State-owned Life Insurance Corporation of India (LIC) is likely to seek a licence to float a bank when the Reserve Bank of India (RBI) allows more players.

T S VijayanSources close to the development said the country’s largest insurer had been keen to run a bank for a long time to manage the large premium collection and claim settlement work.

This year, for instance, the public sector insurer is expected to collect over Rs 176,000 crore as premium income. Similarly, it settles over 15 million claims annually which involves payouts to policyholders. Regular payments for the annuities business also need to be made.

LIC holds stakes in several Indian banks and, based on special clearance from the insurance regulator, it was allowed to hold 26 per cent in state-owned Corporation Bank.

IN STOCK

LIC’s Shareholding at the end of Dec, 2009
Corporation Bank     26.32
SBI     10.53
ICICI Bank     10.35
Axis Bank*     10.34
HDFC Bank     7.02

* Part of promoter group    Figures in % Source: BSE

The insurer was also one of the promoters of Axis Bank, now the country’s third-largest private bank, and has tried to take control of it in the past. Its proposals were, however, turned down by the RBI on grounds that the bank had received a licence as a “private sector bank” whereas LIC was a government-owned entity.

Asked to comment, LIC Chairman T S Vijayan said: “Corporation Bank is a public sector bank and it is a strategic investment. We are one of the promoters in Axis Bank. But starting a bank is an entirely different ball-game. We are waiting for the guidelines to come and will take a call based on the regulations.”

To go ahead with its banking plans, LIC will need permission from the Insurance Regulatory and Development Authority (Irda), which took a considerable amount of time clearing its proposal to acquire a stake in Corporation Bank.

LIC is the latest to join the list of companies to evince interest in setting up a bank.

The list includes Aditya Birla Financial Services, Reliance Capital, Bajaj Finserv Srei, Shriram Transport, Indiabulls and IFCI.

In the Budget, Finance Minister Pranab Mukherjee had announced the RBI’s intent to issue fresh bank licences. This will be the first set of licences to be issued since Yes Bank and Kotak Mahindra Bank received permission eight years ago. The Kotak group is a majority shareholder in Business Standard.

The insurer will also need additional capital for its banking foray. Under the law governing it, LIC has a paid-up capital base of Rs 5 crore.

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