LIC Unlikely To Hike HDFC Bank Stake Post RBI Nod

Life Insurance Corp (LIC) is not in a hurry to buy additional HDFC Bank stock from the market, despite the banking regulator's allowance for the insurer to up its ownership in the country's most valued lender, said sources familiar with the matter.

Although the HDFC Bank stock may be trading at a decade-low valuation of about 2.1 times to book value, investors, including LIC, may be cautious in purchasing it. To raise the stake by another 4.8 per cent, which is the maximum the insurer is now allowed to buy following central bank permission, LIC will have to pay Rs 52,000 crore at current market prices.

Suresh Ganapathy, head of financial services research at Macquarie Capital, said, "LIC will not immediately raise a stake to 9.9 per cent of HDFC Bank, as acquiring additional stake will require a large sum. What they have got is just an enabling approval, and they may not go up to 9.9 per cent. However, they will want to raise some stake as there is value in HDFC Bank stock."

India's banking regulator has given permission to LIC to purchase an additional 4.8 per cent stake in HDFC Bank. It has also been stated that the stake can be raised to a maximum of 9.99 per cent by 24 January 2025. Currently, LIC owns a 5.19 per cent stake in HDFC Bank as of December 2023.

LIC has been advised to acquire a major shareholding in the bank within one year, by 24 January 2025. However, it has also been instructed that LIC should ensure that its aggregate holding remains within the limit of 9.99 per cent of the paid-up share capital or voting rights of the bank at any given time.

On Thursday, shares of HDFC Bank experienced a decline of 1.4 per cent and closed at 1,435.3 on the BSE. Recently, the bank released its third-quarter financial results, which indicated a decrease in the core net interest margin on total assets from 3.65 per cent to 3.4 per cent. The decline in margin is due to the bank's merger with its erstwhile parent HDFC in July 2023, which has impacted margins due to higher borrowing and a lower-yielding loan book.

Despite the stock decline, HDFC Bank reported a 2.65 per cent increase in consolidated net profit for the October to December period, reaching Rs 17,258 crore compared to Rs 16,811 crore in the preceding September quarter. The bank's performance and the strategic move by LIC to increase its stake highlight the evolving landscape of the financial sector in India.

LIC owns 4 per cent of market capitalisation in India. Its asset size is Rs 47.5 lakh crore and of this, 11 lakh to 12 lakh crore is in equity value investment. LIC, with investments across 260 listed companies, has seen an increase in the market value of its overall holdings and as per the data from Ace Equity, the market value rose to 11.89 lakh crore until December 2023 from 9.61 lakh crore in December of the previous year. The top performers included Coal India, Larsen & Toubro, Bajaj Auto, Tata Motors and NTPC.