India's largest mortgage lender, State Bank of India (SBI) has decided to lower its stakes in its general insurance joint venture from 74 to 51 percent and has decided to begin the process, the bank said on Thursday.
In a regulatory filing in the Bombay Stock Exchange, the bank said its executive committee of the central board (ECCB) on March 25 decided to initiate the necessary action as per the joint venture agreement for dilution of its stake in SBI General Insurance from 74 percent to 51 percent.
SBI said the other partner, Insurance Australia Group (IAG) of Australia would increase its holding in the general insurance company from 26 percent to 49 percent.
According to SBI, the process for diluting its holding in favour of IAG would begin as per the joint venture agreement which includes appointment of a valuer to estimate the enterprise value and the price discovery.
The bank's decision comes in the wake of Indian parliament passing amending the insurance laws to allow foreign direct investment (FDI) up to 49 percent subject to the condition that the management control remains with Indians.
Along with the stake change the insurer would most likely undergo a name change to signify the revised share-holding pattern.
Reacting to SBI's filing, SBI General Deputy CEO Steve Hollow told IANS: "The process has begun. IAG has chosen an Australian agency as its valuer."
However he declined to name the valuing agency.
Hollow said there is no uniform method for valuing a general insurer and factors like gross premium, business potential, and net profit are taken into account while arriving at the enterprise value.
He said SBI General is hoping to close this fiscal with a premium of Rs.1,600 crore and increase that by 50 percent next fiscal.
According to Hollow, the industry is not seeing much hardening of premium rates despite the sectoral regulator's directive on minimum pricing of risks.
Meanwhile SBI also has a 74:26 life insurance joint venture with BNP Paribas Cardif called SBI Life Insurance Company Ltd.
However the bank has not said anything on possible changes in the share-holding pattern.
