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State Bank of India is likely to pocket an entry premium of over Rs 400 crore (Rs 4 billion) to tie up with Insurance Australian Group, the highest in the insurance business so far.
The amount is almost double the Rs 220 crore (Rs 2.2 billion) that a consortium of Bank of Baroda and Andhra Bank earned for its life insurance tie-up with the UK-based wealth and investment company, Legal & General Group (see table).
The entry premium is a result of regulations that require foreign insurers to tie up with Indian partners. SBI will hold 74 per cent in the non-life insurance company and IAG the remaining 26 per cent, the maximum foreign investment permitted in the sector.
The public sector bank is seeking a high entry premium, given its nationwide presence with 14,000 branches, including 4,000 of its associates, and its strong brand identity.
Keeping business growth in mind, the total capital requirement for five years could be over Rs 300 crore (Rs 3 billion), sources associated with the SBI-IAG plan said.
A memorandum of understanding between SBI and IAG is likely to be finalised by the end of next month, a senior SBI executive said.
IAG is facing a takeover threat from another Australian insurer QBE, which made a $7.6-billion offer last month. QBE has a non-life insurance tie-up with the realty group the Rahejas.
