HDFC ERGO General Insurance, a subsidiary of Housing Development Finance Corporation Ltd (HDFC), on Thursday announced that Germany's ERGO International will buy 22.9 percent additional stake in the company.HDFC ERGO offers general insurance products ranging from motor, health, travel, home, personal accident. It also offers customised services like property, marine and liability insurance in retail space.
In an exclusive interview to CNBC-TV18, Keki Mistry, vice chairman and chief executive officer, HDFC, says the company shareholders will take a call on if the insurance arm needs to raise money.
However, Mistry rules out any plans to list the general insurance company.The hike in stake by the German partner in the company is a result of the government allowing foreign entities to raise their stake in the domestic private sector insurance joint ventures to up to 49 percent from earlier limit of 26 percent.
Below is the verbatim transcript of Keki Mistry’s interview with Latha Venkatesh, Ekta Batra & Reema Tendulkar on CNBC-TV18.
Latha: That is some decent Rs 1,100 crore that has come in to your kitty. How does life change, that improves your margins immediately, you will be able to lend more?
A: It doesn’t change margins at all. This is a profit on sale of investment, the absolute profit on sale of investment whenever the transaction happens we need to understand this is subject to Foreign Investment Promotion Board (FIPB) approval, Insurance Regulatory and Development Authority (IRDA) approval and Reserve Bank of India (RBI) approval and all of that. So, once the transaction happen it yields a net post tax profit of around Rs 725 crore because you end up paying tax on the profit that you make.
Reema: Now ERGO stake comes up to 48.7 percent so it has reached the threshold of 49 percent that is allowed under the current rule. So, what would be the next plan of action if the insurance arm needs to raise some money?
A: If it needs to raise some money the shareholders will have to sit together and take a call. However, my sense is both of us will have to put in capital based on our shareholding which the HDFC will be 51 percent odd and Ergo will be 49 percent odd. We have no plans to do an IPO.
Latha: I was expecting that you would say you may list, so you will get shareholder money?
A: We would list as I said earlier the life insurance business but the general insurance has no plans to list.
Ekta: What would be the status on the life insurance stake sale, 9 percent to standard line?
A: 9 percent has been approved by IRDA. It still has to get approved by FIPB. My understanding is that, in the end of December FIPB meeting, but I am not very sure when it is going to come up. Once it gets cleared by FIPB then it needs the RBI approval because RBI has to approve the price and once that is done the transaction gets done. So, my sense is in the quarter January to March this transaction should be completed and then we would look at doing an IPO.
Latha: Now with the base rate not being all that serious calculation is there some relief for you as well, less competition from banks?
A: If you look at competition, competition has always been there. However competition is there from four players that we always look at very closely. We have been always watchful and mindful of competition. However, we have managed competition very well over the year.
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