A deal buzz between Max Life and Axis Bank has revived the plans of the insurer to get a bank as a full-time promoter
The date was June 17, 2016, when the deal was announced for the first time. Max Financial Services, Max Life and HDFC Life were to be part of a three-way merger. But this was called off a year later due to regulatory hurdles.
Interestingly the man seated on the other side is the same: Amitabh Chaudhry, the MD & CEO of Axis Bank, who was heading HDFC Life at that time.
Max Life has been vying to get a bank as a shareholding partner for almost four to five years. Axis Bank has been a bancassurance partner with the insurer since 2010 and will be their corporate agent till April 2021.
The merger deal with HDFC Life would have helped create an entity which would be the largest private sector insurer by assets. However, the structure of the merger was not acceptable to Insurance Regulatory and Development Authority of India (IRDAI). This turned out to be a dampener for the insurer.
Meanwhile HDFC Life then under the leadership of Chaudhry shifted its focus to listing the insurance company. Following that, he moved to Axis Bank as its MD and CEO in January 2019.
Chaudhry's strength has been his deal-making capabilities. While he had a brief stint with corporate and wholesale banking at the start of his career with Bank of America in 1987, Chaudhry eventually moved to investment banking. Later, he worked with Calyon Bank (formerly Credit Lyonnais Securities Asia or CLSA) heading the investment banking and technology divisions for southeast Asia.
The D-Street terms Chaudhry's one-year tenure in Axis Bank as a period of 'more hits than misses'. Investor confidence seems to have been brought back to the lender and earnings have improved. Prior to him joining the bank came under the banking regulator's radar for reporting divergences for two consecutive years. Uncertainty about the new CEO had also lead to the stock taking a beating.
With the core at Axis Bank back in place, Chaudhry seems to have got back to his old passion of insurance. A future deal with Max Life would enable Axis Bank to enter the insurance sector in a larger way. Plus, the fee income would get a further boost.
The bank, over the past two years had already begun widening its presence in insurance.
In fact, Max Life got the jitters in 2018 again when Axis Bank took a decision to also tie-up with the country’s largest insurer Life Insurance Corporation of India (LIC). Now Axis Bank has a bancassurance partnership with Bajaj Allianz Life as well, apart from LIC and Max Life. This is part of the bank’s strategy to utilise the opportunity to reach the maximum permissible cap of three insurers in life segment.
Max Financial Services and Axis Bank are yet to respond to the stock exchanges that have sought clarity on this possible deal.
Of the Rs 3,392.93 crore of Max Life’s individual (retail) premium for 9MFY20, banks accounted Rs 2,106.06 crore. This means that 62 percent of the business came from banks. In the overall business, Axis Bank accounts for 55 percent of the business while other banks account for 12 percent (as of December quarter).
Why exclusivity is crucial?
Once the exclusivity in bancassurance comes to an end, an insurer has to compete with others sectoral players to get their products sold. Usually an insurer that offers a better commission rate gets more prominence. Apart from Axis Bank, Max Life also has a partnership with Yes Bank.
While it was anticipated that Axis Bank tying up with LIC would mean that Max Life’s business would get impacted, this wasn’t the case. This was because LIC is heavily focussed on agency-led sales and bancassurance is only a tiny fraction of the business.
Max Life is the largest non-bank life insurance company. However, not having a bank promoter is not revenue positive since banks have overtaken insurers as the biggest distributors for policies.
Will RBI give a nod this time?
The possible Axis Bank-Max Life deal has the Sword of Damocles hanging in the form of an approval by the banking regulator. Reserve Bank of India (RBI) has in the past expressed reservations of banks cross-holding stake in allied sectors like insurance.
In fact, RBI is said to have expressed reservations a few months ago when talks of a deal between Axis Bank and Max Life revived. This deal wouldn’t be able to get a green signal unless RBI clarifies its position on bank holdings in insurance.
Till then the suspense remains. It remains to be seen whether Chaudhry and Max Life’s Analjit Singh are successful the second time in convincing the regulators about the merits of this deal.
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