Andhra, BoI, Dai-ichi JV plan takes a knock

MUMBAI: The proposed joint venture between state-owned Bank of India, Andhra Bank and Japanese major Dai-ichi Mutual Life Insurance is unlikely to take off because of difference on shareholding pattern.

While announcing the quarterly results and plans to foray into the insurance business in July ‘06, senior Bank of India officials had said that the bank would set up a life insurance company with Japan’s Dai-ichi Mutual Life Insurance with Andhra Bank as partner.

Sources said that BoI had proposed that it would hold 51% with foreign partner picking up 26%. This leaves 23% for the third partner. Andhra Bank, on the other hand, strongly feels that it does not make business sense to acquire 23% stake in any venture because an entity needs to hold a minimum stake of 26% to block special resolution.

Foreign partner Dai-ichi Mutual will definitely insist on acquiring 26% — the maximum allowed under the legal frame in India. BoI, which did all the ground work on shortlisting the partner, was initially in a dilemma on their equity stake in venture.

This is primarily because Section 19 (2) of the Banking Regulation Act, says that a bank can hold stake in another company as its subsidiary where it should hold 51% or more. But if it is not a subsidiary, the bank can not hold more than 30% in it. BoI felt that it should hold a majority stake at 51% in the insurance venture.

Senior BoI officials and Andhra Bank declined to comment on the issue. The officials recently said that they were yet to finalise their insurance partner. Though in August the Andhra Bank board had approved the proposal in principal, but they may now withdraw.

However, at the same time, BoI is not comfortable, including a corporate as its third partner. “Since they are in the business of borrowing and lending to corporates, it may lead to conflict of business,” said an analyst justifying their stand. Bank officials said that they are in talks with other banks for a possible tie-up in insurance venture.

Meanwhile, in life insurance business, Dai-ichi Mutual will be the third Japanese insurance company to venture into the Indian insurance business after Sompo Life tied-up with Allahabad Bank and Nippon Life with Bank of Baroda. This is because, although Japanese insurance companies account for one-fifth of the total life insurance premium in the world, they have been slow to expand internationally as most companies were going through a consolidation phase locally.