Shriram Capital may quit race for insurance JV stake

Shriram Capital would have had an insurance venture with large distribution network of Canara Bank and Oriental Bank of Commerce

Chennai-based Shriram Capital may pull out of the race to buy HSBC’s 26 per cent stake in Canara HSBC Oriental Bank of Commerce Life Insurance Company. Sources said the company, earlier in talks for the deal, wasn’t interested in the joint venture due to issues related to valuation.

“We were in talks, but these have fizzled out now. We continue to be interested in inorganic expansion,” said a senior company executive. If the deal would have materialised, Shriram Capital, the holding company for the Shriram Group’s financial services business, would have had an insurance venture with a distribution network of two large banks—-Canara Bank and Oriental Bank of Commerce (OBC). Together, these banks have about 5,600 branches. Shriram Life Insurance doesn’t have any large bank partner in its corporate agency channel.

If Shriram had signed the deal, it would also have to merge Shriram Life with the other life insurance company. For HSBC’s stake, Shriram Capital, along with two large insurance companies in India and one global insurance company, were in the race. An HSBC spokesperson said, “We do not comment on rumours or speculation.”

Earlier, it was reported Axis Capital was advising Shriram Capital on the deal. Industry sources had indicated HSBC’s stake in the life insurance venture was worth Rs 800-1,000 crore. Officials privy to the development said while the deal presented a good opportunity for Shriram, the financial considerations of the deal weren’t agreed to by the company. Currently, Shriram Life distributes its products through the group’s network and most of its business is accounted for by the direct business channel. Shriram Capital declined to comment.

In 2012-13, the life insurance company sold 1,54,000 policies and collected total premium of Rs 618 crore. Net profit stood at Rs 81.9 crore. Canara HSBC OBC Life reported its maiden profit (Rs 23.5 crore) in 2012-13, the fifth year of operations. The insurer’s premium income stood at Rs 1,912 crore.

Though Shriram was a late entrant into the life and general insurance industry, experts said it had managed to garner good business with its low-cost operations model.

Reportedly, Canara Bank and OBC were unhappy at the fact that HSBC had approached prospective buyers without seeking their views. The joint venture shareholding agreement contains ‘tag-along rights’ that give shareholders the right to be part of a sale transaction if one decides to sell stake.

In January this year, Netherlands-based ING had said it would exit ING Vysya Life Insurance Company by selling its 26 per cent stake to domestic partner Exide Industries. In July, realty major DLF had signed an agreement to sell its 74 per cent equity stake in its life insurance joint venture DLF Pramerica Life Insurance to Dewan Housing Finance Limited.