UTI Bank is likely to be the first target for the Life Insurance Corporation of India, which is out shopping for strategic stakes in domestic banks.

The divestment of the Unit Trust of India's strategic holdings in various entities is imminent and LIC is keen to acquire its 33 per cent holding in the banking subsidiary.

Also Read The UTI Saga

LIC, with the General Insurance Corporation, is a founder-member of UTI Bank. In February LIC increased its 6.65 per cent stake in the bank to 13.54 per cent. It acquired the extra stake at Rs 42.75 a share.

The UTI Bank scrip closed on the Bombay Stock Exchange at Rs 77.50 on Friday.

LIC will, however, have to wait for the Centre to decide on the fate of UTI and its subsidiaries before it approaches the Insurance Regulatory and Development Authority for special permission to acquire more than a 20 per cent stake in the bank.

Should LIC acquire UTI's entire stake, the move will enhance its holding to 46 per cent in the bank.

UTI, which is in need of funds to meet redemption pressure, is looking at ways of offloading its stakes in various entities.

As per the IRDA Act, an insurance company cannot have more than a 20 per cent stake in any one entity without the regulator's special approval.

LIC had received special approval from the IRDA when it hiked its stake in Corporation Bank to 27.02 per cent.

The Centre is looking at means to resolve the issue pertaining to UTI's holding in various group entities.

Besides UTI Bank, the government-owned UTI-I has holdings in UTI Investment Advisory Services and UTI Institute of Capital Markets. The Centre will also have to decide on the fate of these stakes.

Sources said UTI Bank had asked the Centre to postpone the sale of equity because it thought it could get higher valuations. However, the finance ministry has not taken a final decision.

Foreign banks like ABN Amro Bank and Citibank are looking at taking over UTI's stake. Private banks like HDFC Bank have also shown interest.

UTI could get a higher valuation if its stake in the bank was thrown open to bidding because foreign banks would pay more for enhancing their presence in the country.

However, this was a politically sensitive issue and the matter might be decided next year, the sources said.

After UTI, CDC holds the largest stake (20.14 per cent) in the bank. CDC has a tag-along right with UTI.