The Hindu Business Line : In the event of disinvestment — Banks keen to pick stakes in insurance cos

Sources said that most of the public sector companies have left their options open for entry into the general insurance sector. Almost all the joint venture applications made were for life insurance and none have so far been made for entry into the general insurance sector.

Bangalore , Dec. 25

PUBLIC sector banks have indicated that they were amenable to picking up stakes in the general insurance companies in the event of the Government divesting from them.

Banking sources said that some of the banks would be interested in having large equity interests in the public sector general insurance companies, beyond the existing Bancassurance models that was currently adopted. All of them were keen to take the model of the integrated ICICI, sources said.

ICICI has two joint venture insurance companies — ICICI Lombard for non-life and ICICI Prudential for life. Such a model, bankers said, would allow them to offer all the financial products on an over-the-counter basis.

Sources said that most of the public sector companies have left their options open for entry into the general insurance sector.

Almost all the joint venture applications made were for life insurance and none have so far been made for entry into the general insurance sector.

For general insurance products, banks have entered into bancassurance arrangements with only the public sector companies. This was in view of the large market share of the public sector companies.

Besides, the arrangement was also intended to preserve the public sector nature of the financial institutions.

The proposal for cross holdings with banks, however, is not new. This proposal was originally mooted by some of the former chairmen of the four public sector insurance companies in 2001. The proposal was made so as to allow both the banks and insurance companies to take advantage on their respective synergies.

The suggestion then forwarded was that General Insurance Corporation, which was the holding company, could divest its holdings in favour of some of the public sector banks instead of the Government.

GIC was asked to divest, since it had become the national reinsurer.

Under the IRDA's guidelines, reinsurers are prohibited from having any stakes in the primary insurance companies.

By divesting in favour of the banks, in line with the insurance regulator' guidelines, GIC had expected to shore up its capital. This was especially in a situation when the GIC was planning to become a global player.

However, sources said here, that with the Government assuming control of the four insurance companies, banks were still expecting that they would be given preference in the proposed dilution from the four companies, either through fresh equity floats and divestment of a portion of the Government stakes.

In fact one of the options before the Government of dilution is through the initial public offering route, as opposed to an outright divestment.

However, valuation is still likely to be a major problem for the IPO route. This is especially since any valuation could be arrived only after ascertaining the probably liabilities and netting the provisioning requirements for some of the incurred but not reported events (IBNR).

Besides, all the four insurance companies have large assets in the form of real estate in all the major metros of the country, all of which are valued on a book value basis. The difference in valuation acts as a hidden reserve for them. Further the sources said, that all these insurance companies also have large equity holdings and Government securities. The value of these investments have also escalated considerably during the last two years compared to their acquisition prices.

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In the event of disinvestment — Banks keen to pick stakes in insurance cos