Axis Bank complies with IRDAI order; to buy 7% more stake in Max Financial

Private lender Axis Bank has revised its agreement with Max Financial Ltd (MFI) to acquire the remaining 7% stake in the company. The revision was done after Max Life Insurance Company Ltd received directions from the insurance regulator IRDAI (Insurance Regulatory and Development Authority) on increasing the stake. Max Life is a joint venture between Axis Bank Ltd and Max Financial Services Ltd, which is a part of the Max group. 

The matter pertains to statements issued in the years 2020 and 2021, informing about the acquisition of equity shares of Max Life Insurance Company Ltd, a material subsidiary of Max Financial Services Ltd (Max Financial) by Axis Bank and its subsidiaries, including Axis Securities Ltd and Axis Capital Ltd -- together referred to as Axis Entities -- under definitive agreements.

Axis Bank, which is the country's fourth biggest lender, said Axis Entities have revised its pact with Max Financial to buy the balance stake at “fair market value”. "Axis Entities have entered into revised agreements with Max Financial on January 9, 2023, agreeing that the valuation for the right to acquire the balance 7.00% equity stake of Max Life would be at Fair Market Value using Discounted Cash Flows instead of valuation as per Rule 11UA of the Income Tax Rules, 1962," a statement by both the companies to the stock exchanges stated.

Axis Entities in April 2021 had collectively acquired 12.99% of the equity share capital of Max Life at ₹35 a piece, with the right to buy an additional 7% stake in future.

In October 2022, IRDAI asked both parties to revise their “valuation methodology” before they could go ahead with the deal. The insurance regulator also directed Axis Bank to acquire the additional 7% stake in Max Life at "uniform and fair market value".

It also imposed ₹3 crore penalty on Max Life Insurance Company Ltd for the violations of non-compliance with rules related to the transfer of shares.

The regulator said in the 2021 Axis Bank-Max Life deal, Max Life undertook and facilitated the transactions of transfer of its shares between the parties in violation of its directives, which allowed Axis Bank Ltd and its group companies to make “undue profits”. 

Max Life later said it decided to pay the penalty to pave the way for the future, including strengthening the partnership with Axis Bank and avoiding unnecessary and long legal battles.

Max Financial Services, a part of the $4 billion Max Group, is focused on the life insurance business and actively manages a nearly 82% stake in Max Life Insurance, one of the country’s leading private life insurance companies.

Earlier, Max Financial Services Ltd (MFS) owned a 72.52% stake in Max Life and Mitsui Sumitomo Company Ltd (MSI) had a 25.48% shareholding. In December 2020, MFSL entered into a share swap transaction with MSI, swapping 20.57% of the paid-up equity share capital in Max Life held by MSI in exchange for 21.87% of the issued and paid-up share capital of MFSL.