Hdfc, Standard Life Pact Renewed For 24 Years
Housing Development Finance Corporation (HDFC) and Standard Life Assurance Company (SLAC) have renewed their joint venture agreement for a further period of 24 years to set up a life insurance company. SLAC has decided to enter India without an equity stake in just a technical tie up with HDFC.
The joint venture agreement signed three year back expired as the government is yet to give a final go-ahead to the entry of foreign companies in the Indian insurance sector.
Giving a strong signal of its commitment to enter the Indian insurance sector, SLAC has renewed its agreement. According to Deepak Parekh, chairman, HDFC, "We plan to commence operations very soon and might capitalise the insurance company to the tune of Rs 200 crore."
A S Bell, group managing director, Standard Life, said: "We will prefer maximum equity in the Indian joint venture but even if the government does not allow foreign equity in insurance, we will enter into a technical tie-up with HDFC."
The government has set up a committee of ministers to finalise the equity stake foreign insurance companies can have in Indian insurance companies. After this, the Insurance Regulatory Authority (IRA) bill is expected to be tabled in the Parliament. The bill is likely to be cleared in the winter session. After the clearance of the bill, SLAF and HDFC will float the insurance company.
"We plan to introduce savings products, pension products and mortgage protection products in India," Parekh added. In India, mortgage products will get huge tax benefits as the tax breaks on housing loans and also insurance premiums will add up.
Parekh sees tremendous synergy in the mortgage products business as HDFC itself is into mortgages. The product, in its basic form, allows the borrower of a housing loan to just pay the interest on the loan and pay the premiums of an insurance policy. When the policy matures, the money is used to pay off the principal amount.
In the joint venture, SLAF will bring new products and technology to the table, and HDFC will bring in its distribution network and also the strong brand. Says Parekh, "Life insurance is a long term business and policies have a life of 10 to 20 years. Hence a strong brand is required to give people the confidence to pay their premiums over such a long timeframe."
SLAF plans to make the maximum investment in equities after it sets shop in India. According to Bell, equities give the maximum returns over a long timeframe. In fact, 85 per cent of SLAFs total investments is in equities. By contrast, Life Insurance Corporation is allowed to invest only five per cent in equities.