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BL Research Bureau

The brand value and distribution reach of Indian public sector banks are well known. These strengths have been well preserved over a period of time and have largely enabled them to retain their customer base through economic and business downturns. The reported move of global banking major HSBC to pay Rs 125 crore premium on its capital contribution for the proposed life insurance joint venture with Canara Bank/Oriental Bank of Commerce — primarily for brand identity and distribution reach of the two public sector banks — only reaffirms their known strengths. This readiness of a global bank to pay a premium to leverage brand value and network strength of Canara Bank/OBC may provide a short-term boost to the shares of the two banks as an indicator of the inherent potential in the core business of the two banks. The capital requirements of a life insurance business and the obligations that could fall on the promoters if the insurance venture is not spun off as a separate entity, though, could be long-term policy and valuation uncertainties.

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