Public sector lender Syndicate Bank has shortlisted four firms, three domestic insurance companies — Aviva Life, Reliance Life and Birla Sun Life - and a foreign insurer, Avantha Ergo, for its proposed venture in the life insurance space.
The bank is seeking a 'brand premium' of Rs 300-350 crore and a minority stake in the life insurance company, according to three people familiar with the development. The deal is likely to be finalised in the next couple of months.
According to sources, the bank would prefer buying a stake of around five per cent with an existing domestic life insurance company, instead of partnering a new player to launch a greenfield insurance venture, owing to capital constraints. “Syndicate Bank is likely to go with an existing player. This format would require less capital. It makes more sense to pick up a small stake in an existing company and get up-front fees for allowing distribution of insurance products through its branch network,” said a source, requesting anonymity, since the bank has not yet finalised its insurance partner.
In June, the Manipal-based lender had invited bids from insurance players and shortlisted a dozen insurance companies — nine existing players and three new firms.
A senior Syndicate Bank official confirmed the development. “The process is on. We are evaluating both brownfield and greenfield options. What we want is an efficient partnership. We don't want to use our capital to acquire a majority stake,” he said, adding the bank would follow in the footsteps of its rival Punjab National Bank (PNB), which had recently acquired 30 per cent stake in MetLife. “We are looking to buy a minority stake at a discount. That deal (PNB-MetLife) secured the regulatory approval. Hence, it makes sense to structure our deal in those lines,” the official said.
This transaction would be the third instance of a bank acquiring stake in an existing life insurance company. Axis Bank had bought four per cent stake in Max New York Life, with the deal size estimated at around Rs 75 crore.
Industry sources said in both the deals, the insurers had sold their equity at significant discounts. PNB is believed to have got a discount of Rs 750 crore as MetLife, valued at Rs 12-13 per share, sold its stake at Rs 1 a share.
Sources said Syndicate Bank was seeking a brand premium, since under the bancassurance model, banks' branch networks serve as low-cost distribution channels for insurance companies to sell their products.
A committee set up by the Insurance Regulatory Development Authority had, last week, come out with the draft guidelines on the bancassurance model. It had said banks could partner one insurance company per state in each segment — life, non-life and standalone health insurance. Current norms allow banks to tie up with only one insurance company across all states.