Banks eye alliances for risk debut

Rs 100 cr capital requirement drives PNB, BOB, IOB and others to look for partnerships.

Public sector banks (PSBs), keen on foraying into the insurance segment, are joining hands to raise the capital requirement of Rs 100 crore to set up insurance companies.

Earlier, the largest public-run bank, State Bank of India (SBI), in a joint venture with France-based Cardif, floated SBI Life Insurance after the insurance sector was opened up in 2000.

S C Gupta, chairman and managing director, Punjab National Bank (PNB), said, "The approval for Principal PNB Life Insurance Co is with the Insurance Regulatory and Development Authority of India (Irda), and we are hopeful it will happen before March-end."

Formation of a joint venture life insurance company was mooted by PNB, US-based Principal Financial group, Vijaya Bank and Berger Paints two years ago. All the four partners floated an insurance broking agency, PNB Principal Advisory Services, which is already operational.

Recently, Allahabad Bank and Indian Overseas Bank (IOB) have also announced that they are scouting for an overseas player to form a general insurance company.

T S Narayanasami, chairman and managing director, IOB, said the objective of floating a general insurance company is to leverage the large branch network and the expertise gained by bank staff already trained to sell insurance.

A C Mahajan, executive director of Bank of Baroda, said the bank was in early-stage talks with a few institutions to form a life insurance company.

IDBI Bank would be the fourth player to test the waters on this front, as the bank too was reportedly on the lookout for partnerships.

The capital requirement is Rs 100 crore to set up a life/a general insurance company, which is considered too high for banks to shore up with just one overseas partner.

At present, India does not allow an overseas company to invest over 26 per cent in an insurance company, and this has made players like PNB, Vijaya Bank, Allahabad Bank, IOB and BOB to look out for partnerships among themselves and also rope in overseas and domestic companies.

Most life insurance and general insurance companies have corporate agency tie-ups with banks to sell their products as bancassurance is growing as a vital distribution channel and banks, particularly PSBs, have a wide reach in terms of branch network as well as manpower.

ICICI Bank joined hands with Prudential for a life insurance and Lombard for a general insurance foray. HDFC, which is a housing finance company, tied up with Standard Life Assurance for life insurance and Chubb for general insurance.

To float a joint venture insurance company a bank requires Reserve Bank of India approval before it files an application with Irda. In May 2005, Gujarat Ambuja Cements bought out ING Vysya Bank's entire 14.87 per cent stake in ING Life Insurance for Rs 60.9 crore.k