Kotak Mahindra Finance Ltd (KMFL) has called off its joint venture with Chubb Corporation of USA for entering into the general insurance business in India. KMFL instead has decided to enter the life insurance business. The main reasons being stated for this move is the high capital requirements for entering into general insurance and better opportunities seen in the life insurance sector.
The financing for such expansion is being done through a rights issue in the ratio of 1:4 in order to raise funds to the tune of Rs 920 m, and increase its net worth to Rs 4.2 bn from Rs 3.3 bn currently.
This move seems in the right direction by Kotak Mahindra, as general insurance is very vast and would require large capital expenditure to sustain the business. Its decision to issue rights shares is aimed at beefing up of its net worth to get closer to the Rs 5 bn statutory requirement.
FIs and NBFCs have been out of favour with analysts for some time now, but have started picking recently in line with the improved economic scenario. Kotak Mahindra's foray into life insurance will make use of its wide distribution network and strong retail brand name.
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