Birla Sun Life Insurance is close to striking a deal with the state-owned lender, Syndicate Bank, for a partnership in the life insurance business.
The Aditya Birla group company has offered 600 crore as advance commission based on future sales to Manipal-based Syndicate Bank, which will use part of the money to buy 6% stake in the life insurance firm, said a person familiar with the transaction.
The deal structure will enable the Syndicate bank to pick up a minority stake in the lucrative life insurance sector without dipping into its capital reserves.
In recent years, the Reserve Bank of India has discouraged a few banks from investing in the cash-guzzling insurance business.
“It’s at the final stage…Talks are on to arrive at a valuation,” said the person. Syndicate Bank has sent the proposal to the government, its main stakeholder, for approval and a formal announcement is expected soon, the person said, not wanting to be named.
Ajay Srinivasan, Chief Executive Officer of Aditya Birla Financial Services, declined to comment.
The final agreement is likely to carry a clause that seeks to address a situation arising from the bank’s failure to meet the sales target.
After identifying a dozen insurers for stepping into life insurance, Syndicate had shortlisted three players – Birla Sun Life, Max New York Life and the Japanese major Sumitomo. “Birla Sun Life is definitely a preferred bidder.
But, we are still negotiating with the three shortlisted parties. We will take a decision soon,” said a senior Syndicate Bank official. Ernst & Young is the bank’s advisor to the deal.
The deal will give Birla Sun Life access to 2,500 branches of the commercial bank.
Besides, 600 regional rural banks where Syndicate has a stake can be used to market Birla Sun Life products.
Many insurance companies are keen to pursue the bancassurance model to expand sales by entering into equity or strategic partnership with commercial banks.
The first to do it was Max New York Life which sold 4% stake to the private lender Axis Bank.
MetLife India is awaiting regulatory clearance for selling 30% stake to Punjab National Bank.
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