Life Insurance Corporation of India (LIC) is unlikely to hastily increase its stake in HDFC Bank despite regulatory approval, according to sources familiar with the matter. The Insurance Regulatory and Development Authority of India (IRDAI) has granted LIC permission to raise its ownership in HDFC Bank, but market insiders suggest that caution may prevail among investors, including LIC. The current valuation of HDFC Bank's stock, at around 2.1 times its book value, is at a decade-low, making it an attractive option. However, acquiring an additional 4.8% stake, the maximum permitted by the central bank, would require an investment of ₹52,000 crore at current market prices.
Suresh Ganapathy, Head of Financial Services Research at Macquarie Capital, stated that LIC is not expected to immediately increase its stake to 9.9% as it would involve a substantial financial commitment. He emphasized that the approval granted is enabling in nature, and while LIC may not reach the maximum limit, it is likely to increase its stake given the perceived value in HDFC Bank's stock.
LIC has been given approval by the banking regulator to acquire an additional 4.8% stake in HDFC Bank, with the possibility of raising it to a maximum of 9.99% by January 24, 2025. As of December 2023, LIC holds a 5.19% stake in the bank. The regulator has advised LIC to acquire a significant shareholding within one year, ensuring that the aggregate holding does not exceed 9.99% of the paid-up share capital or voting rights of the bank at any given time.
Despite a 1.4% decline in HDFC Bank's shares, closing at ₹1,435.3 on the Bombay Stock Exchange, the bank reported a 2.65% increase in consolidated net profit for the October-December period. The dip in the core net interest margin was attributed to the bank's merger with its former parent HDFC in July 2023, impacting margins due to increased borrowing and a lower-yielding loan book.
HDFC Bank's resilient performance, coupled with LIC's strategic move to potentially increase its stake, underscores the dynamic nature of India's financial sector. LIC, a significant player in India's financial landscape, owns 4% of the country's market capitalization, with an asset size of ₹47.5 lakh crore. The market value of LIC's holdings increased to ₹11.89 lakh crore by December 2023, reflecting a positive trend in its overall investments across 260 listed companies, including top performers like Coal India, Larsen & Toubro, Bajaj Auto, Tata Motors, and NTPC.
