Irdai penalises Axis Bank for making undue good points in Max Life deal

Insurance regulator IRDAI has penalised personal lender Axis Bank for making undue good points of considerable quantities by the use of transactions in shares of Max Life Insurance in violation of assorted norms. The regulator had final week imposed a penalty of Rs 2 crore on the financial institution which can also be a company agent and Rs 3 crore on Max Life Insurance.

The promoters of the insurer had been partaking in switch of shares of the insurer to Axis Bank at a worth, which is considerably decrease than the honest market worth and subsequently shopping for the identical shares from Axis Bank at a considerably greater worth, IRDAI stated.

Axis Bank had offered .998% of fairness shares at a worth of Rs 166 per share – at a good market worth based mostly on the certificates of a chartered accountant. Subsequently, Axis Bank and its group of corporations purchased 12.002% shares inside 22 days at a worth vary of Rs 31.51— Rs 32.12 per share, based mostly on valuation as envisaged below Rule 11 UA of Income Tax Rules, 1962. “Therefore, there is no uniform basis for determination of price for transfer of shares,” IRDAI stated.

The IRDAI has charged the financial institution “for violation of directions issued by the Authority vide its letters dated February 5, 2016 and January 28, 2021 in letter and spirit of law, as the transfer of shares was not done at fair market value determined on a uniform basis, which has led to Axis Bank, a registered corporate agent of the insurer along with its group companies, receiving undue monetary gain of significant amounts from such buy/sale of equity shares”.

“The transactions of transfer of shares on substantially differential prices by the promoters of the insurer have resulted in passing on undue monetary gain by circumventing the provisions of the Insurance Act, 1938, and IRDAI (Registration of Corporate Agents) Regulations 2015 for receiving remuneration in excess of its as specified by the Authority,” the order stated.

Replying to the IRDAI show-cause discover, Axis Bank submitted that the transactions weren’t topic to the stipulations of the IRDAI, below the IRDAI’s January 2021 letter concerning calculation of honest market worth on a uniform foundation and have been ruled by two separate business transactions agreements entered into between MFSL, MSI and Axis in 2015 and 2020 in relation to the shares of Max Life.

The financial institution stated the transactions don’t contain any cost by the insurer (Max Life) to Axis (the company agent). Further, below the transactions, Axis paid precious consideration to MFSL (Max Financial Services) and MSI (Mitsui Sumitomo) for acquisition of the stated shares.

Currently, Axis Bank and its two subsidiaries — Axis Capital Ltd. and Axis Securities Ltd — collectively personal 12.99% of Max Life Insurance put up approval of the deal in April final yr.