InvestorQ : Why is HDFC Bank planning to invest in Go Digit Insurance? Can you also tell me about the proposed IPO of Go Digit?
Moii Chavate made post

Why is HDFC Bank planning to invest in Go Digit Insurance? Can you also tell me about the proposed IPO of Go Digit?

Tisha Malhotra answered.
2 months ago

HDFC Bank has been in the news in the last few months for both the right and wrong reasons. It managed the transition from Puri to Jagdishan quite smoothly. It has been facing tough competition from ICICI Bank, which has made rapid strides on the volumes and the profitability front. HDFC Bank had to also recently go through a ban on fresh card issues, which was eventually lifted. But amidst this chaos, HDFC Bank has been also silently working to consolidated its partnerships in the Fintech space. After all, that is the future of banks.

Amidst this flow of news comes the decision by HDFC Bank to invest Rs49.9 crore to Rs69.9 crore in two tranches to buy a 9.94% equity stake in Go Digit Insurance. while GO Digit Insurance is backed by Fairfax group of Prem Watsa as an investor, Virat Kohli has been one of the early backers of this venture too. For now, all that we know is that HDFC Bank and GO Digit Insurance have entered into an indicative and non-binding term sheet. The two will jointly create a digital insurance franchise, but subject to approvals from the IRDAI.

There are likely to be synergies for both the companies. Go Digit gets the backing of a large bank with a strong balance sheet which also has one of the strongest insurance franchises in India under the HDFC Life and HDFC Ergo banner .For HDFC Bank, it helps them to better adapt to the new fintech model and still look at Fintech as competition. For banks like HDFC Bank, Fintechs can provide the opportunity to adapt to the emerging paradigm of banking. Globally, and in India, banking is being challenged by the Fintechs.

Go Digit General Insurance Ltd plans to come out with an initial public offer and for that it has filed draft red herring prospectus (DRHP) with SEBI. The dates of the IPO would be decided upon post the approval coming in from SEBI. Normally, SEBI takes about 2-3 months to give the approval and the IPO process can only start after the IPO approval. The IPO will comprise of a fresh issue of Rs1,250 crore combined with an offer-for-sale (OFS) of 10.94 crore equity shares by Go Digit Infoworks Services. Price is not yet decided.

Go Digit Insurance has a wide spectrum on offer. It offers motor, health, travel, property, marine and liability insurance to its customers. With a digital first approach, Go Digit can work better on customization of products and solutions to the unique needs of the customers. Go Digit has the distinction of operating on the cloud and deploys API integration with channel partners. It remains to be seen how the investors react, but a stake from HDFC Bank will do a lot of good for confidence of investors.