Axis Bank is likely to hike its stake in Max Life Insurance to get a 'promoter' tag, subject to RBI and IRDAI approvals.
The entities have not mentioned the nature of this transaction. But a company source said that the deal with be to enable Axis Bank get a ‘promoter’ tag in the company by increasing its stake from the present 2 percent to as high as 20 percent.
Right now, Axis Bank is a bank selling insurance (bancassurance) partner of Max Life and contributes 55 percent of the insurer’s business. However, the bank also sells the products of other insurers like Life Insurance Corporation of India and Bajaj Allianz Life. The idea behind this deal could be to get a permanent and exclusive bank partner.
Max Life is currently the largest non-bank owned private life insurer in India. Max Financial Services presently holds a 72.5 percent stake in Max Life while Mitsui Sumitomo Insurance and Axis Bank hold 25.5 percent and 2 percent stake respectively.
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Max Life will gain from its exclusive presence in Axis Bank’s 4,415 branches while the bank will be able to boost its fee income from this partnership.
Axis Bank and Max Life have had a successful bancassurance arrangement for nearly a decade. A release filed with the exchanges noted that the new premium generated through this arrangement has aggregated to over Rs 12,000 crore over this period, while maintaining high persistency. Both companies have invested extensively in product and need-based sales training, thereby leading to consistent increase in productivity.
Amitabh Chaudhry, MD and CEO, Axis Bank, said, “At the Bank, we constantly keep assessing various strategic opportunities and we see a potential for greater participation in the under-penetrated life insurance space. We have had a long standing bancassurance relationship with Max Life and the on-going discussions are a step further to deepen and strengthen this strategic partnership.”
He added that the successful completion of the proposed transaction is expected to create significant value for all stakeholders.
Reserve Bank of India (RBI), as well as Insurance Regulatory and Development Authority of India (IRDAI), will need to give their approval for this deal. RBI in particular has expressed apprehension about banks buying large stake in insurance companies.
For Max Life, in the first nine months of FY20 (9MFY2020), the bancassurance channel saw a 20 percent growth. The Value of New Business (VNB) that written during the first nine months of FY20 was Rs. 576 crore, growing 24 percent over the previous year over a shift in the product mix towards non-participating (products that don’t offer any bonus) ones.
The insurer’s total first year premium increased 19 percent year-on-year to Rs 3,693 crore. Having an exclusive bank partner will help in premium growth.
Analjit Singh, Founder and Chairman, Max Group, said that the strategic interest of Axis Bank in Max Life will lead to the much awaited permanence and allow both companies to work towards an enduring future for policyholders and other stakeholders.
The transaction will be subject to applicable regulatory approvals, satisfactory completion of due diligence, execution of definitive documentation and satisfaction of other conditions, including the necessary corporate approvals.This is not the first time Max Financial Services is eyeing a partnership. In June 2016, Max Financial Services and HDFC Life had entered into an agreement for a merger. However, this was called off since they did not get regulatory approval.
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