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The Insurance Regulator and Development Authority of India (IRDAI) is unlikely to approve the current valuation methodology for the second phase of the Max Life-Axis Bank transaction.

Last week, the insurance regulator issued two orders, which red-flagged the violations, which happened in the Axis Bank-Max Life deal. Later, penalties are imposed on Axis Bank and Max Life Insurance. It seems like those two orders were just the start of the regulatory action at least, they were not the end of the regulatory action as far as this particular transaction is concerned.

According to the latest reports, the insurance regulator is not comfortable and is unlikely to approve the balance part of the transaction, which is still remaining to be executed with the valuation, which has been put in the first part of the transaction.

So, Axis entities', which is Axis Bank and two more Axis entities, the intention was to acquire a total of 20 percent stake in Max life Insurance. About 13 percent has already been acquired, 7 percent is remaining, 13 percent is where violations have been red-flagged and penalties have been imposed and for the balance 7 percent, IRDAI said the valuations will have to be uniform with the previous transactions and they will have to be a fair market value as far as those transactions are concerned.

Both these two points uniformity in valuation and fair market value were where IRDAI had raised red flags and that is something that will concern the balance part of the transaction where IRDAI said it has to be done on those two parameters.

Also Read: Axis Bank-Max Life deal: IRDAI asks lender to pay Rs 2 crore in 21 days for violation of norms

Importantly, the two questions one gets after this particular IRDAI move. First, what will be the uniform and fair market value for Max Life shares? Second, if a uniform value has been arrived at which is much higher than the stake that Axis Bank acquired in the first leg then would Axis Bank shareholders be ready to pay that higher price for the balance part of the transaction?

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