SBI intends to divest part of stake in company in FY18: SBI Life

However, about the timeline, it is too early to say because we have just started working and we need to get our internally financials in place and then obtain regulatory approval. So, beyond this it is very difficult to say the exact timeline that we would be looking at.

Prashant: Could you tell us is this SBI raising money, some existing investors selling their stake and raising money or is the money going to go to the company?

A: The final call on this is yet to be taken, but it looks that at this moment there will be no additional capital which will go into the company. So, it will be a divestment made by both the joint venture partners.

Reema: It is a 10 percent stake sale that you are looking at - that is what the board approval has come through - of which 8 percent I believe is what State Bank of India is going to sell. Could you tell us the balance 2 percent who would be the sellers there?

A: SBI has decided to divest 10 percent in total and they are exploring up to 8 percent from SBI. The balance would therefore, whatever is the number divested by SBI, will be coming from BNP Paribas Cardif.

Prashant: We have a situation where foreign partners were actually looking at increasing their stake in insurance ventures both Life and non-life. Here you have a situation where BNP is actually looking at diluting a little bit could you talk about that, what conversations have you had with them?

A: BNP and SBI, the relationship that we have, both the joint venture partners have is possibly among the best in the industry. They have played a very critical role in setting up this company along with SBI. The discussion that we have had is that they will continue to maintain that. They are looking at a long-term relationship. They have people who work with us and there is a lot of engagement with them that does not change.

As far as divesting a little bit, I think because they have also been part of the journey for so long and the fact that SBI Life is doing so well and our valuations are also very high so they feel that it could be optimal for them at this stage to divest a very small part of their stake.

Reema: You said work has just begun for your IPO plans. The first step of course will be filing of the Draft Red Herring Prospectus (DRHP) could you give us an indicator of the timeline that you have set at least to get the first step clear – filing of DRHP?

A: What happens in the life insurance industry is that we have our own regulator, the Insurance Regulatory and Development Authority (IRDA). So, before we can even approach Securities and Exchange Board of India (SEBI), we need to get all our financials in place and get the application ready for the IRDA. As you would know we have just closed our previous financial year on March 31 and we will now start commencing on getting papers ready for the IRDA and then have discussions with them as to how long the process might take. It is only thereafter we will be approaching Sebi. It is very difficult at this stage to give any exact timelines on when we will receive regulatory approval and be in a position to file the DRHP.

Prashant: I am sorry to press on that BNP point. Point taken that you have an excellent relationship and they have been part of the journey as you said, but they are at 26 and they can go up to 49 right?

A: They could have gone up to 49.

Prashant: But they are coming down to 24, hence the question. I mean you said the growth has been great and I have the numbers in front of me, terrific growth. So this part of their global compulsion to raise money in businesses around the world, I mean do you see it like that. Could you respond to that?

A: We would view it slightly differently, if you understand Cardif, Cardif is a 100 percent owned subsidiary of BNP Paribas. They are operating in about 39 countries across the world. The joint venture (JV) model is very few; in fact India is one of the very few countries where they have a JV, everywhere else it is either Cradif itself with a 100 percent subsidiary in that country or at least say in China they have a tie-up with Bank of Beijing, so they are called Bank of Beijing Cardif. So, it is only in India this is SBI Company and they are not even able to consolidate the financials that they have into their own balance sheets which SBI can do.

Considering the Indian ownership and control guidelines that were set in place by IRDA in 2015, this is the way that the Indian life insurance industry will operate. So, having considered all these things they have taken a considered view that while they will continue to play an important role they will want to play an important role as a partner and I suppose in the future they would look at retaining at least a 20 percent stake in the company. They do understand that the Indian situation is a little different and therefore while they would like to continue to support SBI Life with whom they are very proud that this business is doing very well, but they know that since they cannot get a controlling stake they would like to have a reasonable amount in SBI Life and continue the relationship in that manner.

Reema: The last transaction valued SBI Life at Rs 46,000 crore. What is the current valuation that you are looking at? Has it moved up from there?

A: On valuation it is not possible to state anything at this juncture. In life insurance industry there are two parts to the valuation one which is called the valuation of the existing business or embedded value and then the analyst and the investors give a multiple for the future value of the company depending on how well the company is doing.

As far as embedded value was concerned we had declared an embedded value of Rs 13,000 crore in August last year based on the March 31, 2016 figures. The March 31, 2017 figures are currently would be worked out and we expect the embedded value to increase because of the huge growth that we have had. We are clocking a growth of around 40 percent and beating industry very significantly, but how much that will be and will depend on a lot of factors including what is the new business margin that we will arrive at. We expect that this will be in place in the coming few months. Thereafter once we are able to go to the market it will be the market and the investors and our own team arriving at a value which we hope will be good and a fairly realistic and balanced figure.

Prashant: What multiple would you consider fair for a business that is growing as strongly as yours, multiple of the embedded value?

A: For the future it is almost impossible to predict, but if you see the last transaction the multiple was at 3.54 - that is a fact which we had on the last transaction, but the last transaction was not an IPO this would be an IPO where the dynamics change and we are advised that IPOs can have slightly better valuations than a small stake sales but these are very difficult to predict.

Prashant: What is the split of portfolio with regards to Unit Linked Insurance Plans (ULIPs) in term?

A: ULIPs and traditional, so if you look at the overall picture for SBI Life then ULIPs are at around 45 percent, but if you were to look at the individual piece, this time we had a strong ULIP growth. So, in terms of policies it is 50-50; in terms of premium I think we could be around 70 percent for the year 2016.

Prashant: In terms of how you sell your policies with the SBI merger with the associate banks do you consider that to provide you a big boost for distribution?

A: Yes, I understand, SBI corporate agency so far has also included the associate bank corporate agency. So, it was a corporate agency for the entire group and roughly 25 percent of our business was coming from the associate banks. Now with the merger they will still continue to come to us, so there would not be any change in that respect. We in fact expect even better traction since it will be more discipline and a more organised way in which we can cooperate with each other.