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Investment of LIC in private banks and many PSBs erodes

By Indian Mandarins- 05 Sep 2019
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Investment of LIC in IDBI Bank has erodes by more than half over the past year or so and also the value of its investments in other PSBs plunged. Plunge in price of PSB stocks and dilution of its stake owing to capital infusion by the government has eroded its wealth in these banks. Besides IDBI Bank, LIC has lost over ₹4,800 crore since June 2018.

 

Further the merger move would hurt insurance company more in future. Around 20-30 per cent dilution in the book value of the merged entities — PNB, Canara Bank, Union Bank and Indian Bank — over the next year or so will lead to LIC’s value of holdings in PSU Banks erode further.

 

The government infusing capital into PSBs eroded value for investors. This is because most of the PSBs trade at a steep discount to their book value and hence the government infusing capital at such low valuations immediately leads to dilution in equity base.

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