MUMBAI:State Bank of India, the country’s largest bank, plans to reduce its stake in its general insurance subsidiary to 51 per cent from 76 per cent in favour of its partner Insurance Australia Group (IAG) following an approval by the bank’s executive committee of the central board on Thursday.
This will be the first such move by an insurance company after Parliament earlier this month approved foreign direct investment (FDI) limit to be raised to 49 per cent from 26 per cent. Bupa Finance Plc has also stated its intention to raise stake in health insurance venture with Max India.
The approval by Parliament followed the promulgation of an ordinance by the government late last year, and comes after more than a decade of the promised policy relaxation. Insurers say higher FDI limit will enable companies to invest more in their operations including education of potential policy buyers and marketing of policies.
Insurance Australia Group, State Bank’s partner in general insurance, will as a result have an option to increase its stake to 49 per cent from 26 per cent. The general insurance company started its operations in 2010.
State Bank of India will also move to appoint an independent valuer to facilitate valuation and price discovery. The process will enable SBI to decide on the price of its stake. Analysts expect foreign investment of about Rs 20,000 crore in local insurance companies following the increase in FDI limit.
In the year ended March 2014, SBI General had gross written premium of Rs 1,188 crore, covering 1.5 crore savings bank account holders of the State Bank of India with personal accident cover. At 3.2 per cent penetration India has one of the lowest insurance penetrations for an economy of its size.