State-owned Life Insurance Corporation (LIC) may be roped in to participate in the Rs 2.11 lakh crore recapitalization initiative for public sector banks (PSBs).

As part of the programme, LIC could also increase its stake in various PSBs which are required to raise Rs 58,000 crore from the capital market, sources said.

Besides, they said, LIC could participate in a non-operating holding company (NOHC) structure to which the government may transfer its share in various PSHs. What is Bank Recapitalization? How Does It Work?

NOHC could then issue recapitalization bonds worth Rs 1.35 lakh crore. However, the government has said that nature of bonds and who will issue them would be decided in the due course.

Finance Minister Arun Jaitley last week said that there were multiple options before the government for recap bonds and they are being examined, and the best ones would be explored. LIC in the past has pumped capital in PSBs through preference share allotment and Qualified Institutional Placement (QIP).

Earlier this year, Bank of India issued preference share to LIC worth Rs 451 crore. Similarly, UCO Bank, IDBI Bank, United Bank of India, Dena Bank and Indian Overseas Bank also issued preference shares to LIC in the past few years as part of their effort to shore up their capital.

In the recent Rs 15,000-crore QIP placement by the country's largest lender State Bank of India (SBI), LIC was one of the largest participants. It picked up shares worth over Rs 5,800 crore, or 38.6 per cent, of the total.

Sources said that if there is LIC participation in the government recapitalization initiative, it would be as per the regulatory investment ceiling fixed by the Insurance and Regulatory Development Authority of India (Irda).

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