SEBI sends notices to Axis Bank, Axis Securities, Axis Capital over Max Life deal; 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. The market regulator issued the notice after completing a probe that began about two years ago. 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 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.

SEBI has sought information on aspects such as pricing and valuation while questioning the absence of a fair market value and asking the reason behind a major difference in the sale-purchase prices within a span of 10-11 days, according to legal experts. 

While raising a host of concerns, SEBI has asked how can the deal be considered to be in the interests of Max Financial shareholders.

In August, the Delhi High Court directed SEBI and RBI 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. 

In November 2022, IRDAI had written letters to the market and banking regulators.

In January 2023, the fair market price for the deal was arrived at based on the discount cash flow method following guidelines from the insurance regulator.

Originally, the price was calculated on the basis of income tax rules, according to sources. 

Queries emailed to Axis Bank by Zee Business remained unanswered.

ALSO READ: Axis Bank-Max Life Deal: Sebi, RBI directed by Delhi High Court to expedite probe

Here are a few important facts that might have prompted SEBI to crack its whip on Axis Bank:  

• Between March 15 and 16, 2021, Axis offloaded a 0.99 per cent at Rs 166 per share
• Between March 26 and April 6, 2021, it bought back a total 12 per cent stake in three instances (2 per cent, 1 per cent and 9 per cent) at Rs 31.51 per share
• On April 6, 2021, Axis purchased a 9 per cent stake at Rs 32.12 per share
• The transactions suggest that the deal favoured Axis investors at the cost of Max Life investors' money
• The deal helped Axis secure illegal gains to the tune of Rs 4,000 crore
• IRDAI alleged that Max Life did not comply with certain terms of its approvals; the life insurer paid a penalty 
• On January 28, 2021, IRDAI issued directions regarding the fair market value of the deal
• However, IRDAI directions were not followed 
• IRDAI imposed fines of Rs 3 crore and Rs 2 crore on Max Life and Axis Bank respectively 

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. 

Catch all the latest stock market updates here.