PNB insurance foray hits roadblock

Punjab National Bank's (PNB) proposed foray into life insurance with the UK-based Principal Financial Group, UK Paints (India) and Vijaya Bank has hit a roadblock, with some of the partners wanting to withdraw from the venture.

Berger Paints, which was to own 32 per cent in the new venture - 'Principal PNB Life Insurance Compan - is considering withdrawing from the venture, while Vijaya Bank, with a 12 per cent stake, is weighing its options. Principal Financial holds the remaining 26 per cent stake , the maximum that a foreign partner can hold.

PNB, which has 30 per cent stake in the joint venture, said the venture needs to be reviewed.

"There has to be some rethink on the proposed venture. There is a problem as some of the shareholders are not willing to participate," said K C Chakrabarty, chairman and managing director, PNB.

In May, the Insurance Regulatory and Development Authority (Irda) declined to clear the R1 application of Principal PNB Life insurance and had sought clarifications. The clearance is basically an in-principle approval by the Irda to the proposed terms of an insurance company.

"We had asked for certain clarifications on which they have still not got back to us," said an Irda official.

According to sources, the Irda had raised concerns on the participation of UK Paints in the venture. The Kolkata-based paints company was considering withdrawing from the venture.

The company's officials could not be reached for comments.

Rajan Ghotgalkar, country head of Principal Financial in India, said: "We are reviewing the entire strategy. There is no talk about exiting. The issues could be long-term or short"�term. We are having strategic discussions and are hopeful of resolving the issues . Currently, we want to put all the issues behind us and get the R1 licence."

PNB's Chakrabarty, however, said: "The company has still not been formulated. The entire company may be up for a rethink. The shareholding and constitution of the company may change."

The four partners had entered into a memorandum of understanding way in April 2004 to roll out an insurance company.

"There could be issues like equity stakes. However, these should be sorted out," said one of the partners.

The sources said Vijaya Bank which has only a 12 per cent stake may want to increase its stake in the venture.

Earlier, Andhra Bank, had pulled out of a life insurance venture led by Bank of India (BoI) and Dai-Ichi Mutual Life Insurance Company of Japan, as it was offered only a 23 per cent stake.

BoI was to hold 51 per cent with Dai-Ichi having 26 per cent stake. Union Bank of India subsequently replaced Andhra Bank as a partner with an identical stake in the venture but with the option of scaling up its stake along with the foreign partner.

The bank (Union Bank) will have the option of increasing its stake once the FDI (foreign direct investment) norms are liberalised allowing the foreign partner to scale up its stake from 26 per cent to 49 per cent," said a senior BoI official.