Indian Overseas Bank, Allahabad Bank plan to exit Universal Sompo

Allahabad Bank and Indian Overseas Bank (IOB) are planning to exit Universal Sompo General Insurance Company, a joint venture between the two public sector banks (PSBs), Karnataka Bank, Dabur Investment Corporation and Sompo Japan Nipponkoa Insurance.

In addition, Allahabad Bank is also planning to exit ASREC, an asset reconstruction company, where it holds 27 per cent stake by the end of this financial year. The bank is planning to exit both the ventures by the fourth quarter of the current financial year.

According to sources, both Allahabad Bank and IOB are mulling to exit the JV at one go, which would require amendment in the shareholder’s agreement, as it states at any point the stakes of the two PSBs together cannot fall below 28 per cent.

At present, Allahabad Bank holds 28.52 per cent, while IOB holds 18.06 per cent stake in the company. Karantaka Bank recently sold a part of its stake to Dabur and Sompo Japan Nipponkoa. After the deal, Karnataka Bank’s stake in the JV is set to reduce to six per cent, from 14.26 per cent earlier, (subject to approval from the Insurance Regulatory and Development Authority of India). Sompo Japan’s stake is set to increase to 34.61 per cent, from 28.42 per cent earlier. Similarly, Dabur Investment Corporation’s stake will rise to 12.81 per cent, from 10.74 per cent earlier.

Also, with Sompo Japan Nipponkoa’s stake in the JV set to be close to 34.61, the exit might require roping in a new investor.

The foreign direct investment (FDI) policy, at present, allows up to 49 per cent foreign investment in the insurance sector.

“This is a shareholder agreement that does not allow us to exit at one go. We are trying to get it amended. There is no point in retaining a minor stake. There is a shareholding agreement which says we and IOB cannot go below 28 per cent at one go. We are trying to get that amendment,” according a top official of Allahabad Bank.

Both Allahabad Bank and IOB are currently under prompt corrective action by the Reserve Bank of India (RBI) due to high non-performing assets (NPAs). As a part of the recovery mechanism, the government has advised the two banks to either reduce capital requirement by shrinking the share of high risk-weighted assets or create capital internally by selling non-core assets.

In additional to exiting all JVs, Allahabad Bank is also planning to monetise its land bank. This financial year alone, it plans to raise close to Rs 3 billion from the sale of immovable properties.

The two banks are planning to rope in merchant bankers for the exit in the insurance JV soon, said sources.

When contacted IOB spokesperson refused to comment on the matter. 

An e-mail sent to Universal Sompo on the matter remained unanswered.