The Hindu Business Line : ICICI Bank to set up new arm for insurance, MF biz

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Mumbai March 3 With the Government pausing on financial sector reforms, India's biggest private sector bank, ICICI Bank Ltd, has decided to redefine itself to raise funds for its subsidiaries.

The bank's board on Saturday approved a proposal to set up a new fully owned subsidiary — ICICI Holdings — and transfer to the entity, its investments in the insurance and mutual fund subsidiaries.

In a release issued after the board meeting, the bank said its investments in ICICI Prudential Life Insurance Company, ICICI Lombard General Insurance Company, Prudential ICICI Asset Management Company and Prudential ICICI Trust Ltd would be transferred to ICICI Holdings, subject to the approval of the Reserve Bank of India and the Insurance Regulatory and Development Authority.

The new holding company may consider a public issue of its equity shares at an appropriate time, but the bank would retain the majority stake, the release said. ICICI Bank currently holds around 74 per cent stake each in ICICI Prudential and ICICI Lombard and 51 per cent in ICICI AMC and ICICI Trust. The book value of the holdings is currently around Rs 1,950 crore.

According to analysts, the restructuring exercise will help ICICI Bank get around regulatory speed-breakers in expanding its capital-intensive subsidiaries. The holding company can now go public to raise capital for its subsidiaries and will not have to wait for the Foreign Direct Investment in the insurance sector to be hiked from 26 per cent to 49 per cent for its foreign partner to bring in additional equity.

The holding company, which would be incorporated as a non-banking finance company (NBFC) can raise funds directly from the market. Currently, there is no cap on FDI in NBFCs.

RBI regulation also prevents the bank's investment in subsidiaries from exceeding 20 per cent of their net worth.

Ms Morparia to head arm

Ms Kalpana Morparia, Joint Managing Director, ICICI Bank, said both the insurance and the mutual fund businesses need capital infusion. ICICI Bank has already touched the RBI's 20 per cent limit in these ventures. If all goes well, the new holding company can go public by the end of the year, she said. The insurance companies themselves could also get listed at a later stage.

Globally, insurance and asset management businesses operate under a single entity and that could be replicated in the case of ICICI, she explained. Ms Morparia will be the MD and CEO of ICICI Holdings, effective June 1.

Analysts estimate the market valuation of ICICI Holdings at between Rs 17,000 crore and Rs 30,000 crore.

ICICI Prudential had plans to go in for an IPO after the FDI hike in the insurance sector came through. The company has a capital base of Rs 1,815 crore. "We can now sustain ICICI Prudential's growth and access funds from the market to fulfil our capital requirements," said Ms Shikha Sharma, MD, ICICI Prudential Life Insurance Company.

More Stories on : Private Banks | Restructuring | Mutual Funds | ICICI Bank Ltd | Insurance

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