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IDBI Federal Life Insurance in talks for 100% stake sale

LiveMint logoLiveMint 25-07-2017 Deborshi Chaki

Mumbai: IDBI Federal Life Insurance, a three-way joint venture between IDBI Bank, Federal Bank and Belgian insurer Ageas, is exploring the possibility of a 100% stake sale, which would potentially lead to a complete exit for all three stakeholders, two people directly aware of the matter said.

IDBI Federal has initiated the process of hiring investment banks to manage the sale and received proposals from Citibank and Credit Suisse, the people cited above said on condition of anonymity.

“The company is seeking a valuation upwards of Rs3,000 crore, including a control premium,” said the first person mentioned above.

“Given that IDBI Federal has Bancassurance partners in IDBI Bank and Federal Bank, the sale is expected to attract significant buyer interest given the large captive customer base the company has,” the second person said, adding that the company expects bids from all the major domestic insurers, especially those not promoted by banks.

An IDBI Federal spokesperson declined to comment. An email sent to Federal Bank was not answered till press time. Citibank declined to comment and an email sent to Credit Suisse also remained unanswered till press time.

An Ageas spokesperson responded saying “we do not comment on market rumours.We are however in continuous dialogue with our partners about the development of our JVs”.

Graphic: Mint

A spokesperson for IDBI Bank said: “As a part of our turnaround strategy, the bank is actively pursuing opportunities to monetize its non-core assets. We have already identified investments in subsidiaries, associates and JVs for this purpose. We are in the process of appointing advisors for strategic sale of these assets. These transactions are at an advanced stage and will be concluded at the earliest.”

In June, IDBI Bank, which owns 48% in the joint venture, said it would sell Rs5,000 crore of non-core assets this fiscal to reinforce capital.

The announcement came less than a month after the Reserve Bank of India invoked prompt corrective action (PCA) against the bank because of rising bad loans and negative returns on assets. RBI has mandated a maximum net NPA (non-performing asset) ratio of 6% under the PCA framework introduced in April.

A breach of this limit can result in the central bank asking lenders to sell assets, cut unsecured exposure and so on, Mint reported in June.

An IDBI Federal Life Insurance spokesperson declined to comment.

IDBI Federal operates through a nationwide network of 2,964 branches of IDBI Bank and Federal Bank and distribution partners. As on 31 March, it had issued more than one million policies with a sum assured of over Rs58,653.76 crore.

IDBI Federal Life Insurance had total assets under management of Rs6,090 crore and a capital base of over Rs800 crore as on 31 March.

Bancassurance, or the selling of insurance products through banks, has emerged as a much-sought-after channel of distribution for insurance companies since banks have a captive customer base and ready infrastructure, which makes them a cost-efficient avenue for insurers.

IDBI Federal is the latest among life insurance companies in the past one year to evaluate exit opportunities. Mint reported in June last year that Bajaj Finserv Ltd is likely to buy out its German partner Allianz SE’s stakes in two insurance units—Bajaj Allianz Life Insurance Co. Ltd and Bajaj Allianz General Insurance —in a deal estimated at as much as Rs10,000 crore.

In October last year, Metlife, the joint venture partner of PNB MetLife India Insurance Co. Ltd, initiated a process to sell its 26% stake in the company, drawing interest from several prospective buyers, including Tata AIA. The plan was called off as some of the other JV partners did not want to sell their stake.

HDFC Standard Life and Max Life had announced merger plans last August, seeking to create India’s largest private sector life insurer with Rs1.1 trillion in assets. The merger has been indefinitely delayed after the Insurance Regulatory and Development Authority of India (IRDA) denied approval to the proposed structure. There are currently 24 life insurance companies in India.

Swaraj Singh Dhanjal contributed to this story.

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