LIC Approved to Increase Stake in HDFC Bank: Will this Improve Investor Confidence in the Bank’s Stock?

LIC, the largest insurance business in India, has received approval from the Reserve Bank of India (RBI) to purchase up to a 9.99% share in the country’s largest private sector bank, HDFC Bank. In its exchange statement, HDFC Bank stated that the permission was given with regard to the application that LIC submitted to RBI. The approval granted by RBI is subject to conditions.

The approval came with advice from RBI for LIC to acquire the specified major shareholding in the Bank within a period of one year, i.e. by January 24, 2025. Furthermore, LIC must ensure that the aggregate holding in the Bank does not exceed 9.99% of the paid-up share capital or voting rights of the Bank at all times, as stated by the private lender in its filing.

As of December 2023, LIC holds a 5.19% stake in HDFC Bank. No penalty will be imposed on LIC if they do not increase their stake to 9.99%. It is not necessary that they must increase their stake up to the said limit. However, 9.99% should be the maximum, according to experts.

HDFC Bank shares recently experienced a significant decline due to its Q3 results, which negatively impacted sentiment. However, with the approval for LIC to purchase HDFC Bank shares up to 9.99%, analysts believe this may improve the outlook for the stock.

HDFC Bank share price ended 1.41% lower at ₹1,435.30 apiece on BSE on Thursday. Experts view this move positively, as it will absorb the free float created from the aggressive selling by FPIs and boost investor sentiment.

Considering the views of individual analysts and experts, it is advised for investors to check with certified experts before making any investment decision.