ICICI, HDFC, SBI Must Outsource Rs 1.2 Lakh Cr If RBI Limits Participation In Insurance Lines: Report

ICICI, HDFC, SBI Must Outsource Rs 1.2 Lakh Cr If RBI Limits Participation In Insurance Lines: Report


1970-01-01T05: 30: 00 + 0530

Mumbai, March 4th (PTI) Just State Bank of India, HDFC and ICICI Bank will have to sell Rs 1.21 lakh crore of equity if the central bank continues its reported plan to get banks to cut their stakes in insurance lines Limit 20 percent, it says in a report.

Citing unnamed RBI officials, a media report earlier this week said the monetary authority is dissatisfied with banks that own majority stakes in non-core businesses like insurance companies that are capital hogs and wants banks to own insurance lines / companies limit to a maximum of 20 percent.

It was also reported that RBI recently approved Axis Bank’s plan to buy Max Life after agreeing to hold just 10 percent directly, and also capped the total stake at 20 percent.

The current regulations allow banks to own over 50 percent of the shares in insurance companies.

If the RBI forces the promoter banks / NBFCs to lower their stake to 20 percent, it could significantly increase the free float in the four listed insurance lines of HDFC, ICICI Bank and SBI, worth Rs 1.2 lakh crore alone, Kotak said Securities in a report on Thursday.

HDFC owns 50 percent of HDFC Life, and a reduction to 20 percent would mean equity worth Rs.22,100 billion worth of shares in the market and Rs.21,700 billion worth of shares in ICICI Lombard , in which the bank owns 52 percent.

SBI, which owns 55 percent of SBI Life, has to sell shares valued at Rs.32,200 billion.

The total value of their surplus is 1.20.100 billion rupees, according to the report.

Almost all state banks and large private banks also have unlisted life and non-life insurance companies.

The report called for the status quo to be maintained, saying that banks owning insurance companies have been a win-win for everyone and that this structure has many positive aspects such as the sale of insurance shares that helps banks prepare for troubled times to have.

The high added value at insurance companies has helped banks to profit in difficult quarters and created a buffer against bad loans, the report said Provision of Buffers.

During FY16-18, HDFC used over 40 percent of these profits to make provisions, and for ICICI Bank, these capital gains contributed approximately 40 percent of annual provisions.

HDFC has sold stakes in life and non-life insurance for Rs 10,900 billion since 2016, while ICICI Bank has earned Rs 15,300 billion and SBI has earned Rs 12,670 billion so far.

Banks also get good fee income from insurance sales of 2-3 percent of total revenue and 5-15 percent of their pre-tax profit, which was 15.7 percent for Axis Bank and 6.4 percent for HDFC Bank, 7.3 Percent for ICICI Bank and 5.7 percent for SBI in FY20.

Bancassurance has become a strong insurance product distribution channel, with this model accounting for up to 54 percent of insurance sales in FY20. While bancassurance models can be operated successfully without ownership, historical experience suggests that bank-owned insurance companies have been more successful than others, the report said.

The fact that RBI fears that insurance is a capital-guzzling business and that this endangers the interests of bank depositors has not been proven, particularly with regard to life insurance. The RBI can protect banks by making prior government approval mandatory for investments in insurance weapons. PTI BEN MR

Disclaimer: – This story was not edited by Outlook staff and is automatically generated from news agency feeds. Source: PTI

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