Insurance cap: Banks face huge equity sale

Just State Bank of India, HDFC and ICICI Bank will have to offload equity worth Rs 1.21 lakh crore if the central bank goes ahead with its reported plan to make banks cap their stakes in insurance arms at 20%, says a report.

Quoting unnamed RBI officials, a media report earlier this week said the monetary authority is not comfortable with banks owning controlling stake in non-core businesses like insurance ventures which are capital guzzlers and wants banks to cap ownership in insurance arms/ companies at a maximum of 20%.

It was also reported that the RBI recently approved Axis Bank's plan to buy Max Life only after it agreed to directly hold only 10% and also capped the overall holding at 20%.

Current regulations allow banks to own over 50% stake in insurance arms.

If the RBI forces promoter banks/NBFCs to lower their stakes to 20%, this can significantly increase free float in the four listed insurance arms of HDFC, ICICI Bank and SBI worth Rs 1.2 lakh crore alone, Kotak Securities said in a report.

HDFC owns 50% in HDFC Life and bringing it down to 20% would mean offloading equity worth Rs 44,100 crore at today's market value, while in case of ICICI Prudential Life which is 51% owned by the bank, it will be Rs 22,100 crore worth of shares flowing into the market, and Rs 21,700 crore worth of shares from ICICI Lombard in which the bank owns 52%.

SBI which owns 55% in SBI Life will have to sell shares worth Rs 32,200 crore.