India’s Largest Insurance Merger Stuck As Regulator Seeks Attorney General’s Advice
Attorney General to decide on HDFC Life-Max Life merger, says HDFC chief.
The merger of HDFC Life with Max Life, which will create India’s largest life insurance company, is now awaiting approval from the Attorney General, said Keki Mistry, vice chairman and chief executive officer at Housing Development and Finance Corporation Ltd. on the sidelines of a CII event in Mumbai on Monday.
BloombergQuint had reported in December that the merger between the two companies, announced in August last year, hit a regulatory hurdle after the Insurance Regulatory and Development Authority of India (IRDAI) questioned the scheme of amalgamation between the two.
The Insurance Act allows for mergers between two life insurance companies but does not make provision for the merger of a life insurance company, in this case HDFC Life, with an NBFC, in this case Max Financial Services Ltd, a person familiar with the development had told BloombergQuint.
Mistry, however, said the scheme of amalgamation has been reviewed by the companies and resubmitted to the IRDAI.
The structure we were envisaging was that Max Life would merge with Max Financial. Max Financial is a listed entity. Then there would be a merger between the combined entity and HDFC Life and then the non-insurance business would be dropped off.Keki Mistry, Vice Chairman and CEO, HDFC
“So in effect these are only structuring of the transaction. There was no actual merger of an insurance company with a non-insurance company,” he said.
Room For A Rate Cut?
The Reserve Bank of India could still decide to reduce the policy rate by 25 basis points to 6 percent, despite the shift in monetary policy stance to neutral, Mistry said.
My personal view is that the RBI will watch the data carefully. They will look at what the guidance on monsoons are, they will look at any further data that emerges out of the U.S., they will look at inflation numbers as they come out of India. And there might be scope for another quarter percent cut in interest rates. But timing, whether it will happen next time or the policy after, that would be difficult to say.Keki Mistry, Vice Chairman & Chief Executive Officer, HDFC
The RBI, in its monetary policy review earlier this month, announced a shift in policy stance from ‘accomodative’ to ‘neutral’, signalling a possible end to the rate cut cycle that started in 2015.
The factors that could have led to the RBI’s decision to maintain the status quo on rates were the fact that oil prices had risen by 5 percent since the policy review in early December, and the U.S. Federal Reserve’s commentary on interest rates, said Mistry.
A sharp narrowing of the gap between interest rates in the U.S. and India could result in a flight of capital, and could therefore impact the rupee, he said.
Mistry said it was too early to ascertain the impact of the sharp reduction in lending rates that was undertaken by both banks and non-banking finance companies recently.
“Interest rates are not the only determining factor. There will be demand when there is reasonable certainty that prices will not decline,” he said.
Shareholders Must Decide Executives’ Compensation
Without commenting directly on the recent corporate governance issues at Infosys related to payment of compensation by Infosys to MD and CEO Vishal Sikka, Mistry said remuneration to a director fell under the ambit of a company’s shareholders.
“In my view the decision on how much remuneration to give to an executive director or a managing director, or whoever, is one that a company has to take, the shareholders of the company have to take,” Mistry said. “So as long as the shareholders of the company in their wisdom believe that the compensation to be given to a certain individual is ‘X’, so be it. I don’t think one should then start looking at governance. So I think as far as compensation is concerned, the shareholders have a right to decide.”