The Axis Bank-Max Life Insurance deal has moved a step closer to fruition with both firms agreeing to amend or remove clauses in their transaction that had displeased the insurance regulator, two people familiar with the development said.
Under the deal announced in April, Axis Bank was to raise its stake in Max Life from 1% to 30% for ₹1,592 crore at ₹28.61 a share, elevating their bancassurance partnership to a joint venture. Analjit Singh-promoted Max Financial holds 73.5% in Max Life, Japan-based Mitsui Sumitomo 25.5% and Axis Bank nearly 1%.
In June, the Insurance Regulatory and Development Authority of India (Irdai) raised concerns over four clauses in the merger agreement—a put option for Axis Bank to sell its stake; a possible merger of Max Life with its parent; placing an ‘observer’ in the Max Life board; and rights for one of the two companies to appoint auditors in Max Life.
“Max Life and Axis have made significant alterations in their proposed JV agreement to secure regulatory approvals and expedite closure of the deal. Max Life and Axis Bank have erased some key clauses in their agreement in order to convince Irdai,” said one of the two people cited above, both of whom spoke under condition of anonymity.
Emails sent to Axis Bank, Max Life and Irdai remained unanswered.
A clause to list Max Life by merging it with listed parent Max Financial Services has been removed, the second person said. This would have potentially violated Section 35 of the Insurance Act, 1938, under which an insurance company’s business cannot be merged into the business of a non-insurance firm. In 2016, Irdai blocked the merger of Max Life and HDFC Standard Life Insurance Co. Ltd on similar grounds, stating the deal structure—in which Max Life would first merge with Max Financial—violated Section 35, which bars an insurance company merging with a non-insurance firm.
“With this clause being deleted, Axis will have to rethink its plan to swap up its holdings from Max Life to Max Financial Services. Also, Axis Bank will now have to revisit its plan to exercise the “put” option in the agreement at a price of ₹294 per share of Max Life. This is because it was mentioned in the agreement that if Max Life fails to get listed, Axis would have the option to swap its holding and exercise the put option after 63 months of the deal being cleared by the regulators,” said this person.
Irdai had also asked both firms to change a clause that empowers one of the two parties to appoint auditors in Max Life.
“Now, in the revised deal, both parties have agreed to allow equal rights to Max Life and Axis Bank,” said the first person.
Earlier, Axis had the right to appoint an observer in Max Life board meetings. Irdai said there was no provision in existing rules for an ‘observer’ in an insurance firm’s board meetings. The revised deal has dropped the provision for an observer.
The Axis-Max JV is expected to help Max Life’s distribution, like rivals SBI Life Insurance, ICICI Prudential Life Insurance and HDFC Life Insurance, all of which have either banks or NBFCs as JV partners.
