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RBI nod for PNB to set up life foray

Sidhartha

Punjab National Bank has become the second public sector bank after State Bank of India to receive Reserve Bank of India clearance for setting up a venture for underwriting life insurance covers.

Sources said PNB has received an approval for setting up a life insurance venture and also for distributing general insurance policies.

The bank intends to set up a life insurance venture in collaboration with global financial services major Zurich and Delhi-based Hero group. Originally, while PNB was to hold 15 per cent stake, Zurich and Hero were to hold 26 per cent and 59 per cent shares, respectively. The initial equity of the venture is expected to be Rs 1 billion.

Sources said that the details of each partner's stakes will be worked out over the next few weeks before approaching the Insurance Regulatory and Development Authority with an application for obtaining a licence.

PNB has a network of over 4,200 offices, which it intends to leverage for distribution of insurance products. The bank's application for permission to set up a life insurance company had been pending with RBI for a long time.

Though RBI had issued norms for entry of banks into insurance, it is against the entry of public sector banks into the business. Bank of Baroda has also sought the regulator's permission to set up a life insurance venture.

So far, only three banks have approached Irda for a licence to venture into insurance business. While ING Vysya is awaiting RBI clearance for its life insurance foray, Jammu & Kashmir Bank, which has tied up with Metlife of the US, is the third bank whose application is being processed by Irda.

RBI has capped banks' equity participation in an insurance company's paid-up capital at 50 per cent. It has set a net worth criteria of Rs 5 billion, capital adequacy of 10 per cent and has also stipulated that only banks with a track record making profit for the last three continuous years will be permitted.

Though PSBs such as Bank of India, Oriental Bank of Commerce and Allahabad Bank had intended to enter the insurance market, all have dropped plans for the time being.

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