PNB, Vijaya JVs with Principal in a fix

Joint ventures of public sector lenders Punjab National Bank (PNB) and Vijaya Bank with the Principal Financial Group are in a spot, with only the US financial services major having the option to exit the ventures.

Vijaya Bank has already announced its intention to exit the joint ventures with Principal "� Principal PNB Asset Management Company, PNB Principal Financial Planners and Principal PNB Insurance Advisory Company.

PNB, meanwhile, is not publicly stating its intent to part ways, but is just saying that it is reviewing its continuance in the joint ventures.

The two banks have separately hired consultants to advise them on ways of parting company with Principal, according to sources.

The two banks not only do not have the option to exit, but will also need approval from Principal to sell their stakes to other interested parties. The two banks have discovered that according to the agreements, the right to invoke the termination clause rests solely with Principal .

Officials from the two banks were not willing to comment on the issue, while emails to Norman Sorensen, the president and CEO of Principal International, Rex Auyeung, senior vice-president and chief executive, Asia, Principal International did not elicit any response.

The equity holding is similar in PNB Principal Financial Planners and Principal PNB Asset Management, where PNB owns 30 per cent, Principal 65 per cent and Vijaya Bank the remaining 5 per cent.

However, in Principal PNB Insurance Advisory Company, PNB holds 30 per cent equity, with Principal 26 per cent, Berger Paints 25 per cent and Vijaya Bank 19 per cent.

The two banks, along with the Principal Financial Group and Berger Paints, had also entered into an agreement in April 2004 to set up a life insurance company.

However, in May this year, the Insurance Regulatory and Development Authority (Irda) rejected the initial application of Principal PNB Life Insurance Company for reasons which are still not known.

A few months ago, Vijaya Bank CMD Prakash P Mallya had announced his intention of exiting all the joint ventures with Principal as it held insignificant stakes.