Axis bank which is India’s fourth largest private sector bank is all set to become a strategic partner of the Max life insurance company limited.
The purchase of an additional 28.6% is approved by Axis Bank’s Board. Axis Bank which along with few investors currently own a little less than 2% of max life insurance will now acquire nearly 30%.
Max Financial services Ltd. will sell off 28.6% stake in Max Life Insurance to Axis Bank for about Rs1600 crores.
After the completion of a set of transactions, Max life co. is set to become a 70:30 joint venture between Max Financial Services and Axis Bank.
The Board of Axis Bank expects the transactions to complete in six to nine months with subject to regulatory approvals.
THE AXIS-MAX CONNECTION-
The Axis Bank and Max Life Insurance have had good relationships for over a decade now.
The total revenue which has been generated through this connection is over Rs38000 crores.
Amitabh Chaudhry the CEO of Axis Bank portrayed his thoughts about this joint-venture “we see this joint venture generating immense value amongst the stakeholders. The board believes that this transaction will help us to strengthen our working relationship leading to advanced integrated teams and an alignment in our approach”
Analjit Singh, Founder, Max Group also exhibited his trust in Axis. He added “I believe in Axis, we have found an extraordinary partner who will make Max Life fundamentally stronger and will provide enhanced stability to the franchise.”
One of the things stated in the agreement is the use of Axis Bank’s logo in it’s brand tagline to demonstrate the partnership. Axis Bank also receives a right to appoint three nominee directors on the other hand Max Financial will have a right to appoint four nominee directors. The Bank can Also exercise the right to appoint a nominee director on the boards of Max Financial Services ltd.
Mitsui Sumitomo Insurance which had around 26% stake in Max Life insurance, swapped 20.57% for a 20.87% stake in Max Financial Ltd. In a cash-less transaction. Max Financial also has an option to buy the remaining stake which Mitsui Sumitomo holds in Max Life Insurance.
According to sources, Max Financial is aiming to buy remaining stake of Mitsui Sumitomo for Rs804 crores.
This deal will also help Axis Bank and put them in the league of other leading private/public sector lendors such as Kotak, HDFC, ICICI and the state bank of India.
MORE ON MAX LIFE INSURANCE-
Max New York Life Insurance Limited is the largest non-bank private-sector life insurer in India. Moreover, Max Life Insurance is a subsidiary of Max financial services limited. Max Life has a value of Rs10,077 crores at present.
In the first three quarters of FY20, the proprietary had demonstrated strong growth of 22%, whereas the bancassurance channel had a growth of 20%.
As of first three quarters, the value of new business were Rs576 crores, which was 24% more than the previous year. The premium increased by 19% from previous year to Rs3693 crores. Renewal premiums also increased an extraordinary 11% to Rs6618 crores.
Max life insurance sold more than 24000 policies in the last week of march using a combination of offline and digital medium during the coronavirus lockdown.
AXIS BANK’S FINANCIAL-
As of Q3FY20, profit after tax stood at Rs1757 crores which was 5% greater than that of previous year. The net interest income grew by a significant 15% to Rs6453 crores.
Specific loan loss provisions were decreased by 12%. Operating profit stood at Rs5743 crores. Operating profit increased by 22% YOY..
There was an increase in total deposits by 21% on quarterly average basis. Savings account also experienced a 12% growth. Current and savings account ratio (CASA) stood at 40% on QAB basis.
Retail fee income grew by 20% YOY, which also constituted 67% of total fee income. Retails Advances now accounted for 53% of net advances.
The bank’s Capital Adequacy Ratio(CAR) also tends to remain strong showing CET1 ratio stood at 15% compared to 14.05% at the end of Q2F20.
As mentioned earlier, the deal is in it’s initial stage and still requires regulatory permissions. So as of now, the stakes held by axis bank Is less than 2% whereas MSI and Max Financial services hold 25.50% & 72.50% respectively.
The main motive behind Axis Bank to carry forward this deal is non-interest income. If the deal takes place, axis bank will have a chance to increase it’s non-interest income.
On the other hand, Max Life will receive benefit from the number of branches which axis bank have. It will become easy to sell Max Life products even in remote areas. Moreover, they will also receive benefit from existing customer base of axis bank.
From the viewpoint of investors, this news is not sufficient to buy shares. The previous ROE’s & EPS of both Axis Bank and Max Life have not been up to the mark. Although Axis Bank has been focusing on improving its loan books and has also increased its net income and operating income. But purchasing shares only on this news basis could prove to be harsh.