Stage is set for the entry of State Bank of India [Get Quote] into general insurance as the country's largest lender is expected to finalise the terms for joint venture with Insurance Australia Group by next month.

"We are currently working on the structure of the joint venture agreement. We expect to finalise the operating structure by September. Once a mutual agreement is reached, the new company is expected to get operational in the next three to six months," a senior SBI official told PTI.

Both parties signed an agreement in May this year to form a new company for the proposed insurance business. Under the pact, State Bank will hold a 74 per cent stake in the entity and the Australian partner the rest 26 per cent.

State Bank officials, however, declined to divulge the financial terms and management structure of the proposed joint venture company.

SBI's entry into general insurance is expected to pose challenges to existing players. Public sector United India Insurance, New India Assurance, Oriental Insurance and National Insurance hold a major share of the business.

In private sector, leading players include Bajaj Allianz, ICICI [Get Quote] Lombard, IFFCO-Tokio General Insurance and Reliance [Get Quote] General Insurance.

State Bank of India has aggressive plans to expand business on various fronts, including custodial business. Though the bank wants to form a JV with French financial-services major Societe Generale, a finance ministry official recently said the Government was not in favour of the deal. 

SBI has, however, not received any communications from the government on the custodial joint venture so far, a top bank official said.

SBI has appointed Ernst & Young as the consultant for the general insurance foray. The consultant will act as a facilitator to establish the new company with IAG, the official said.

State Bank, which has a customer base of above 13 crore (Rs 130 million), is already operating in the life insurance business through its subsidiary SBI Life. SBI and its associates have a combined network of 15,000 branches.

The lender would primarily focus on its existing clientele for the sale of general insurance products, the official said.

State Bank recently initiated the process of merging its seven associates with itself. The lender has amalgamated smallest subsidiary, State Bank of [Get Quote] Saurashtra, with itself.

Merger of all associates with the parent bank will take the combined business of the Group to above Rs 8 lakh crore (Rs 8 trillion).

IAG is one of the leading players in general insurance and has operations in Australia, New Zealand, Asia and UK. The company has an annual gross written premium of around $7.4 billion and employs nearly 16,000 people globally.

The company, which has secured a 'very strong insurer financial strength' rating of Standard & Poor's, expects to ramp up its business in Asia through its Indian JV.

IAG has insured more than 50 lakh cars, 20 lakh homes, 250,000 businesses and 75,000 farms in Australia.