For public sector banks (PSBs), foraying into insurance and mutual funds has always been a profitable game in the long run. State Bank of India is planning to venture into general insurance while Union Bank of India and IDBI Bank are set to roll-out their mutual fund business in the first quarter of FY11.
“We are planning to venture into general insurance in the first quarter of next fiscal,” said SS Ranjan, chief financial officer, State Bank of India. The joint venture with Insurance Australia Group will be named SBI General Insurance. Apart from being a long term investment, a foray into insurance business can help boost banks’ fee income.
“The biggest advantage for a well-capitalised bank that decides to foray into insurance is its already established branch network,” said Shweta Mane, banking analyst, Centrum Broking.
Next quarter will also see Union Bank of India and IDBI Bank enter
the mutual fund industry, which currently manages assets worth Rs 7.82 lakh crore. “We will launch our mutual fund venture in the first quarter of next fiscal,” said P Sitaram, CFO, IDBI Bank.
Usually, it takes more than 2-3 years to breakeven in the mutual funds business. For IDBI Bank, a foray into the mutual funds space will require a minimum net worth capital of Rs 10 crore as per Sebi norms.
Union Bank of India is also in the process of launching an asset management company in a joint venture with Belgium-based KBC group. “We are very much going ahead with our plans to foray into mutual funds. It may be launched in April-June,” said M V Arekar, deputy GM, Union Bank of India.
More PSU banks have recently entered the insurance industry. Bank of Baroda, Andhra Bank and Canara Bank are some of the new entrants.
“It usually takes more than 6-7 years to break-even in an insurance business,” said Mane. “It’s a good option for banks with high capitalisation,” she said.
The union budget for 2010-11 declared that Rs 16,500 crore would be infused into PSU banks for recapitalisation. ”This amount can also be used for mutual funds and insurance and not just banking,” said a senior official of a public sector bank.
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