With the merger of the state-owned banks (public state banks or PSBs) being complete, their shareholding in insurance companies will also see changes over the next 12 months.
Sources told Moneycontrol that though the banks will continue to hold stakes in the insurance companies, the share could reduce to below 10 percent so that they don’t violate norms.
Under existing rules, one bank cannot be a promoter in multiple insurance companies of the same segment. However, they can sell products of three insurers each in the segments of life, non-life and standalone health insurers, as distribution partners.
The government hasn't yet set a deadline for the same.
In August 2019, Finance Minister Nirmala Sitharaman announced the merger of 10 public sector banks (PSBs) -- Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and United Bank of India; Union Bank, Andhra Bank and Corporation Bank; Canara Bank and Syndicate Bank; Indian Bank and Allahabad Bank; under four separate entities.
Among these, OBC, PNB, Canara Bank, Union Bank and Andhra Bank are promoters in life insurance companies. OBC and Canara Bank are promoters in Canara HSBC OBC Life Insurance, PNB is a promoter of PNB MetLife Insurance, Union Bank is a promoter in Star Union Dai-ichi Life while Andhra Bank is a promoter in IndiaFirst Life Insurance.
Union Bank has said that it will reduce the stake of Andhra Bank, which has now been merged with itself, in IndiaFirst Life Insurance to below 10 percent. While Andhra Bank was earlier planning to sell its 30 percent stake in the insurer, no deal was finalised.
A similar decision to reduce stake in Canara HSBC OBC Life Insurance by PNB (which now owns OBC’s 23 percent stake) will be taken. PNB already holds 30 percent stake in PNB MetLife. It is likely that this transaction will be completed in FY21.
Moneycontrol had reported in November 2019 that PSU banks are likely to let go of the promoter tag by reducing stake.
“We will take time to cut down the stake since the market is not very opportune for deals right now. Uncertainty over the business will continue in H1 and hence banks will take 12 months to complete the stake sale,” said a senior public sector banker.
While no specific guidelines for reducing stakes in the insurance ventures has been given by Insurance Regulatory and Development Authority of India (IRDAI), the PSBs are mandated to cut down their stake as per law.
For the merged PSBs selling insurance, IRDAI has allowed the new parent banks to continue the existing bancassurance (banks selling insurance) agreements for the next 12 months.
IRDAI has said that even if the number of bancassurance tie-ups exceed three each in life, non-life and standalone health category, banks can continue with the partnerships for one more year.