LIC holds strong banking linkages

Life Insurance Corp. of India or LIC is ranked as the country’s 11th largest insurer in terms of loans. It owns significant equity stakes in Indian banks which makes the Reserve Bank of India (RBI) nervous, as the banking regulator ponders the possible systemic implications of these linkages.

The global financial crisis of 2008 led regulations across the world, to pay close attention to institutions that were seen as “too big to fall”. LIC, with assets under management of about Rs.17 trillion, would arguably fall in that category in the Indian context.

While RBI has put in place more stringent norms for systemically important banks and will start disclosing their names from August, institutions such as LIC which span different sectors, fall in a grey area.