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Why The Timing Of LIC Cutting Stake In Government Banks Was Wrong?


LIC recently cut its stake in government owned banks. Now imagine how much the insurance major would have lost. On Wednesday and Thursday , PNB has surged almost 45 per cent in trade, SBI almost 35 per cent, Bank of Baroda 35 per cent and so with Canara Bank, IDBI Bank and others which have rallied as much as 30 to 40 per cent in these two days.

Why The Timing Of LIC Cutting Stake In Government Banks Was Wrong?

LIC is the largest investor in state run lenders and recently it has trimmed down its stake in these entities heavily, citing prime concerns of profit booking as the corporation was of the view that these entities have run up greatly.

Stake reduction in PSBs in line with rise in NPAs

The state run insurance biggie trimmed down its stake upto 12.7% in 20 PSBs to 11.9% in a year's time. The stake reduction in the two year's time by the Corporation in the public sector banks is in line with the increase in NPAs at these banks. The asset quality measured in terms of bad loans as a percentage of total advances increased to a staggering 13% as in June 2017 as against 5.5% in June 2015.

Profit Booking: Reason Given For Paring Stake

An official told the leading news daily, "Reduction in our stake in PSBs was not a valuation call but just a case of profit booking as we thought they had run up quite a bit".

So, ultimately this translates into losses for LIC customers as the bonus pay out to them shall be reduced in the same proportion. But, one cannot blame LIC actually. The company has to book profits and cannot time share prices perfectly. In any case, it still has a large holding in government banks.

Story first published: Thursday, October 26, 2017, 12:03 [IST]
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