Insurance Australia, State Bank launch insurance joint venture

New Delhi, Nov 24 : India's largest lender, the state-owned State Bank of India (SBI), inked a pact Monday with Australian insurance major Insurance Australia Group Ltd (IAG) to launch a joint venture general insurance business in India.

In a regulatory statement Monday, SBI said the formation of the company would be subject to receipt of necessary regulatory clearances and approvals.

The statement said SBI and IAG, subject to regulatory approval, would hold 74 percent and 26 percent respectively of the equity in the new company.

IAG's investment in the joint venture will be Rs.5.421 billion (approximately Australian USD 170 million or USD 135.5 million), which will be funded from IAG's internal resources, an IAG statement said.

SBI is the largest commercial bank in India, has over 100 million customers, 11,000 branches across the country, and access to an additional 46 million customers and 4,500 branches when including its associate banks.

Insurance Australia Group Ltd (IAG) is a general insurance group with operations in Australia, New Zealand, the UK and Asia.

Its current businesses underwrite is around USD 7.5 billion of premium per annum.

The new company is expected to commence trading in 2009, an IAG statement Monday said.

The signing of the agreement follows IAG's May 13 announcement that SBI had selected it as its preferred partner to enter exclusive joint venture negotiations.

IAG managing director and chief executive Michael Wilkins said forming the joint venture was a significant step in IAG's strategy to pursue select international general insurance opportunities.

“We are delighted to be partnering with India's premier financial services organisation, SBI. This provides us with an exciting opportunity to be a key participant in India's rapidly growing general insurance market, by leveraging the combined strengths of our two organisations.”

The Indian insurance market is one of the fastest growing in the Asia region. IAG currently has operations in Thailand and Malaysia, and part of its strategy is to pursue selective growth in Malaysia, Thailand, India and China.

SBI chairman O.P. Bhatt said the joint venture is part of SBI's strategic initiatives to retain its position as the pre-eminent financial services group in India.

“Insurance penetration in India is very low and the general insurance industry is expected to grow at a brisk rate of 15-20 percent per year over a period of the next 10 years,” he said.

IAG will initially hold 26 percent of the joint venture, the maximum allowable under India's current foreign investment rules, and has an option to increase its stake to 49 percent in future, subject to regulatory and other conditions.

Under the joint venture arrangements, IAG will have board representation, the right to appoint certain key management personnel and affirmative voting rights over key business matters.

The joint venture remains subject to official approvals.