New Delhi: Punjab National Bank (PNB), the state-run lender, on Thursday said it plans to buy a 30% stake in the Indian venture of Metlife, the biggest US life insurer, for an undisclosed amount.
PNB also agreed to enter into a 10-year distribution tie-up with Metlife India, in which Jammu and Kashmir Bank and M.Pallonji & co also hold stakes.
PNB will pick up the stake via a fresh share issue which will dilute the stake of all existing shareholders in Metlife India, but the US company plans to bring back its stake to the original 26% within 120 days after the deal closes, said William Toppeta, president of MetLife‘s international business.
The deal is expected to be closed by end-2011.
“India is a very important market for Metlife. We have identified 10 strategic markets around the world, and at the top of that list, its India,” Toppeta told reporters.
PNB, which bought out the stakes of its insurance joint venture partners Principal Financial Group of Mauritius and 25% of Berger Paints last year, had invited expressions of interest (EoIs) from insurers for a fresh strategic tie-up.
It had short-listed 10 companies in March and narrowed the list to three firms: Aviva Life, MetLife and Bharti Axa Life, a joint venture between Bharati Enterprises, that controls India’s top telecoms firm Bharti Airtel and AXA, Europe’s second biggest insurer.
Last month, Reliance Industries, India’s biggest listed firm said it would buy Bharti Enterprises’s stakes in two insurance joint ventures with AXA to build on moves beyond its core energy business.
India’s life insurance sector, once in the complete grip of state-run Life Insurance Corporation, is today teeming with about two dozen private players, mostly operating in joint ventures with leading foreign players such as AIG, Allianz, Standard Life and Axa.
Indian laws limit foreign insurer’s equity participation to 26%. Unlisted Life Insurance Corporation of India is still the most dominant player in India.
If foreign direct investment limits are relaxed, Metlife will be open to increase its stake further in the Indian venture, Metlife’s Toppeta said.
April-June results muted
Earlier on Thursday, PNB posted a 3.5% rise in April-June profit to Rs 1105 crore.
Higher interest rates inflated deposit costs, bad loans and shrank treasury income and investment portfolio kept profit growth muted, though it was in line with analyst expectations.
A Reuters poll of brokerages showed analysts expected PNB to post a profit of Rs 1120 crore for the period.
A series of interest rate hikes to tame stubborn inflation is slowing loan growth and hurting asset quality, especially at state banks with heavy exposure to smaller commercial borrowers.
PNB shares, valued at about $8.1 billion, ended down 2% at Rs 1103 in a weak Mumbai market. In comparison, the BSE Banking index was down about 1.33%.
The Reserve Bank of India, seen as one of the most aggressive central banks globally in its efforts to tame inflation, on Tuesday raised key policy rate by a surprise 50 basis points. It also cut credit growth forecast for banks to 18% from 19% projected earlier.
Last week, India’s No. 3 lender HDFC Bank said it expects its loan book to grow more than the sector’s this fiscal year, though credit demand from corporates for new projects may not see a sharp spike amid rising interest rates.
PNB’s interest income rose by a fifth on the year to Rs 8316 crore, while interest expended rose more than 50% to Rs 5200 crore in the June quarter.
The quality of asset at the bank deteriorated in the June quarter with net non-performing asset rising to 0.86% from 0.66%.
“I do acknowledge that incremental slippages have been there but we have put across a mechanism to handle the rise in NPAs,” chairman K R Kamath said.
The bank recorded a net interest margin (NIM), the key barometer of bank’s core operation, of 3.84% for the quarter.
It expects to maintain NIM at 3.5% in FY12 as it hopes to maintain low-cost CASA (current account, saving account) deposits at a high proportion of 38% in the overall deposits, Rakesh Sethi, executive director, said.