Canara Bank, OBC, HSBC to set up life insurance company

Canara Bank, HSBC Insurance (Asia-Pacific) Holdings Limited and Oriental Bank of Commerce (OBC) 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 Stateowned banks, Canara Bank and OBC, 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 OBC the remaining 23 per cent. The new life insurance company will be capitalised at INR3,250 million (approximately US$73 million), of which HSBC will contribute INR1,770 million (approximately US$40 million), Canara Bank INR1,020 million (approximately US$23 million) and OBC INR460 million (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.

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

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.

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