Business Daily from THE HINDU group of publications
Tuesday, Jul 03, 2007
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Business Daily from THE HINDU group of publications Tuesday, Jul 03, 2007 ePaper |
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Money & Banking
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Public Sector Banks Vijaya Bank seeks larger equity role in insurance venture
PNB and Principal Financial likely to hold 30 per cent and 26 per cent respectively Berger Paints’ proposed stake is 32 per cent Vijaya Bank expected to remain minority shareholder with 12 per cent
C. Shivkumar
Bangalore, July 2 Vijaya Bank has moved to take over the stake of Berger Paints Ltd in the proposed life insurance venture, Principal PNB Life Insurance Company Ltd. The Chairman and Managing Director, Mr Prakash P. Mallya, told Business Line, “We have put forward this option for us to continue in the joint venture.” Vijaya Bank’s move comes after the Insurance Regulatory and D evelopment Authority (IRDA) expressed reservations over the participation of Berger Paints in the joint venture. Berger Paints’ proposed stake in the four-way joint venture, for which a share subscription arrangement has been signed, is 32 per cent. Vijaya Bank is expected to remain only a minority stakeholder in the joint venture with the expected stake of just 12 per cent. PNB and Principal Financial Group (PFG) were expected to hold 30 and 26 per cent, respectively. In fact, Vijaya Bank has sought a larger equity role in the venture. “Small stakes will not give us any big benefits,” Mr Mallya said. He said negotiations with top executives of both PNB and PFG would be held on the proposal. As per the shareholder agreement, the proposed capital for the life insurance venture is Rs 110 crore. Other options
However, Vijaya Bank, he said would continue to explore other options, in the event of the proposal being deadlocked. Several private sector life insurers have begun approaching Vijaya Bank for induction as a third partner on favourable terms. Mr Mallya though declined to reveal the names of the companies in the race. I addition, Mr Mallya has also indicated that Vijaya Bank has the option to go in for a separate joint venture with global insurers. “Even for this there are several participants ready to sign up on our terms,” he said. Vijaya Bank has the wherewithal to meet the capitalisation requirements within the stipulated 74:26 joint venture guidelines mandated by the Government for both life and non-life insurance businesses, respectively, bank officials said. But the RBI’s guidelines prescribed involving more than one joint venture partner in the insurance venture. Global interest
Global interest in the domestic insurance sector has been on the rise in view of high growth rate and low penetration. Life insurance penetration in the country is just about 2 per cent of the gross domestic product, way below the Asian average of 5.16 per cent. This is despite the fact that the GDP has been in the 7-9 per cent growth trajectory for about four years in succession. The industry has been growing at 25 per cent. The bulk of the growth though has been contributed by Unit Linked Insurance Plans. However, bankers said, that they were in a position to leverage their branch network to accelerate the growth of the life insurance sector in view of synergies. One evident synergy is through an increase in fund-based income. However, some banks in the long term also hope to use the insurance companies for passing on some of their long term liabilities, especially infrastructure investments.
More Stories on : Public Sector Banks | Life Insurance
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