SBI not to sell more stake in its insurance arm

At a time when private sector insurers are eagerly waiting for the formal clearance of the Union Budget's foreign direct investment (FDI) hike proposal, banking behemoth State Bank of India (SBI) says it has no intention to offload more stake in its insurance arm, SBI Life Insurance Company, to its French partner, Cardif.

Moreover, any hike in the insurance firm "will require a ministry approval on account of government's holding in SBI through the Reserve Bank of India," said S Krishnamurthy, chief executive officer, SBI Life.

The nationalised bank holds 74 per cent stake in SBI Life, with Cardif has 26 per cent. The finance minister P Chidambaram proposed in the Budget that FDI in the insurance sector ought to be increased from 26 per cent to 49 per cent.

Indian promoters of various private insurers are willing to dilute their holdings in the respective joint ventures in favour of their current foreign partners.

However, SBI chairman A K Purwar had told the media that the bank does not intend to reduce its holding.

"We do not have any financial constraint as SBI has the ability to bring in more capital as and when required," said Krishnamurthy.

The hike in FDI was sought chiefly to lessen the pressure on Indian promoters, as the life insurance sector in particular needs additional capital as the business grows.

Since the sector was opened to competition, private insurers have increased their share capital from the initial stipulated Rs 100 crore to well in excess of Rs 200-600 crore in less than four years of operation.

ICICI Prudential Life has the highest capital base at Rs 625 crore, followed by Max New York Life at Rs 346 crore. HDFC Standard Life and Birla Sun Life have Rs 230 crore and Rs 218 crore respectively. However, with the business growing, promoters have stated their intentions to hike the capital base further.

"There are some relationships where domestic partners are not able to continuously bring in more capital. For them the hike in the FDI limit becomes crucial," said Krishnamurthy.

However, even financial heavyweights "" the like of Birlas, Tatas, ICICI Bank, Bajaj and Housing Development Finance Corporation "" have indicated their willingness to permit their foreign partners to increase their holding in the joint ventures.

At the same time, domestic partners hope to make a killing when they dilute a portion of their stake to respective global counterparts.

Incidentally, while in the case of some insurance joint ventures the hike in holding is written into the initial agreement, the same does not hold true for SBI Life.

"Our agreement with Cardif does not provide any automatic increase in the holding of our partner. These are issues subject to discussion between Cardif and SBI," said Krishnamurthy.

Promoters of SBI Life infused an additional Rs 50 crore in late March, taking the total capital to Rs 175 crore.

The total capital base of private life insurance companies currently stands at Rs 3,179 crore, of which Rs 827 crore is FDI.