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IDBI Federal Life sale hits roadblock, LIC help will be sought for potential buyer

IDBI Federal Life stake sale hit as shortlisted bidder Max Life withdraws bid.

July 09, 2018 / 03:05 PM IST
With 160 deals, IT and ITES was the busiest sector followed by manufacturing and healthcare (47). The banking, financial services and insurance (BFSI) space was third, recording 41 deals. Let's take a look at the biggest mergers and acquisitions in India this year. (Representative image)

With 160 deals, IT and ITES was the busiest sector followed by manufacturing and healthcare (47). The banking, financial services and insurance (BFSI) space was third, recording 41 deals. Let's take a look at the biggest mergers and acquisitions in India this year. (Representative image)

 
 
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The impending investment of Life Insurance Corporation of India (LIC) in IDBI Bank has put a question mark on the stake sale in the latter's life insurance subsidiary, IDBI Federal Life Insurance.

While sources said that the stake sale process will be halted for the time being, LIC may have to eventually take over the mammoth task. IRDAI had last week cleared the proposal for LIC's 51 percent stake buy in IDBI Bank.

“IDBI Federal Life will not be acquired by LIC. We will seek assistance (from LIC) for the sale process in the near future,” said a senior official.

IDBI Bank had initiated the process for stake sale in its life insurance joint venture a few months ago. Two insurers, Max Life Insurance and Aditya Birla Sun Life were short-listed as the final bidders. However, Max Life withdrew its bid saying the lenders refused to meet the conditions set forth by them. The lone bidder, Aditya Birla Sun Life is also not keen to go ahead with this process, sources said.

Responding to a query, Aditya Birla Sun Life refused to comment on market speculations. LIC did not immediately respond to a query sent by Moneycontrol.

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Matter of law

LIC will have to sell the life insurance joint venture since insurance laws mandate that a firm can be a shareholder in one life insurer. This has complicated the insurer's investment in IDBI, since LIC will hold 51 percent stake in the bank which in-turn is a promoter of IDBI Federal Life. Whoever holds more than 10 percent in an insurance company is considered as a promoter.

Once LIC is the majority shareholder, it would have a close relationship with IDBI Bank in the distribution of its products and services. Hence, the bank will be selling policies of LIC. Currently, IDBI Federal Life products are sold through bank branches.

IDBI Bank holds 48 percent stake in the venture whereas Federal Bank and Belgian life insurer Ageas hold 26 percent each.

A senior IRDAI official told Moneycontrol that even if LIC holds 51 percent stake in IDBI Bank, it will not be considered as a promoter of its life insurance arm. However, insurance lawyers said that in a scenario where a life insurer is a majority shareholder in another insurer’s promoter, law could be interpreted to say that they are an indirect shareholder.
M Saraswathy
first published: Jul 9, 2018 03:05 pm

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