SBI would offload insurance pie to public than Cardif

The State Bank of India (SBI) would prefer to offload part of its equity stake in SBI Life Insurance Company to the public rather than offer it to the joint venture's partner Cardif.

India's largest commercial bank plans to take SBI Life public when the company covers 10 million lives, SBI chairman A K Purwar told Business Standard.

"I'd rather offload my stake to the public than to our foreign partner," Purwar said. SBI Life has, using the bancassurance model, covered 1.8 million lives, and expects to touch the 10 million mark in three years.

Private insurance joint ventures are waiting for the cap on foreign direct investment (FD) in the insurance sector to be raised to 49 per cent from the current 26 per cent.

While all the big Indian promoters "" ICICI Bank, HDFC, Tatas, Birlas, Bajaj and Kotak Mahindra Bank "" have decided to offer their foreign partners additional stake in the respective joint ventures once regulations permit it, SBI has taken a totally opposite stand. Today the country's largest bank holds 74 per cent stake in SBI Life.

The Insurance Regulatory and Development Authority (IRDA) regulations pinpoint that Indian promoters will have to be diluted their holding to 26 per cent within 10 years.

This would mean bringing down Indian promoters' stake to the same level of that of the foreign partners. With the proposed hike in FDI, Indian promoters are apprehensive that the global insurance partners might end up with a higher stake as the IRDA regulations do not impose similar norms on the foreign partners.

Aside from this aspect, should SBI decide to sell additional stake to the French-based partner, Cardif, "we will require ministry approval on account of government holding in SBI through the Reserve Bank of India," pointed out S Krishnamurthy, CEO SBI Life.

SBI Life has to date covered 1.8 million lives with the sale of 2.25 lakh policies, said Krishnamurthy. "We do not have any financial constraint as SBI has the ability to bring in more capital as and when required," he added. The total capital of the insurance venture currently stands at Rs 175 crore.

Since the sector was opened to competition, private insurance joint ventures have increased their share capital from the initial stipulated Rs 100 crore to more than Rs 200-600 crore. Hike in FDI was sought essentially to lessen the pressure on Indian promoters, as the life insurance industry in particular has a large appetite for fresh capital as the business grows.

ICICI Prudential Life has the highest capital base at Rs 625 crore, followed by Max New York Life at Rs 346 crore. With business growing, promoters have stated their intentions to further hike the capital base. The total capitalisation of private life insurance companies today stands at Rs 3,179 crore, of which Rs 827 crore is by way of FDI.