IRDAI imposes Rs 3 crore penalty on Max Life Insurance over rules violation

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Insurance Regulatory and Development Authority (IRDAI) on October 14 said it has imposed a total of Rs 3 crore penalty on Max Life Insurance Company due to violation of rules in the Axis Bank-Max Life deal.

The insurance regulatory stated that historical transactions between Axis Bank and Max Financial are in violation of IRDAI code.

Due to rules violation, it has directed Axis Bank to pay Rs 2 crore within a period of 21 days.

"By undertaking the transactions of transfer of shares with the promoters/ shareholders of the insurer (Max Life Insurance Co Ltd) in violation of the directions of the Authority, the Corporate Agent, Axis Bank Ltd has circumvented the maximum limits of commission or remuneration or reward as stipulated in IRDAI (Payment of Commission or Remuneration or Reward to insurance Agents and Insurance Intermediaries) Regulations, 2016 read with Reg 18(1) of IRDAI (Registration of Corporate Agents) Regulations,2015... The total penalty amount of Rs 2 crore (Rupees Two Crore only) shall be remitted by Axis Bank Limited within a period of 21 days... ," the insurance regulatory body noted.

The penalty is imposed on Axis Bank for violation of norms with respect to transfer of shares, IRDAI stated.

IRDAI, in its order, noted that from the submissions made by the insurer and the documents available on record of the authority, "it is evident that the Axis Bank has sold its stake of 0.998 percent shares of Max Life in March 2021 to MFSL & MSI at Rs 166/- per share."

Subsequently, in March-April 2021, Axis Bank and its group entities acquired 12.002 percemt shares from MFSL at price range of Rs 31.51 — Rs 32.12 per share. This, IRDAI added, was not in compliance with the directions issued by it, wherein it was clearly directed that the "The basis for determining or calculating the Fair Market Value(FMV) for allotment of shares, transfer of shares among the shareholders needs to be clear and needs to be uniformly followed. A suitable provision to this effect be incorporated in the RSHA and any other related agreement" (emphasis added)".

Furthermore, IRDAI highlighted that Max Life  (insurer) has not complied with the directions. "The said act of the insurer establishes that the Insurer has allowed the Shareholder Axis Bank Ltd and its group companies to make undue profits /gains from purchase and sale of equity shares of Max Life Insurance Company Ltd., thereby misusing the dual relationship of the bank as a shareholder and corporate agent," it stated.

Meanwhile, shares of Axis Bank on Friday traded 0.19 percent lower at Rs 800.70 apiece on BSE during late trading hours, while the scrip of Max Financial Services traded 2.46 percent lower at Rs 720.65 apiece.

Last year, after a long wait, diversified Max Group sold a 13 percent stake in Max Life Insurance Company to the country's third largest private sector lender Axis Bank, which would then become a co-promoter of the insurer.

Max Financial Services -- the holding company of Max Life -- offloaded 12.99 percent stake in the insurer to Axis Bank and its subsidiaries -- Axis Capital and Axis Securities Ltd, according to a regulatory filing.

According to the company, the transaction was completed IRDAI gave its formal approval in February last year.

Under the deal, the Axis entities also have the right to acquire an additional stake of up to 7 percent in Max Life, in one or more tranches, subject to regulatory approvals. Three nominee directors of the Axis entities were to be part of Max Life's board of directors.