RBI?s approval in place, but insurance regulator uncomfortable with valuation
Punjab National Bank, the country’s second largest lender, wanted to buy 30 per cent stake in MetLife Insurance for Rs 1, but the deal has run into a regulatory hurdle.
The Insurance Regulatory and Development Authority (Irda) is scanning the contours of the deal as it is not comfortable with the valuation, though the Reserve Bank of India (RBI) has given its approval to PNB.
“As a regulator, we will have issues with any deal which is not consistent with the Indian Accounting Standards. At the moment, according to these standards, companies just cannot sell any part of the stake for free,” Irda Chairman J Hari Narayan told Business Standard.
According to insurance industry sources, the New Delhi-based lender has reasoned the transaction value was determined after taking into account its over 5,000 branches across the country and the future business MetLife would bring in. According to the deal, the branches of the lender will be used to sell the insurance products of the company, for which PNB will earn a fee. The new company was proposed to be named PNB MetLife India Ltd. Sources said since the deal did not have any implication on the bank’s capital, RBI cleared it.
Since 2008-09, MetLife has seen a 38 per cent dip in the first-year premium collection from Rs 1,144.70 crore to Rs 706.22 crore. However, in the current financial year, the life insurer has performed better, as the new premium collection has increased 35.61 per cent to Rs 643.77 crore from Rs 474.72 crore. According to data compiled by Life Insurance Council, in terms of first-year premium collection MetLife stood at the 15th position among 23 life insurance companies in India for the year ended March 31, 2011.
Insurance industry sources say the regulator’s apprehension arises from the fact that banks are entering insurance without having to pump in money, so the sector as a whole will not benefit. “Whenever a company dilutes stake, there must be some capital infusion taking place. But, recent transactions indicate that insurance companies are offering stake in addition to advanced commission to the banks for roping in the lender bancassurance partner. So, in this case it does not bring in any equity,” said an actuary of a private insurance company.
While PNB officials were unavailable for comments, a MetLife official declined to comment. “The issue is with the regulator, so we would not like to offer any comments at the moment,” a MetLife India spokesperson said. Though the insurance regulator has been sitting on the proposal since August last year, sources say it is expected to take up the deal at its board meeting in March.
|HIGH BRANCH STRENGTH AND FALLING PREMIUMS|
|Rs 1,061.85 crore First-year premium 2009-10||Rs 706.22 crore First-year premium 2010-11||-33.49% change in first-year premium from FY10 to FY11||15
Rank out of 23
life insurance companies, as on Mar 31, 2011
|Source: Life Insurance Council|
The deal is having an impact on the banking industry as prospective entrants are already flexing their muscles to get the maximum out of insurance companies seeing declining growth on the back of stringent regulation. Manipal-based Syndicate Bank, with over 2,500 branches, is looking to better the PNB-MetLife deal. It is asking for a premium, in the range of Rs 350 crore, to pick up a minority stake in Birla Sun Life Insurance. Similarly, private sector lender IndusInd Bank is in negotiations with Aviva Life to pick up a minority stake with a premium.
During April 2012 to January this year, the fall in Life Insurance Corporation of India (LIC)'s new business premiums, compared to the year-ago ...