Life Insurance Corporation (LIC), the public sector life insurer, wants the government to provide it the first right to purchase the 27.47 per cent stake held by Specified Undertaking of Unit Trust of India (SUUTI) in UTI Bank, a mid-sized private sector bank.
A senior LIC official said, “It makes sense for an insurance company to own a bank or a bank to own an insurance company. LIC should be given the first right (to buy SUUTI’s stake) as it was the co-promoter of the bank.” LIC already holds 10.39 per cent stake in UTI Bank and also about 27 per cent in public sector Corporation Bank.
...“The government has to take a decision on how they wish to divest SUUTI’s stake in UTI Bank. We have given our suggestions which include divesting the stake to LIC and other financial institutions, selling it to the public, or a combination of domestic public offering and overseas offering. It’s a decision the government has to take,’’ said S B Mathur, administrator, SUUTI.
Will LIC get UTI Bank? I doubt it. LIC's interest in the deal is obvious: it can merge UTI Bank and Corporation Bank in due course and become a force in the banking sector. But it is unlikely to get the government's nod.
UTI Bank is a "private bank" originally promoted by UTI, a public sector entity. Ever since UTI ran into problems, it has become more of a private entity with only notional control by the government directly or indirectly. The pay scales, for instance, are totally private sector- the CMD gets a package that public sector bank chairmen cannot dream of.
My guess is that the government would like it to stay that away. It is not able to privatise public sector banks; the least it would like to do is not to add to the public sector stable, which would be the result if LIC took it over. That is part of the reason the government has prised UTI Bank away from UTI, its promoter.
Moreover, Corporation Bank in which LIC has a big stake has a salary structure and culture that is very different from that of UTI Bank. LIC will not find it easy to merge the two.
The chances are government will offer SUUTI's stake to a combination of domestic and overseas investors through a public offer. That means UTI Bank will emerge as a professionally-run bank with a diversified base of investors. Rather like ICICI Bank.
UTI Bank wants to foray into asset management. It had wanted to acquire UTI Mutual Fund which now has four public sector banks as sponsors. The government has not favoured the idea. It would rather have UTI Bank rebrand itself. This is best done if UTI Bank is not linked to any particular institution, domestic or foreign.Which again means the ICICI Bank model is the one that is likely to prevail.
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