banks approaching domestic institutional investors such as Life Insurance Corp of India for equity capital infusion, a senior finance ministry official said.
Last week, UCO Bank said it had approached LIC for investment in its equity share capital to increase public shareholding in the bank to the minimum requirement of 25%.
“The bank should not have approached LIC selectively for capital infusion. If the aim was to increase public shareholding, the bank should have gone to the open market,” the official told Cogencis.
The government holds 92.52% stake in UCO Bank.
Given that LIC’s current stake the bank is only 3.07%, the life insurer has headroom to invest as the maximum shareholding allowed for insurance companies is 15%, the lender had said last week.
“State-owned banks should try and tap open markets to raise capital and bring down government shareholding in line with the regulatory norm. It is better if large institutional investors invest through this route,” the official said.
According to Securities and Exchange Board of India guidelines, minimum public shareholding in listed companies should be at least 25%.
Currently, public shareholding in 14 public sector banks is below 25% with as many as six banks having public shareholding below 10%.
The deadline for meeting the minimum public shareholding norm for public sector companies is August 2020.
Since 2017, the government has infused close to 1.75 trln rupees in public sector banks, which pushed up government shareholding in several of these banks beyond the SEBI norms.
According to the recapitalisation plan announced in October 2017, PSU banks were also expected to raise capital from the equity market. However, they could raise only limited resources due to poor valuations.
At 1146 IST, shares of UCO Bank were 0.95% lower at 15.70 rupees on the National Stock Exchange. End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT