02-11-2020

Max Life Insurance to submit its revised deal structure with Axis Bank to IRDAI this week

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02-11-2020
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Max Life Insurance to submit its revised deal structure with Axis Bank to IRDAI this week   

MUMBAI: Max Life Insurance Company is set to submit a fresh proposal to insurance regulator IRDAI this week which will be in line with RBI's guidelines on investment by banks in financial services companies, sources familiar with the development told ET.

The revised structure falls under the automatic approval route as banks do not require prior approval from RBI if the proposed investment is less than 10% of the investee company’s paid up capital and the aggregate shareholding of the bank along with its subsidiaries is less than 20% of the investee company’s paid up capital.

In a statement to stock exchanges on Friday, Axis Bank NSE 2.58 % said that the bank and its subsidiaries -- Axis Capital and Axis Securities -- have agreed to enter into revised agreements with Max Financial for acquisition of upto 19% of stake in Max Life. The change in the equity structure will not have any material impact on the nature of the strategic alliance between Axis Bank and Max Life, sources said.

Under the new structure, Max Life will become an 88:12 joint venture between Max Financial and Axis Bank in the first phase. Currently, Max Life is a material subsidiary of Max Financial Services, where Japan-headquartered global insurance firm Mitsui Sumitomo Insurance is a JV partner.

As against its earlier proposal for direct acquisition of 27% stake in Max Life, the Axis Bank said in a statement that it will acquire upto 19% stake in Max Life, of which Axis Bank will acquire 9% while Axis Capital and Axis Securities will together acquire 3% in addition to Axis Entities having right to acquire an additional stake of upto 7% in one or more tranches in the next two years.

An email query sent to Max Life did not elicit any response. Axis Bank remained a long term strategic partner in Max Life, putting in the category of HDFC Life, ICICI Pru Life, and SBI Life, all of them have a strong bank as a strategic partner.

RBI had earlier raised Axis Bank’s investment in the insurance company of upto 30% on the grounds of capital utilisation outside the core banking operations. Similarly, IRDAI had raised certain reservations on the put options provided to Axis Bank that provided exit at a pre-determined price at the end of five years. However, this has been removed now.
Under the revised guidelines issued by the Reserve Bank of India (RBI) in 2016 – Master Direction- Reserve Bank of India (Financial Services provided by Banks) Directions, 2016—it is not necessary for the scheduled commercial banks to take approval from the central bank provided it is within the limit defined under clause 5(b). As per clause 5(b), the bank can acquire a less than 10% stake in the investee company directly as the RBI guidelines stakes that the “The shareholding of the bank including the proposed investment is less than 10% of the investee company’s paid-up capital.”
However, the bank can increase its ownership indirectly (through its subsidiaries) to a tad below 20%. The RBI states that the aggregate shareholding of the bank along with shareholdings, if any, by its subsidiaries or joint ventures or other entities directly or indirectly controlled by the bank, is less than 20% of the investee company’s paid-up capital.
Source: The Economic Times

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