LIC-IDBI deal ends need for IDBI Federal Life stake sale
IDBI Federal Life Insurance was up for sale because IDBI Bank needed the capital, and now—after the acquisition by LIC—it doesn’t
New Delhi: There is no need for IDBI Federal Life Insurance Co. Ltd to be on the block after the Union Cabinet cleared the decks for Life Insurance Corp. of India (LIC) to pick up a 51% stake in IDBI Bank Ltd. The takeover may see the state-owned insurer infusing ₹ 13,000 crore in the public sector lender. “It is unlikely that IDBI Federal will now be in the market anytime soon. It was up for sale because IDBI Bank needed the capital,” said Sanket Kawatkar, principal and consulting actuary, life insurance, India at Milliman India Pvt. Ltd.
IDBI Bank, which was trying to raise capital through the sale of its non-core assets, had planned to sell its entire 48% stake in the joint venture for about ₹ 3,000 crore.
Federal Bank and Belgian insurer Ageas hold a 26% stake each in IDBI Federal Life, which was last valued at about ₹ 6,000 crore: more than three times the embedded value of the insurance company.
The value of a life insurance firm is assessed by future profits that the current business is able to generate. This is captured by the embedded value (EV) that represents the sum of present value of all future profits from the existing business and shareholders’ net worth.
Besides, with LIC owning a majority stake in IDBI Bank, it will be impossible to find a buyer, say experts, given that the bidders were looking at an exclusive bancassurance deal with IDBI Bank.
“It is unlikely that LIC will use bancassurance in a big way. Even in the past, where LIC had a stake in banks, it routed very small portions of its business through the banking channel,” said Kawatkar. “This is so because LIC has a strong agency force, which is unionized and is unlikely to allow the bancassurance channel.”
Open architecture in bancassurance allows banks to sell products of at least three insurance companies in the same line of business.
As of fiscal 2017, LIC had a network of 1.13 million agents, while the combined number of agents in the private sector is around 957,000.
IDBI Federal Life sources 45-50% of its business through IDBI Bank.
“Even if LIC pushes for open architecture, we, as an insurance company, will stand to benefit, given the scale and brand of LIC. It will push penetration of insurance products, create awareness and will help us grow the insurance pie. I think there will be market for both to exist,” said Vighnesh Shahane, chief executive officer and whole-time director, IDBI Federal Life Insurance.
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