RBI questions Axis Bank on its proposed joint venture with Max Life subsidiary

Mumbai: The Reserve Bank of India has questioned Axis Bank  about the terms of its proposed deal to form an insurance joint venture with Max Financial by acquiring a total 30% stake in its Max Life subsidiary, said people aware of the matter.

This follows the insurance regulator raising queries about a clause that allows Axis Bank to exit the venture at a fixed price and the companies agreeing to make changes accordingly.

“At this point of time, the discussion is how much stake the RBI will allow,” said one of the persons. “The point whether the bank will get 20 or 30% stake is being discussed.”

RBI wants to know how the deal will be structured and why the lender is acquiring more than 20% stake in the life insurance company.

RBI Concerned about ‘Spill-over Risks’

It’s concerned about “spill-over risks” for a bank getting into the insurance business, as advised under Section 15 in the of the para-banking guidelines that pertain to financial services. The banking regulator is said to be looking favourably at the deal but hasn’t decided on the stake Axis Bank should have, according to the persons cited above.

Under the proposed structure, Axis Bank will have operational control of the insurance business, including a majority on the board and powers to appoint a chief executive officer of its choice, they said. “We are not at liberty to share specifics of correspondence with the regulator. However, we wish to reaffirm that the transaction remains on course,” a Max Financial spokesperson told ET. Axis Bank and RBI didn’t respond to queries.

RBI’s focus is on the risks to the private lender rather than how the joint venture pans out. On the other hand, the Insurance Regulatory and Development Authority of India (Irdai) was looking at compliance and risks for the insurance company.


Irdai had sought clarifications from Analjit Singh-led Max Financial and Axis Bank on several clauses of the deal, including a “value creation options” clause. This allowed the lender to exit the joint venture at a fixed price if these milestones were not achieved within 63 months of closing the deal.

“Based on correspondence from Irdai received by the company, the company and Axis Bank have agreed to make some changes to the Value Creation Options and factor in some alternate mechanisms subject to regulatory approvals and as maybe permitted under applicable law,” Max Financial said in a regulatory filing on Thursday without giving details.

The Securities and Exchange Board of India (Sebi) also has to approve the deal.

“It would be interesting to see Sebi’s take on the matter since some of the Max Financial shareholders are expressing concerns about pricing of the deal,” said a leading corporate lawyer. “Going by the initial reactions of RBI and Irdai, some changes have to be made to the deal. However, inordinate delay in terms of getting the required approval could have an adverse impact on the deal itself.” While Max Life is not a listed entity, its holding firm Max Financial Services is a public company.

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