Axis Bank-Max Life Deal: SEBI Sends Notice, More Pain Ahead For Investors?

Axis Bank shares faced selling pressure on Monday after the private sector lender and its subsidiaries, Axis Securities and Axis Capital, received show-cause notices from SEBI related to the group's acquisition of a stake in Max Life Insurance. Axis Bank and its two entities received the notice through email on October 25, according to a regulatory filing by the private sector lender on Saturday. The development assumes significance as it comes amid allegations that the Axis Bank-Max Life Insurance deal violated fair market value norms.

Several Max Life Insurance senior executives also received SEBI notices via email. Max Financial Services, Max Life Insurance's holding company, engages in investment business and provides management advisory services.

Axis Bank stated that the show-cause notice is being reviewed and that they will file responses with SEBI, citing requisite regulatory approvals for the transactions.

In August, the Delhi High Court directed SEBI, RBI, and IRDAI to investigate the matter. Axis Bank acquired additional Max Life Insurance equity shares worth Rs 336 crore, increasing their stake to almost 20 per cent from 19.02 per cent after receiving insurance regulatory approval.

"The Hon’ble High Court vide its Order dated August 12, 2024, noted that sectoral regulators are already ceased of this matter, and directed their investigation to be expeditiously completed in accordance with law,” Axis Bank said. 

As part of a 2021 deal, Axis Bank increased its holdings in Max Life Insurance to 19.02 per cent from 12.99 per cent in April, initially investing in 2020.

Last year, Axis Bank signed a revised agreement with Max Financial Services to acquire an additional 7 per cent in Max Life Insurance using the discounted cash flow method, following October 2022 guidelines from the insurance regulator.

Max Life Insurance is a joint venture between Max Financial Services and Axis Bank. Axis Bank provides retail banking services, including lending, while Max Life Insurance offers life insurance, annuity products, and investment plans.

Regulatory approval is required for deals beyond a certain threshold to prevent unfair business practices and promote fair competition.

On Monday, Axis Bank shares ended weaker by Rs 17, or 1.4 per cent, at Rs 1,170.7 apiece on BSE, underperforming a market-wide recovery in the headline indices following a losing streak that lasted five trading sessions in a row. 

As of October 28, Axis Bank shares have weakened almost 5.0 per cent, underperforming the banking basket on Dalal Street as reflected in a 3.2 per cent decline in the Nifty Bank during this period. 

(Disclaimer: This story originally appeared in zeebiz.com)