Axis Bank to raise stake in Max Life Insurance by 6.23%

Private Sector lender Axis Bank will be raising its stake by 6.23% from 12.99% to 19.02% in Max Life Insurance Limited, the bank said in a regulatory filing on Wednesday. The board of directors of the private sector lender will infuse ₹1,612 crore in Max Life Insurance through preferential allotment of shares, resulting in Axis Bank’s stake in Max Life increasing to 16.22% and the collective stake of Axis Entities increasing to 19.02%.

After the proposed transaction, Max Financial Services, which is the holding company of Max Life, will have an 80.98% stake in the insurance firm.

"The acquisition would fall within the related party transactions. The acquisition will increase the total holding of the Bank (along with its subsidiaries e.g. Axis Securities Ltd. and Axis Capital Ltd.) in Max Life from 12.99% to 19.02%," says Axis Bank. The transaction will be completed within 4 to 6 months, according to the private sector lender. The proposed transaction is subject to regulatory approvals.

"The Bank will now enter into a share subscription agreement with Max Life for proposed acquisition through subscription to the Preferential Issue of 14,25,79,161 fully paid-up equity shares of face value of ₹10 each, at a fair market value of ₹113.06 per share (arrived at as per extant regulations and including a share premium of Rs. 103.06 per equity share)," says the bank.

The private sector lender says that the acquisition would strengthen Axis Bank’s position in the life insurance business.

"In the quarter in which the transaction is consummated, post receipt of all applicable approvals, the said investment shall result in CET-1 capital consumption for the Bank," says the private sector lender.

"Further, subject to no exemption or revision to the extant accounting framework for such investments, the Bank will need to record an accounting MTM loss equal to (i) the difference in the invested value per share less breakup value per share value multiplied by (ii) number of shares being purchased. This will impact the reported PAT and return ratios of the Bank in the said quarter," it adds.

Apart from this, the proposed transaction will also include 5 nominee directors of Axis Entities and three nominees’ directors of Max Financial on the board of Max Life Insurance. According to the private sector lender, quorum rights for Axis Entities with the participation of 2 directors nominated by the Axis Entities and 1 director nominated by Max Financial to form the quorum for board/committee meetings of Max Life is also agreed upon in the proposed transaction. 

In 2021, the private sector lender initially proposed to acquire a 30% stake in the life insurance company. However, it subsequently cut the stake purchase plan owing to roadblocks in regulatory approval.

In the April to June quarter, the country’s third largest private lender recorded a 41% increase in its net profit at ₹ ₹5,797 crore. The net interest income (NII) of the private lender grew 27% YoY and 2% QoQ to ₹11,959 crore, while the net interest margin was 4.10%, up 50 bps YoY.