IDBI Federal hires JPMorgan for sale of promoters' stake

Global investment bank JPMorgan has been appointed to sell the stake of the promoters in IDBI Federal Life Insurance. IDBI Bank, Federal Bank and Belgian insurer Ageas are the promoters of the insurer.

“JPMorgan has started the process to find the new buyer(s),” said an insider at one of these promoters, who did not wish to be identified. 

IDBI Bank owns a 48 per cent stake in the life insurance entity. The former has been under stress because of a rise in bad loans and negative returns on assets. In May, the Reserve Bank of India invoked its rule on Prompt Corrective Action (PCA) against the bank. Following this, the latter announced it was selling off non-core assets worth Rs 5,000 crore. 

The RBI has mandated a maximum net NPA (non-performing asset) ratio of six per cent under the PCA framework, introduced in April. A breach of this limit can result in the central bank ordering the lender in question to sell assets or cut unsecured exposure.

An IDBI Bank executive said, “We have hired an investment bank with the intent to monetise (sell stake) by March 2018. It is part of our plan to sell non-core assets and investments.” 

“There cannot be a better time for IDBI Bank to monetise its investment in the life insurer,” says a banker familiar with the development. “Multiple life insurance companies have been listed in the recent past on very high valuation.” 

IDBI Bank could, he felt, get at least Rs 3,200 crore, given the secondary market valuation for life insurers. ICICI Prudential Life Insurance got listed last year. It closed at Rs 381.8 a share on the BSE on Tuesday, 9.3 times the price to book value. SBI Life got listed last month and is priced at 11.8 times the book value. Its stock closed at Rs 642 on Tuesday. And, now, HDFC Standard Life has opened its Initial Public Offer of equity. 

At the end of 2016-17, IDBI Federal had a little more than a million policies, with a sum assured of Rs 58,654 crore. Its total of assets under management was Rs 6,090 crore and the capital base was over Rs 800 crore. It operates through 3,000-odd branches of IDBI Bank and Federal Bank, and its distribution partners. Bancassurance, the selling of insurance products through banks, is a preferred channel of distribution for insurance companies, as banks have a captive customer base.

There are 24 life insurance companies and a consolidation drive is imminent, to get scale. The listings of several life insurers is also expected to drive the move, as share swaps fuel mergers and acquisitions in high value markets.