Europe's largest banking group HSBC is entering India's fast-expanding life insurance market, jointly with public sector banks Canara Bank and Oriental Bank of Commerce.
Canara Bank will hold a majority 51 percent stake in the venture, OBC 23 percent and HSBC 26 percent, the maximum foreign direct investment allowed in insurance.
The country already has 15 private sector life insurance players in addition to government-owned incumbent Life Insurance Corporation. Several others like Principal PNB Life Insurance Company and IDBI Fortis Life Insurance Company have already announced launches.
HSBC will pay a premium of Rs 125 crore for its stake, which would be used to meet initial administrative and other operational expenditure. The company will have a paid-up capital of Rs 200 crore contributed by the three partners in accordance with the shareholding.
The two Indian banks will make available their combined network of 3,600 branches and a customer base of 40 million, said K N Prithviraj, chairman and managing director of New Delhi-based OBC.
HSBC is the first among large foreign banks to enter India's insurance market. The other foreign bank present in life insurance is Europe's ING through ING Vysya Life Insurance. The 16 life insurance companies have been reporting new business premium income growth of over 100 percent for the last couple of years.
HSBC will provide a range of management services, including executives for senior roles in the proposed joint venture, said M B N Rao, chairman and managing director of Bangalore-based Canara Bank. The joint venture partners would soon approach the Insurance Regulatory and Development Authority for a licence.
The company is expected to commence business this calendar year.
HSBC's investment in the venture will be made through its unit HSBC Insurance Holdings Ltd. If the FDI limit is raised by the government to 49 percent, Canara Bank and OBC will bring down their stakes, but the two PSU banks would together continue to hold a majority stake in the company, Rao said.
Union Finance Minister P Chidambaram, who was present at the signing ceremony, said the new insurance company will help increase the insurance penetration rate in the country, with a population of over one billion. The penetration was at a low 2.5 percent in 2005.