PNB to buy stake in life insurance company

State-owned Punjab National Bank (PNB) on Thursday said it planned to buy equity stake in a domestic life insurance company to begin a new innings in the insurance business.

“The bank has decided to participate in the life insurance venture through a corporate agency tie-up, along with equity participation in an existing Indian life insurance company,” the bank said in a statement.

The country’s second largest public sector bank has also invited bids from ten life insurance companies for this purpose. The shortlisted companies include Aegon Religare Life Insurance, Aviva India Life Insurance, Bharti AXA Life Insurance, Birla Sun Life Insurance, DLF Pramerica Life Insurance, Future Generali Life Insurance, HDFC Life Insurance, Max New York Life Insurance, Met Life Insurance and Reliance Life Insurance.

A senior official said PNB will accept quotations from the bidders till March 25. The tie-up will be proposed partner will be finalised during April-June 2011 period.

Earlier, PNB had invited proposals from insurance companies to decide on the business model for its proposed foray into the life insurance venture. Boston Consulting Group is believed to be the advisor to the bank.

PNB officials, however, clarified that the bank was yet to decide the size of its investment and the stake it would buy. But they remained hopeful that the life insurance venture will commence its operations by the third quarter of this calendar year.

The bank has chosen this business model — buying stake of an existing company — to make up for the time lost in being entangled in the venture that failed to take-off.

At present, PNB is the only large public sector bank, which does not have a life insurance subsidiary. Its earlier entry to life insurance through a joint venture with Principal Financial Group, Berger Paints and Vijaya Bank has not been successful.

At present, PNB is the bancassurance partner of the country’s largest life insurer Life Insurance Corporation of India. After the bank forms a joint venture with a private entity, PNB will have to exit the tie-up with LIC. Current regulations allow a bank to sell insurance products of only one insurer.