Banks in talks with Reliance Life for picking up stake

After securing the largest-sized foreign direct investment in the Indian insurance sector, with Nippon Life taking 26 per cent stake in it, Reliance Life Insurance, part of reliance Capital, the financial service arm of the Anil Dhirubhai Ambani Group, is open to dilute a “small” stake to banks.

“Some banks have expressed interest for taking some equity in our company. We are open to it,” Sam Ghosh CEO Reliance Capital told Business Standard. He said both parties are in agreement for such small stake sales with banks. And, the bank, in turn, would also work as a bancassurance partner of the insurance company.

He clarified that in the event of a stake sale, it will be the promoters', that is Reliance Capital’s shareholding that will come down. “Whatever might be the extent of the dilution, say three to five per cent, it will be done by the promoters. Nippon Life’s holding will remain at 26 per cent,” Ghosh added.

In May, the bancassurance committee report recommended that banks be allowed to tie up with sets of two insurance companies, life and non-life, for selling insurance policies. Following this, Punjab National Bank said it was taking a 30 per cent stake in MetLife India. Syndicate Bank is also looking to pick up equity stakes in existing insurance companies and invited bids.

Earlier in the day, the Union finance ministry said domestic insurance company holders could bring down their stake to 26 per cent over 10 years, which effectively paves the way for the Reliance Life-Nippon Life deal. Their deal was signed in March, for a 26 per cent stake to the latter for Rs 3,062 crore. However, clearance was getting delayed as the company was yet to complete 10 years of operation. According to the Insurance Act, a company has to complete 10 years before divesting any stake and Reliance Life will be completing 10 years only in January 2012.

“The circular (of today) clarifies the situation. Now we are waiting for approvals from the Insurance Regulatory and Development Authority and the Reserve Bank of India,” said Ghosh. He added that of the Rs 3,062 crore, about Rs 300 crore will be invested in the life insurance company and the remaining part in the parent company, Reliance Capital. “The life insurance business continues to remain robust and we expect to report higher profits in the current financial year,” he said.