State Bank of India is forming a 74:26 joint venture with Australia's Insurance Australia Group (IAG) for general insurance business. SBI had zeroed in on IAG in May this year to enter into exclusive joint venture negotiations. The JV will commence business in 2009, subject to regulatory approvals including a green signal from Insurance Regulatory and Development Authority.
While IAG will hold 26% of the JV, as per the existing FDI norms for the insurance sector, it has an option to increase the stake to 49% in the future subject to regulations. As per the agreement, IAG will have board representation in the JV besides the right to appoint certain key management personnel and voting rights over key business matters.
IAG will bring in Australian $ 170 million(Rs 536 crore) to the venture funded through its internal resources. The deal will value the JV at Rs 2,061 crore. No further fund infusion is proposed by the partners for the next four years. SBI, the country's largest commercial bank with over 100 million customers and 11,000 branches, already has a life insurance JV with Cardif. SBI Life Insurance which commenced operations in 2001 was the first private life insurance company to become profitable. During 2007-08, the joint venture generated a profit of more than Rs 28 crore.
The public sector bank also has a track record of working in JVs with foreign partners. Besides its life insurance JV, it also has a sixteen year old asset management venture with Societe Generale which now has assets under management of more than $6 billion. In addition it also has a JV with GE Capital for credit cards business.Given the low penetration rates, Indian general insurance market is projected to grow 15%-20% per annum over the next ten years and this is luring new players into the field.
SBI, will join the likes of other state-run insurers -- United India Insurance, New India Assurance, Oriental Insurance and National Insurance who are the big players in the general insurance business in the country. The private sector insurers include Bajaj Allianz, ICICI Lombard, IFFCO-Tokio General Insurance and Reliance General Insurance, besides others.
