Union Bank, Bank of India & Dai-ichi Life join hands for Life Insurance JV

Union Bank of India has announced that Bank of India (BOI) and the Bank, two leading Public Sector Banks head quartered at Mumbai, and the Dai-ichi Mutual Life Insurance Co. (Dal-ichi Life), a leading Japanese Company in the Life Insurance field have joined hands for setting up a Joint Venture Life Insurance Company. The arrangement was formalized with the signing of an MOU among the three partners at New Delhi on December 21, 2006. Shri. P Chidambaram, Union Minister for Finance was the Chief Guest of the function and Shri. Pawan Kumar Bansal, Minister of State for Finance was the Guest of Honour. The function was also attended by officials from the Reserve Bank of India, Government, Financial Institutions, Embassy of Japan, representatives of the media and the press, and a host of elite customers of the Banks.

The MOU among others, envisages, a capital stake of 51% by BOI, 26% by Dai-ichi and 23% by the Bank.

Shri. M V Nair, Chairman and Managing Director, of the Bank said that the two Public Sector Banks have entered into a formal working arrangement to leverage their network infrastructure and to pool their skill sets to enter this foray.

The insurance venture would generate a steady stream of income for the three partners after it achieves an economic scale. Further BOI and the Bank will also earn sales commission on the products sold at their branches. This would therefore, provide a regular income to the Banks and strengthen their revenue bases on a mid-to-long term basis and help to improve the non-interest income ratio of the Banks considerably.

Despite the strong past growth, the life insurance penetration levels in India are still low and many opportunities are left untapped. It is also estimated that India is the second largest and fast growing population with a high economic growth potential and a high savings potential. The growth opportunities for life insurance business are very high as the penetration further rises. As per an ASSOCHAM study, the Indian Insurance business is set to grow to US$60 billion by 2010 from US$10 billion now. Out of this US$20 billion life-insurance business will accrue from rural and semi-urban areas, where the two banks have strong presence. The scope for insurance business in Rural India including Micro-Insurance shall be tapped by BOI and the Bank’s rural branch network and shall be supplemented by branches of Regional Rural Banks sponsored by the two banks.

Banking and life insurance businesses are increasingly becoming complimentary to each other. Entry into this sector would, therefore, promote the Banks as one stop financial services institutions for the millions of bank customers. Both banks at present offer Life Insurance products from 3 party vendors. The cross selling of insurance products shall be substantially better when the bank staff have the benefit of an in-house arm for this purpose, and they shall now sell the name of their own insurance Company. Additionally, the product innovation in insurance tailored to banks’ requirements shall help boost the sale of banking products as well.

The two Banks have over the years expanded their product offerings and today offer almost all financial products for both corporate and retail customers. Both the banks also have a strong technological infrastructure with substantial business on CBS platform.

BOI and the Bank have in the recent past announced a few more initiatives of working together eg., for loan syndication, cash management services, international operations and sharing training facilities for mutual benefits. The idea is to pool the resources and expertise so as to handle larger projects from the syndication stage for better business and fee income, as also achieve benefits in terms of costs and improved delivery.

The Governments of India and Japan have very recently on December 15, 2006 announced a special economic partnership initiative meant to promote Japanese investment in India. This Joint Venture between BOI, the Bank and Dai-ichi in the field of life insurance has come at a time when the Government initiatives also support and encourage such joint ventures.

Source : Equity Bulls

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