OBC, Canara Bank, HSBC Insurance forms Joint Venture

Oriental Bank of Commerce (OBC) has announced that Canara Bank, HSBC Insurance (Asia-Pacific) Holdings Ltd and the Bank on March 05, 2007 have signed a non-binding Memorandum of Understanding to jointly establish a life insurance Company in India.

The new Company will have exclusive access to the customer bases of both of the State-owned banks, Canara and the Bank, and of HSBC in India. This comprises more than 40 million people and a nationwide network of 3,600 branches. This formidable distribution capability will be used by the Company to become a significant player in the country's rapidly expanding life insurance industry.

Under the proposed agreement, Canara Bank will take a 51 per cent stake in the new Company, HSBC a 26 per cent interest and the Bank remaining 23 per cent. The new life insurance Company will be capitalised at INR3250 million (approximately US$73 million), of which HSBC will contribute INR1770 million (approximately US$40 million), Canara Bank INR 1,020 million (approximately US$23 million), and the Bank INR460 (approximately US$10 million). Under the terms of the agreement, HSBC will provide a range of management services, which may include providing executives for senior roles.

Life insurance premiums in India grew at an annual rate of 21 per cent in the six years following the opening of the market to private players in 1999, exceeding US$20 billion in 2005. From April to November 2006, new life insurance premiums grew by 155 per cent, according to the Business figures released by India's insurance Regulatory and Development Authority. However, with a penetration rate of only 2.5 per cent in 2005, India's nascent life insurance market has considerable long-term growth potential.

The signing of MoU on March 05, 2007, to promote a Life Insurance Company with HSBC Insurance and the Bank marks a significant step forward for Canara Bank in terms of creating and delivering value added insurance products not only to the existing customers but also to the customers and prospects of the Bank's partner institutions. By collaborating with HSBC the Bank shall be in a position to bring the best of international insurance products to the fast growing Indian markets.

On this occasion Shri. Prithviraj said that the Bank has a strong presence in rural and semiurban areas of northern India with pan India presence at all important centres with 1350 branches and extension counters. The 14500 work force is dedicated and committed to explore new business activities. Around 950 employees are already handling life and general Insurance business for 3 years now. As a part of proposed JV for life the Bank will augment the revenue Stream on two counts viz., return on equity after breakeven of and commission from premium mobilized. Since the Bank understands needs of local populace in the command area, launch of tailor made customer friendly Life Insurance Products will enable the partners to gamer relatively higher business levels. The Bank will help formulation of products for Inclusive Growth for the needy sector of the society, so as to extend the Social Security net to the deserving.

Completion of the transaction is subject to various conditions including obtaining regulatory and other approvals and agreeing final terms among the partners.

Source : Equity Bulls

Keywords