The Hindu Business Line : Vijaya Bank plans direct foray into insurance

Bangalore April 6 Vijaya Bank proposes to enter into insurance business directly after it finalises its exit from the three-way life insurance joint venture that it had entered into along with Principal Financial Group of the US and Punjab National Bank.

Top executives of all the three joint venture partners are meeting on April 10. The Chairman and Managing Director, Mr Prakash P. Mallya, told Business Line , "We will decide on our continuation in the partnership after the meeting on April 10."

The bank had indicated that it wanted to get out of the three-way joint venture broking arrangement. Vijaya Bank is a 19 per cent stakeholder in PNB Principal Insurance Advisory Company Private Ltd.

This followed objections raised by the Insurance Regulatory and Development Authority (IRDA), over it being a corporate agent directly for the public sector National Insurance Company Ltd and at the same time participating in a broking company vending insurance products.

Besides, Mr Mallya said that the existing arrangement was not advantageous to the bank, in revenue terms, especially after it had to shed its corporate agency under regulatory pressure in 2005.

The option now is to enter into insurance business directly or through the joint venture route. Mr Mallya said, "We have plans to get into both life and non-life insurance business." But he said that the proposals were still in the incipient stages and decisions would depend on the outcome of the meeting.

Phenomenal growth

Vijaya Bank wants to leverage its branch network along with another public/private sector bank in its insurance foray and take advantage of synergies in such ventures. This is particularly because insurance, both life and non-life, has been growing at a phenomenal rate.

Life insurance has grown by 121 per cent on a year-on-year till February this year according to IRDA data that showed a gross premium collection of Rs 58,000 crore. Non-life insurance during the same period has grown by about 24 per cent. The combined premium collection, despite the phenomenal growth rate, is still barely one per cent of the Gross Domestic Product, leaving space for more players to enter the fray.

Current norms

Under the existing IRDA guidelines, the minimum prescribed equity capital is Rs 100 crore and insurers would be expected to maintain a solvency margin of 150 per cent. 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.

Yet Vijaya Bank would prefer to involve one more domestic partner, when it finally decides to take a call. This is in view of the Reserve Bank's advisory to public sector banks for involving more than one partner in insurance joint venture.

The officials said that so far no bank had yet been identified, though several PSBs have expressed interest in entering insurance sector.

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