Dena Bank shelves general insurance foray plan

On the backdrop of current economic meltdown, public sector lender, Dena Bank has shelved its plan of entering into general insurance business.

“At this stage we are not going for such business as it requires substantial capital and takes a long time to break-even. For example typically a general insurance venture takes 5-7 years to break-even, so may be after 2-3 years when we grow bigger in size, we might look into it,” said Dena Bank Chairman and Managing Director D L Rawal.

Analysts said Mumbai-based bank is one of the public sector banking entities with capital adequacy ratio below 12 per cent, a level to have a cushion for facing unprecedented events. Dena Bank’s capital adequacy ratio stood at 11.76 per cent at the December 2008. It has sought infusion of Rs 500 crore from the government to shore up capital base.

 

Given the priority to focus on main business, bank has to rework its business strategy to avoid taking any addtional commitment for capital to other businesses, analysts said.

The bank expressed its intension in mid-2007 to set up a joint venture along with another public sector bank, to mark its entry in the general insurance sector.

It had also invited expression of interest from eligible professional consultancy firm to undertake assignments in strategy development and business planning for general insurance business, international partner search, joint venture, regulatory approval process and operationalisation of the company.

Dena Bank was supposed to hold 26 per cent stake in the proposed JV. In 2004 Dena Bank and Oriental Insurance Company had entered into an agreement for the distribution of latter’s insurance products through a referral arrangement.

However, the bank has tied up with Life Insurance Corporation of India (LIC) and 18 mutual fund companies to distribute various life insurance and mutual fund products.

“We would like to increase our fee-based income, by similar tie-ups and consequently leverage our branch networks through this channel,” Rawal added.

Public sector banks entering into the general insurance space is not entirely new. In 2007, Allahaband Bank, Indian Overseas Bank (IOB), Karnataka Bank, Dabur Investment Corporation and Japan-based Sompo Japan Insurance Inc formed a non-life joint venture insurance company to be called Universal Sompo General Insurance Company.

Allahabad Bank led the consortium with 30 per cent stake followed by IOB (19 per cent), Karnataka Bank (15 per cent), Dabur Investment (10 per cent) and Sompo Japan Insurance (26 per cent) respectively.

Earlier in November, the largest lender in the country, State Bank of India (SBI) announced its foray in to the general insurance market through a joint venture agreement with Australia-based Insurance Australia Group (IAG). The company hopes to commence business in the next financial year and aspires to be among the top three players in the general insurance space in the medium term. SBI would hold 74 per cent stake in the proposed JV and the remaining would be held by the Australian underwriter.