LIC's 11% SBI stake makes RBI see red

The banking regulator is unhappy with the Life Insurance Corporation (LIC) of India holding more than 10 per cent stake in State Bank of India, the country’s largest lender. LIC stake in SBI was 11.05 per cent, as on June 30.
The Reserve Bank of India (RBI) has conveyed its discomfort to the bank’s management, according to a top SBI official. “These are two big institutions. RBI is not comfortable with two large institutions having a cosy relationship,” the official said.
A top RBI official also confirmed the development. “Any institution that wants to have more than five per cent stake in a bank needs to have our prior approval, even if the stake is acquired from the secondary market,” the RBI official said. “We don’t want the banking sector to have too much capital from volatile sources,” he added.
The move comes at a time when LIC has increased stake in public sector banks by purchasing shares both from the secondary market and through direct equity infusion via preferential allotment. The cash-strapped government had asked LIC to infuse equity into public sector banks so that these lenders could have eight per cent tier-I capital. LIC had infused close to Rs 8,000 crore in several public sector banks such as Punjab National Bank, Bank of Baroda, Union Bank of India, Dena Bank, and Central Bank of India, among others, in the last financial year. LIC’s stake in SBI, however, has been acquired from the secondary market.
Interestingly, the insurance regulator is also unhappy with LIC for its more than 10 per cent stake in several public sector banks, as such a move breaches the single company cap norm. Concerned over the concentration risk, the Insurance Regulatory and Development Authority (Irda) has sought details of LIC’s investment in banks. Nearly 26 per cent of LIC’s equity investment is in banks, while nearly 39 per cent of its equity exposure is in stocks of public sector units.
According to the Insurance Act, equity exposure in a single entity is capped at 10 per cent. Thus, LIC can invest up to 10 per cent of the capital employed by the investee company, or 10 per cent of the fund size in a corporate entity, whichever is lower. The capital employed includes share capital, free reserves and debentures or bonds.
As on March 31, 2011, LIC’s investment corpus stood at nearly Rs 11 lakh crore, of which 20 per cent, or Rs 2.2 lakh crore, was equity. Of that, investments in state-run stocks stood at Rs 85,031 crore, while exposure in banks stood at nearly Rs 59,586 crore.

Bizarre banking system leaves customers stumped

Patna, August 5: Bank allots customer’s locker to another person without notice. Bizarre banking system has come to the fore in two diametrically opposite cases in Bihar. In the first instance, a woman customer was left high and dry when her valuables went kaput after the locker she was operating in Allahabad Bank was allotted to someone else without intimating her. While in another case, three customers on a single day received more than the amount they had asked for, during withdrawal from the ATM of State Bank of India.

 

The first incident took place in the state capital when Rani Meena Kumari of Shastri Nagar went to operate her locker in Allahabad Bank which she had opened it in 2008. Much to her dismay, Meena found that not only her locker was allotted to a different customer, but her valuables worth Rs 4 lakh were also missing. On query, she was told that since the locker was not operated for the last two years, it was allotted to some one else. A furious Meena lodged an FIR against the bank officials at Shastri Nagar police station and wondered how this kind of faux pas could happen in a government-controlled bank. “We have received a written complaint from Meena Kumari. The regional office of the bank is looking into the case. If required, we too will begin investigation in right earnest,” said SHO of the police station, IC Vidyasagar.

 

In another instance, a customer of SBI went to an ATM at Pali market in Darbhanga and opted to withdraw Rs 3,000. But lo and behold, the machine handed him Rs 7,000, although the statement slip showed withdrawal of Rs 3,000 only. With Rs 4,000 more in his kitty, the customer laughed all his way to home. The other customer, who followed him in the queue, met a similar fate when he received Rs 5,000 from the ATM although he had asked for Rs 4,200.

 

The guard, who operated generator there, smelt a rat when he found the customer smiling sheepishly. On query, he was told about the ATM machine doling out excess amount, even though the statement mentioned only the withdrawal of money which was originally asked for. The guard then asked the customer to return the excess amount, and eventually informed the bank’s branch manager. When the officials reached the venue, they found the ATM working in a weird manner. The ATM was sealed and headquarters office informed about the snag. “Three instances of excess withdrawal have been detected. Out of which one customer has refunded the excess amount. The exact detail of net loss is being ascertained,” said a senior SBI official on the condition of anonymity.