Irda stops IGE, J&K Bank from subscribing to MetLife issue

MUMBAI: The Insurance Regulatory and Development Authority ( Irda) has restricted International General Electric Corporation (IGE) and J&K Bank from subscribing to a fresh issue of shares by MetLife India. IGE holds a 20.3% stake in the life insurance company while Jammu & Kashmir Bank holds 11.26%. The fresh issue of shares is part of a process to induct the state-owned Punjab National Bank into the life insurer. The regulator has cleared the proposal, but with riders.

Irda, after a detailed examination, found that certain regulatory issues do not allow some of the existing shareholders to subscribe to the fresh issue and asked them not to subscribe to it. "This constraint (of some existing shareholders to subscribe to new shares) was impacting the solvency position of the insurer and limiting its ability to grow," the regulator said in a circular.

MetLife is a joint venture between Jammu & Kashmir Bank, the US-based MetLife International (26%) and private investors, including Elpro International (13%) and M Pallonji Group (26.1%).

The deal will be cleared after some of the existing shareholders reduce their stake. Insurance companies are mandated to maintain a 1.5% solvency margin.

Once PNB acquires 30% stake in the insurance company, MetLife's stake will drop to about 18%. Reports suggest that Jammu & Kashmir Bank may sell its shares to Metlife. Foreign companies are allowed to hold up to 26% in insurance firms in the country.

According to industry insiders, PNB is picking up the 30% stake in MetLife India for free. The insurer is understood to have paid an upfront commission of over 500 crore to the bank as well. Irda's report on bancassurance says that companies amortise upfront commission in three years. The transaction will mark PNB's entry into the life insurance space and will give MetLife a wider reach.