The Reserve Bank of India (RBI) will go through the annual results of public sector banks for 2000-01 with a fine tooth-comb and examine the status of their overall financial health to decide the fate of pending applications of some of them for entering the insurance underwriting business.
The proposals of Bank of Baroda, Corporation Bank and Punjab National Bank have been hanging fire for almost a year now though the State Bank of India, in which the apex bank holds 59.70 per cent stake, got the go ahead and is set launch its operations in a joint venture with French insurance giant Cardif shortly.
Any decision on granting permission to the PSBs to enter insurance (underwriting) business will hinge on their financial performance in fiscal 2001, sources in the know of developments said.
The apex bank had raised certain contentious issues with the banks like the health of their subsidiaries, the need to rein-in and bring down the non-performing assets, whether it is advisable to allow more than a couple of players to tap the insurance business on a risk participation basis and the banks ability leverage their large branch network to market insurance products.
That synergies exist between the insurance and banking business is vouchsafed by the fact that Life Insurance Corporation of India recently announced its intentions of acquiring a bank. LIC already holds around 13 per cent stake in the Corporation Bank.
One of the salient features of the insurance business, especially of life insurance, is that insurance policies are generally a combination of risk coverage and savings and this clearly points to a synergy between the insurance and banking sectors.
RBI has set stiff entry barriers for banks wanting to set up a joint venture company for undertaking insurance business with risk participation.
The norms include a networth requirement of not less than Rs 500 crore, the capital to risk weighted assets ratio should not be less than 10 per cent, a reasonable level of non-performing assets, it should have posted continuous net profit in the last three years and performance of subsidiaries should be satisfactory.
Given the stringent entry level norms, which majority of the PSBs will be unable to fulfill, banks are firming up plans to provide fee-based insurance services without risk participation. Some of them are even looking to invest in an insurance venture for providing infrastructure and service-support.
