Mumbai: The Insurance Regulatory and Development Authority of India (Irdai) has written to public sector banks that are merger candidates to provide a road map on what they propose to do with their stakes in insurance companies after the merger comes into effect. Public sector banks have responded to the regulator seeking time sources said. Banking officials said that a couple of banks will shed their promoter tag in their insurance companies by divesting their stake to below 10 per cent to be categorised as an investor.

A top industry official told FC, “The Irdai had written to these banks  asking them to submit a road map on what they propose to do with their stake in their insurance companies. One is being a promoter and the other is being an investor. Banks will have to take a call and then come to the regulator with a road map on what they want to do.”

“The Irdai wrote to the banks last month, the banks have written back saying that they need some time as they are firming up their plan and will respond. They said that they are fully aware of their responsibilities and have assured the Irdai that they would be taking a decision keeping the policyholders interest in mind,” added the official.

A senior official of Andhra Bank told FC that the bank has already started the process of divesting its stake in IndiaFirst Life Insurance Company to below 10 per cent to be an investor after the bank is merged with Union Bank of India and Corporation Bank. Headquartered in Mumbai, IndiaFirst Life Insurance is promoted by two large public-sector banks—Bank of Baroda and Andhra Bank, which hold 43.30 per cent and 29.53 per cent stake each in the company while the remaining 27.17 per cent is held by Warburg Pincus.

“The regulations would be complied with in this connection,” said a senior official of Andhra Bank.

A senior official of Union Bank of India said the bank would continue to be the promoter of Star Union Daiichi Life Insurance and an investor in IndiaFirst. Union Bank, which will take over Andhra Bank and Corporation Bank, is required to reduce stake in one of the two insurance companies as a result of the amalgamation. Union Bank holds around 46 per cent stake in Star Union Daiichi Life Insurance while Andhra Bank is a promoter in IndiaFirst Life Insurance.

Remaining an investor will help banks to earn a fee income by distributing products of insurance companies.

An entity holding over 10 per cent in an insurance company is categorised as a promoter while one holding below that limit is termed as an investor. Under existing rules, one bank cannot be a promoter in multiple insurance companies of the same segment. However, they can sell products of three life, non-life and standalone health insurers each.

PNB holds around 30 per cent stake in PNB MetLife India Insurance as a promoter and OBC holds 23 per cent stake in insurance joint venture—Canara HSBC Oriental Bank of Commerce Life Insurance Company. Following the merger, which will come into effect from April 1, 2020, PNB will take over OBC and United Bank.

On August 30, Finance Minister Nirmala Sitharaman had announced the merger of 10 PSBs into four entities.