SBI to make room for foreign partner

To cut stake in general insurance venture to 51% from 76%

State Bank of India (SBI) told the stock exchanges on Thursday that it would be reducing stake in its general insurance venture from the present 76 per cent to 51 per cent.

There would be a corresponding rise in stake of Insurance Australia Group from 26 per cent to 49 per cent. A valuer would be appointed to facilitate price discovery.

The state-owned lender said after the new law in this regard, raising the cap on foreign direct investment in the sector to 49 per cent, the executive committee of the central board for the partners decided, on Wednesday, to initiate the necessary action. This was in line with their joint venture (JV) agreement, for dilution of SBI's stake when it was legally allowed.  

SBI also holds 76 per cent in its life insurance venture and might see the foreign partner raising its stake in that venture, too. SBI Life Insurance is a JV between SBI and BNP Paribas Cardif.

During a conference call after the third quarter results were declared in February, Arundhati Bhattacharya, the SBI chief, said both domestic and international investors had shown interest in taking a stake in both, the life and general insurance ventures. And, that the JV partners in these wished to do likewise.

SBI is not the first company to announce a decrease in stake. After the new legislation was enacted, the Bharti Group said its foreign partner, Axa, would raise its stake. Bharti Enterprises’ chairman Sunil Bharti Mittal had said both remained fully committed to the JV and Axa would step up its equity investment to 49 per cent.

Also, Bupa has already said it would raise the stake in its JV with Max (Max Bupa Health Insurance) to 49 per cent. Reliance Capital is likely to follow. Sam Ghosh, its chief executive, had said the company would soon initiate a dialogue with Nippon, its partner in life insurance, for increasing their stake. He also hopes to close the partners for their general insurance and health insurance businesses soon.

Similarly, Girish Kulkarni, managing director at Star Union Dai-ichi Life Insurance, said their foreign partner was keen to increase their stake, even when the insurance Bill was yet to be passed.

“As per the JV agreement, Dai-ichi Life could increase its stake to 44 per cent but if agreed among all promoters, they can look at 49 per cent, too. We should be among first movers in this regard,” he'd said. Star Union Dai-ichi Life has Bank of India with 48 per cent stake, Union Bank with 26 per cent and Dai-ichi Life with 26 per cent.