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Taking a cue from the Punjab National Bank's (PNB) model for entering the lucrative insurance market, two other public sector banks — Indian Overseas Bank (IOB) and Central Bank of India — are planning a similar move.
PNB, the second largest state-owned bank, had in March announced plans to enter the life insurance business by buying a strategic stake in an existing company, in return for providing its extensive network of more than 3,800 branches throughout the country. The bank is believed to have zeroed-in on three companies — Bharti Axa Life, Aviva Life and MetLife.
Identifying the model
An official in one of the leading private life insurance firms told Business Line that both IOB and Central Bank are at an initial stage of identifying the right model to start an insurance arm.
Through a bancassurance tie-up, these banks will offer their branch network as a low-cost distribution channel to existing insurance companies. In return, banks would seek a strategic stake holding. A new distribution cost structure announced by the IRDA last year, had made other channels like agencies less effective as it has put a cap on commissions that can be paid to an agent, thereby reducing the incentive to sell.
“Both IOB and Central Bank are trying to enter the insurance sector in India by partnering companies with experience in the field. With bancassurance turning out to be a very cost-efficient distribution model for insurers, there are many insurance companies which are interested in tapping banks. These public sector banks may use the same model being followed by PNB, though with some changes in design as per the specific contract,” said the insurance company official.
He added that among other PSBs planning a foray into insurance, Syndicate Bank has already issued a Request for Information to private insurers, while Indian Bank is currently selecting a consultant that would help it choose the right model for the insurance business.
The insurance company official added that Central Bank, like PNB, would find it easy to leverage its large network of 3,650 plus branches, though a smaller bank like IOB may find it harder to attract large insurance companies.
Banks could also consider partnering with other banks in a tripartite joint venture with an insurance company, which would give access to a larger network. This has been the case with Star Union Dai-ichi Life and Canara HSBC Life (with Oriental Bank of Commerce).
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