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Last Updated : Jul 10, 2019 07:08 PM IST | Source: Moneycontrol.com

PSU banks' stake sale in insurance ventures hits valuation hurdle

PSU banks are also unable to sell their stake to the foreign partners due to the 49 percent FDI cap in the insurance sector

M Saraswathy @maamitalks

Stake sale by public sector banks in their insurance entities is facing valuation hurdles even as they have been asked by the finance ministry to de-focus on non-core investment.

Banks like Allahabad Bank, Andhra Bank, Bank of India, Indian Overseas Bank and Oriental Bank of Commerce are some of the PSU entities looking to exit their joint ventures.

“The valuations being sought are not acceptable by the interested parties, a few of which are private equity players,” said an official involved in a few of these deals. Another official confirmed this and said that on an average, there is 18-20 percent mismatch in the valuations and given that several insurers are on the block, the process is becoming tougher.

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A bunch of public sector banks have been trying to hive off their non-core businesses since the past 12 months to raise money to fund their core businesses. The high ratio of non-performing assets in the banking sector has forced them to take this decision.

On the other hand, except for the top ten entities in the private life and general insurance space, the rest of the firms have been finding it challenging to sustain and expand the business.

As part of the PSB Reforms Agenda for responsive and responsible banking, the state-owned banks have been asked to redirect focus into their core businesses.

Further, in insurance companies where there are multiple joint venture partners, getting a go-ahead from the foreign partner has also been a challenge. Most JV agreements have a clause wherein a stake sale cannot be completed without the nod of the foreign partner.

Since the cap on the shareholding by a foreign partner is at 49 percent, an immediate option of selling the stake to the foreign partner is not a possibility. However, Finance Minister Nirmala Sitharaman in her Budget 2019 speech had said the government is looking to allow an increase in foreign direct investment (FDI) in the insurance sector. Once the law is amended to allow this, PSU banks will find it easier to find a partner.
First Published on Jul 10, 2019 07:08 pm
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