In a bid to expand its presence in the insurance business, ICICI Bank will transfer its ownership in two insurance firms and the group’s asset management company (AMC), to a new entity.
ICICI Bank’s joint managing director Kalpana Morparia will head ICICI Financial Holding Co., the new entity, as managing director and CEO.
One of India’s best-known bankers, Morparia, who has overseen several corporate functions at the bank, spoke to Mint from Singapore on what prompted India’s largest private bank to set up this holding company and its plans ahead. Extracts from the interview:
What prompted ICICI Bank to set up the holding company?
Under RBI norms, a bank can use up to 20% of its net worth to invest in its subsidiaries and in one particular subsidiary, the exposure cannot be more than 10%. We have almost reached this limit. ICICI Bank has invested about Rs1,300 crore in the life insurance venture, Rs600 crore in the general insurance firm and another Rs50 crore in the AMC. Our life insurance business has grown 100% this year. The general insurance business too grew 100% against the industry’s average of 25%. Insurance business needs more capital and the bank cannot pump in fresh capital continuously. The new holding firm, which will have the status of a non-banking finance company (NBFC), will address this issue.
At what price, the bank’s stakes in these firms will be transferred?
At their book value. It’s a tax neutral transaction.
Will ICICI Financial Holding Co. be made the holding company for the entire group, including the bank, the venture capital fund and the brokerage in course of time?
We cannot talk about the future now as regulatory issues are involved. All I can say is the new company will hold the stakes of our two insurance firms and the AMC now.
How will you arrange the capital for the insurance firms?
The holding firm will tap the market in the next six to eight months after all regulatory approvals are in place. Since this is an NBFC, we need the approval of the banking regulator. We need the insurance regulator’s clearance to transfer ICICI Bank’s stake in insurance firms to the new outfit.
What kind of pricing are you looking at for the IPO?
Analysts are valuing the new company between Rs17,000 crore and Rs30,000 crore.
Since it will have an equity base of Rs1,950 crore, this means a Rs10 share of ICICI Holding will command a premium between Rs80 and Rs150. Right?
Analysts are saying this. The pricing of shares will be decided by the investment bankers as and when we appoint them to take the issue to the market.
Once this is listed, what will happen to the ICICI Bank stock?
It’s good news for the ICICI Bank investors as the value of the bank’s investment in its insurance ventures will now be reflected. So far, it has not been the case. So the shareholders will stand to gain.
Since the holding company will infuse equity in the insurance ventures, you won’t be in a hurry to take them to the market...
You’re right. The issue is raising capital for the insurance firms. As you know, a life insurance company has the highest solvency margin in the world—150%. It needs capital continuously if it has to grow. Since the holding company will be raising the capital, the insurance firm won’t be in a hurry to tap the market.
And, you will also not push for raising the foreign stake in the insurance firms to 49%…
Not for capital infusion, as this will be taken care of by the holding company.