Yet another monopoly goes, pvt cos step into insurance

According to industry officials, a large number of companies would apply for licence in the first phase itself and this include Royal and Sun-TVS Sundaram, Max-New York Life, Prudential-ICICI, ING-Vijaya, among others. "We are ready and would apply for license in the first few weeks (of opening the window for applications) itself," Anthony Jacob, chief executive officer of Canada’s Royal & Sun Alliance said.

The Reserve Bank of India (RBI) on Saturday invited applications from the domestic banks which want to enter the insurance sector. This comes in the wake of the government notification specifying insurance as a permissible form of business that could be undertaken by banks under Section 6(1)(o) of the Banking Regulation Act, 1949.

Earlier, the RBI had issued guidelines regarding the entry of banks into insurance business, which had said that the business will not be permitted to be undertaken departmentally by the bank. The maximum stake banks are allowed in selective cases is pegged at 74 per cent by the RBI.

Royal & Sun Alliance has tied up with Chennai-based TVS group to enter the non-life insurance sector. ING Insurance’s chief advisor Narain Joshi said that the company was all geared up to enter the domestic life insurance sector, though it has to tie-up loose ends.

ING Insurance, which has signed an agreement with Vysya Bank to enter the life sector, has to finalise one more partner as the RBI rules stipulate a maximum of 50 per cent stake for banks, Joshi said.

The IRDA Act, approved by Parliament, allows foreign companies to take a maximum of 26 per cent in the Indian insurance ventures. All the global players entering the domestic insurance sector are taking the maximum permissible limit of 26 per cent in its ventures in India.

Vivek Jaitley, managing director of Max India, which has tied up with New York Life to enter the life insurance sector, said that the company would also file for application in the first few weeks itself. Max India has decided to take the entire 74 per cent stipulated for domestic partner, Jaitley said.

Companies like Royal and Sun Alliance is hoping to invest a minimum of Rs 400 crore in the first few years. Royal and Sun’s Jacob said the rules, which make it mandatory for new entrants to write a certain portion of the business in the social and rural segments, were necessary so that the backward segments are not ignored by new companies.

However, ING Insurance’s Joshi said that the IRDA should ensure that the confidentiality clause should be maintained. As per the rules, the new companies are required to submit detailed business plans, which would force them to elaborate their business and marketing strategy to the insurance regulator.

The rules for life, non-life, re-insurance, social and rural sector obligations are among the first set of 10 guidelines notified by the government. Though re-insurance guidelines are notified, IRDA has not called for licence applications in the sector as no companies have announced plans to enter the sector in India.

"Re-insurance business depends on the insurance business developing in the country and many companies may be looking at how the new entrants develop the sector to enter the re-insurance segment," an IRDA official said. The IRDA Act requires re-insurance companies to have a minimum paid-up capital of Rs 200 crore.

Industry sources said insurance majors like Chubb, Allianz, Sun & Life are also in the final stages of tying up with local companies to enter the domestic sector. Public sector banks like State Bank of India (SBI), Corporation Bank and a consortium of banks led by Punjab National Bank, Allahabad Bank and Vijaya Bank have also announced plans to enter the insurance sector.

It is expected that all these companies would file for applications in the first phase itself to get the first entrant advantage in the lucrative domestic insurance sector. Any bank intending to undertake insurance business and applying for the licence, in the manner set out by the the RBI, should obtain prior approval of the RBI before engaging in such business.

Banks will have to submit the necessary applications to RBI, furnishing full details in respect of the parameters as specified in the above guidelines, details of equity contribution proposed in the joint venture/strategic investment, the name of the company with whom the bank would have tie-up arrangements in any manner in insurance business, etc, the relative board note and resolution passed thereon approving the bank’s proposal together with viability report prepared in this regard.

Among domestic banks, State Bank of India, Canara Bank, Bank of Baroda, Punjab National Bank, Bank of India, Allahbad bank, Vijaya Bank, Jammu & Kashmir Bank are planning to enter insurance sector. State Bank of India’s permission from RBI is pending.