Alternative structure will take 15-20 months: Amitabh Chaudhry

The MD and CEO of HDFC Life reveals that he is in a wait-and-watch mode

With the HDFC Life-Max Life merger stuck with the Insurance Regulatory and Development Authority of India (Irdai) for over nine months, Amitabh Chaudhry, managing director and chief executive officer, HDFC Life, is in a wait-and-watch mode. He tells Subrata Panda and Joydeep Ghosh that while alternative structures are being discussed, a decision will only be taken in the next 45-60 days. Edited excerpts:

What is the current status of the merger with Max Life? 

We had gone to the Irdai with a structure, which was initially rejected by the regulator, and referred to the Attorney General (AG). Based on media reports, the AG has returned the file without any recommendations. But we have not received any confirmation of the same. If the AG has indeed sent it back, it is unlikely that Irdai will take a decision in our favour. In that case, we will look at alternatives. Either we do something about the current structure or come up with a different one. However, if there was an alternative structure and a better one at that, our lawyers — three top law firms of the country have been involved in the deal — would have come up with it. We thought that Section 35 of the Insurance Act, 1938, empowers the regulator to approve mergers of insurance companies. We never thought that the section allows merger of only one insurance company with another. 

What alternative structures are on the table?

If we have to go for an alternative structures, it has to satisfy various stakeholders on both sides. An alternative structure has to lead to a merger between the two insurance companies. Moreover, it has to ensure that the Securities and Exchange Board of India’s requirements are met. If HDFC Life also gets listed, and brings the shareholders of Max Financial Services into HDFC Life, there will be tax issues. Whatever structure we come up with, it will take at least 15-20 months because it has to satisfy the shareholders of Max Life, Max Financial Services and HDFC Life. 

Where does the initial public offer (IPO) plan fit into the scheme of things? 

We always wanted to be listed. As the merger is going to take some time, we thought of going ahead with the IPO because, comparatively speaking, it is going to take less time. Having said that, the merger made sense yesterday, makes sense today and will make sense tomorrow. So, it is definitely on. We remain committed to the merger. The fact is that even in an IPO, the Max Financial shareholders will not be impacted at all. However, there is no point in jumping the gun. As the first step, we have to close this (merger) with the regulator. 

Do you think the deal can be closed in the present format? 

Either way, we have to close this chapter. Either we will get a positive result or we will not get any. The latter would be an unfortunate development for the industry though. 

Are the signs (closure of deal) positive? 

As of now, all the parties are focused on getting the merger done. Yes, it might take some time. We also want to be listed. So, we want to come up with a plan where we can achieve both the objectives in a manner and shape that no one loses. Obviously, we want a structure that will pass muster of all the regulators and shareholders. We can’t have another draft structure being held up. So, it is going to take time till we find another structure. In the next 45 days or so, we expect to sort it out. 

How much time will it take to launch the IPO? 

It will take approximately take four to five months. 

In the next 45 days, what will it be — the IPO or the merger? 

We will try to close the current chapter. We will have a plan ready on the way forward. We will have to give clarity to the shareholders too, especially Max shareholders. We both are committed to the merger. Our narrative has not changed. The merger is happening. But at first we have to put a structure in place that works for all. 

The goods and services tax on the insurance sector will be 18 per cent. 

Is it a bit harsh? What will be the impact on the premia? 

It is a bit harsh as 18 per cent is more than what we expected. And I expect the premia to go up. But, I guess, the government did not want to differentiate between the financial services. What is worrying is that whether we will be fully prepared by July 1 that tax credits will only come to us if all our agents/intermediaries file returns regularly in their respective states. But all of us are preparing for it. 

Any impact of demonetisation? 

We, actually, had a negative impact. The bank was busy in dealing with the customers and we did not get the lift which we were supposed to and which others got. Our sales fell in November, December, and January was muted. So, we did not benefit from demonetisation. But others did. 

How is HDFC life doing on the bancassurance front? 

Last year, we did have a hiccup. But hopefully the numbers will improve in the coming months. We have signed up with a couple of banks. We have signed up with IDFC Bank and DCB Bank. We have more than 90 relationships across all corporate agents. The amount contributed by them is very small today, but it’s a long-term play.