Bank of Maharashtra to raise capital from LIC, second after Dena Bank

MUMBAI: The Bank of Maharahstra will be the second bank after Dena Bank to raise capital from Life Insurance Corporation (LIC), in a move aimed at boosting their capital. The board of the bank will meet on February 10 to consider issuing shares on preferential basis to government or LIC, according to a statement issued to the stock exchange.

Widening fiscal deficit has prompted government to approach LIC to invest in government owned banks- a move which will help government to trim expenses and yet retain control over banks.

Government had targeted fiscal deficit- difference between income and expenses - at 4.6% of gross domestic product (GDP) for the current fiscal, but many fear it would cross 5% as government failed to raise money by divesting their stake in state run companies.

The board of Syndicate Bank too will meet on February 11 to discuss proposal of issuing shares to government or others, it said in a notice to the exchange. Till December end, LIC's stake in Bank of Maharashtra stands at 6.68% while that in Syndicate Bank is 10.27%.

Dena Bank is among the first bank to announce decision to dilute equity in favour of LIC. The insurance company would be acquiring 5% stake for an investment of around Rs 125 crore and the transaction would be complete by end of this fiscal. LIC's stake in Dena Bank will increase to little over 11% after it issues shares on preferential basis to them. However government's stake would fall to 55% - which is below 58% threshold limit they prefers to hold in state run banks.

The current move of seeking capital support from LIC is mainly aimed at small to medium sized banks. The large banks like State Bank of India, Central Bank of India and Punjab National Bank has received capital directly from government.

Government has committed around Rs 18000 crore capital to PSU banks this fiscal. So far it has allotted Rs 7900 crore to SBI, Rs 1285 crore to PNB and Rs 700 crore for Central Bank of India. Union bank of India and Indian Overseas Bank too has received firm commitment about capital from government although the exact quantum is yet to be decided.

Source: EconomicTimes