Insurance regulator IRDAI (Insurance Regulatory and Development Authority of India) has imposed a ₹3 crore penalty on Max Life Insurance Company for the violations of norms with respect to the transfer of shares in the 2021 Axis Bank-Max Life deal.
As per the insurance regulator, Max Life Insurance undertook and facilitated the transactions of transfer of its shares between the parties in violation of its directives, which allowed Axis Bank Ltd and its group companies to make undue profits.
"A penalty of ₹3 crore will be remitted by the insurer by debiting the profit and loss account within a period of 21 days from the issuance of this order," the IRDAI order issued today says.
"From the submissions made by the insurer and the documents available on the record of the authority, it is evident that Axis Bank has sold its stake of 0.998% shares of Max Life in March 2021 to MFSL (Max Financial Services Ltd) & MSI (Mitsui Sumitomo International) at Rs 166/per share. Subsequently, in March-April 2021, Axis Bank and its group entities acquired 12.002% of shares from MFSL at a price range of Rs 31.51-Rs 32.12 per share. This is not in accordance with the directions issued by the authority vide letter on 28th January."
The Axis Bank stock closed 0.13% lower at ₹800.95 apiece on the NSE today, while the Max Financial Services stock closed 2.18% lower at ₹720.65.
IRDAI says Max Life Insurance, by undertaking and facilitating the transactions of transfer of its shares between the parties in violation of the directions of the authority, circumvented the maximum limits of commission or remuneration or reward as stipulated in IRDAI rules.
As per the 8-page IRDAI order, Max Life did not comply with the directions issued by the authority on January 28, 2021, and February 5, 2016. "The said act of the insurer establishes that the insurer has allowed the shareholder Axis Bank Ltd and its group companies to make undue profits/gains from the purchase and sale of equity shares of Max Life Insurance Company Ltd., thereby misusing the dual relationship of the bank as a shareholder and corporate agent."
The regulator also says Max Life Insurance in a letter on February 5, 2021, "misrepresented" to the authority regarding compliance with the directions issued by it on January 28, 2021, to obtain approval for the transfer of shares to Axis Bank and its group companies.
The insurer has also been directed to place the IRDAI order before its baord at its next meeting so it can take necessary steps to avoid such violations in future, says the IRDAI.
Axis Bank, which is India’s third largest private sector bank, together with its subsidiaries Axis Capital Ltd and Axis Securities Ltd had become the co-promoters of Max Life Insurance Company after acquiring a 12.99% stake collectively on April 6, 2021. As per Axis Bank's 2021 statement, the transaction was completed after the IRDAI's formal approval in February 2021. Under the deal, the Axis entities had a right to acquire an additional stake of up to 7% in Max Life, in one or more tranches, subject to regulatory approvals. The total premium generated through the alliance had aggregated to over ₹40,000 crore.