British insurer Standard Life said on Monday that India's insurance watchdog had "expressed reservations" in accepting the current deal terms for the purchase by its Indian joint venture of Max Life Insurance.
In August HDFC Standard Life Insurance Co (HDFC Life) agreed to buy India's Max Life Insurance in an all-stock deal to create the nation's top private life insurer valued at nearly $10 billion.
The deal is expected to kick-start consolidation in India's lucrative insurance sector where relatively few people hold insurance policies despite the country being the world's second-most populous nation of 1.3 billion.
Standard Life said that Indian mortgage lender Housing Development Finance Corp, which currently owns a majority of HDFC Life, believes that the scheme of arrangement submitted to Insurance Regulatory and Development Authority of India (IRDAI) complied with all applicable laws.
The companies, which filed an application for IRDAI's in-principle approval for the scheme in September, propose to make suitable representations to the regulator, Standard Life said.
The current terms of the deal involve Max Life being merged into its parent company Max Financial Services, which in turn would combine its entire life insurance business with HDFC Life.
Analysts said regulators were likely to be focusing on the logistics of having an insurer merger with a non-insurer.
The deal is set to give Max Financial Services' shareholders 2.33 shares of HDFC Life for every Max Financial share held.
If it goes ahead, it would also give Standard Life about 24 percent of HDFC Life while Housing Development Finance Corp will own a 42.5 percent stake.
Shares in Standard Life were up 1.23 percent at 368.1 pence at 0923 GMT on the London Stock Exchange. Max Financial Services and HDFC Ltd's stocks did not trade on Monday as Indian markets were closed.
(Reporting by Noor Zainab Hussain in Bengaluru; editing by Pamela Barbaglia and Rachel Armstrong)