The proposed deal between Punjab National Bank (PNB) and Metlife, which saw the bank getting a discount of nearly Rs 750 crore, may result in the Insurance Regulatory and Development Authority (Irda) revisiting its recommendation on compensation and discounts for the bancassurance model.
However, according to market sources, Metlife, which is valued at Rs 12-13 a share, offered equity at Rs 1 per share. PNB officials declined to comment on the issue, while an e-mail query to Metlife did not elicit any response.
| A report in June recommended any upfront payment or equity discount by insurers to banks be treated as advanced commission |
| In July, PNB entered into an agreement with Metlife India to pick up 30 per cent stake in Metlife India Insurance Company |
| The insurance regulator may bring the payments and discounts out of the ambit of the advance commission |
| Syndicate Bank asked participating players to re-submit their financial bids after the Metlife-PNB deal |
The insurance regulator, which had insisted upfront payments and discount on equity be treated as advance commission, amortised over three years, may now bring such payments and discounts out of the ambit of the advance commission. A senior Irda official confirmed the regulator was looking into the issue and would come out with bancassurance guidelines soon. “We are looking into the details of the deal between PNB and Metlife. We are also analysing whether it would have any effect on future deals involving a bank and an insurance company. It is difficult to say whether there would be any changes in bancassurance guidelines, but we are examining it,” the Irda official told Business Standard.
Experts said the discount PNB received could not be amortised in three years, since the amount was substantial. “Upfront payments or equity discounts generally act as an incentive for banks to offer their distribution network to an insurer. PNB commands a premium, given its huge distribution network, and, hence, it is unlikely the bank would treat this discount as an advance commission,” said a source close to the development.
The bancassurance report, which was released in June, recommended any upfront payment or equity discount offered by insurers to banks be treated as advance commission and should be amortised within three years of the deal.
Usually, banks command discounts on equity or upfront payments from insurers while offering their distribution network for selling insurance policies. They were against treating this 'income' as advance commission.
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According to the industry sources, what is bothering the regulator is this deal could be seen as a benchmark and could affect other proposed bancassurance deals.
Syndicate Bank, which started the process of short-listing insurers for its proposed life insurance venture, had asked the participating players to re-submit their financial bids after the Metlife-PNB deal. “Syndicate Bank is now open to upfront payments and discounted equity deals. Based on these parameters, we have restructured our financial bids,” said an insurance official who participated in the bidding process.
When contacted, a senior Syndicate Bank official confirmed the bank had asked the insurers to re-submit the financial bids. “When we first started the process of selecting the insurance partner, financial bids were sought based on the draft guidelines on the bancassurance framework. However, now the PNB deal should act as precedence. Keeping that in mind, we are open to upfront payments and discounted equity deals. Hence, we are giving insurance companies the option of reworking their financial bids,” the official told Business Standard.