Axis Bank already owns around 2 percent of Max Life Insurance. Max Financial Services' stake in the insurer will lower to 70 percent after the transaction, the report said.
"In the secondary share sale transaction, Max Financial Services will divest 28.6 percent stake in Max Life Insurance for about Rs 1,600 crore to Axis Bank," a source told the publication.
Moneycontrol could not independently verify the story.
"We are under a confidentiality agreement and will not be in a position to comment," a Max Group spokesperson told ET.
An Axis Bank spokesperson has not yet responded to a request for comment by the publication.
The deal has yet to be presented to the company boards, the report said.
Axis Bank will also have three to four nominees on the board of Max Life Insurance, the report said. The deal has been priced at book value.
In March, Japan-based Mitsui Sumitomo Insurance (MSI) swapped a 20.57 percent stake in Max Life Insurance for a 21.87 percent holding in Max Financial Services.
Max Financial Services has the option to purchase MSI's balance stake in Max Life Insurance, which might be done for Rs 804 crore, The Economic Times reported.
This transaction will be done using the proceeds from the Axis Bank deal, the report said."The transaction is changing the nature of involvement of Axis Bank with Max Life Insurance from a pure-play bancassurance partner to a significant equity shareholder and joint venture partner that will allay the overhang of uncertainty of long-term bancassurance partnership for Max Life Insurance," a source told the publication.