Andhra Bank to end tie-up with LIC next yr

Public sector lender Andhra Bank will end its partnership with Life Insurance Corporation (LIC) when it launches its own life insurance product next year.

The bank has formed a joint venture with UK-based Legal and General Plc Insurance Co and public sector Bank of Baroda (BoB) for the launch. It is currently a corporate agent of LIC. Speaking to Business Standard, Andhra Bank Chairman and Managing Director RS Reddy said, “The joint venture is going through formalities. We expect some products to be ready in the first quarter of the next financial year.”

The venture will work on new products, mainly for the rural markets. “Legal has a long product range,” he said, adding both Andhra Bank and Bank of Baroda have an experience in bancassurance and an established network in rural markets.

 

Instead of targeting new customers, the effort would be to reach out to Andhra Bank’s and BoB’s combined customer base of about 40 million. Andhra Bank has an estimated 17.5 million customers. “We will focus on building our own customer base by first targeting the rural markets. The life insurance products will be sold through our over 1,500 branches ,” he said.

The existing 400 customer relationship managers for LIC would work for the venture. “We are preparing the business model. The product model will come up in phases,” said Reddy.

Andhra Bank earned a commission of Rs 11.67 crore by servicing 140,159 policies in the year to March 31, 2009. The figure was Rs 12.95 crore from 1,79,251 policies the year before. The commission, a measure of business performance, was the highest earned by a bank partner. The margins from the joint venture would be higher, he said. The bank is also looking at the joint venture to enhance its brand value. “The bank will benefit as it has an equity in it. We can, in the course of time, capitalise on the better valuation that the joint venture will bring to Andhra Bank,” he said.

The status quo will remain in the non-life insurance sector, where the bank has tied up with United India for covering savings account customers.

Andhra Bank earned Rs 80 crore fee-based income in the last financial year. The income from investments stood at Rs 1,099 crore during the period.

Total income increased 27 per cent to Rs 6,140 crore as compared with Rs 4,836 crore in the previous fiscal. Interest income was up 27.67 per cent to Rs 5,375 crore from Rs 4,210 crore last year while non-interest income rose 22.2 per cent to Rs 765 crore from Rs 626 crore during the period.