BANGALORE ~ British banking giant HSBC Holdings has tied up with Bangalore-based Canara Bank and another Indian lender to set up a life insurance business, entering a market fuelled by rising incomes and the absence of a social security system.
State-owned Canara Bank will hold a 51-percent stake in the venture, initially capitalized at two billion rupees (US$44.97 million), with HSBC taking 26 percent and New Delhi-based Oriental Bank of Commerce the rest, Canara’s general manager S. Jayararam said.
An initial agreement was signed by the three partners in New Delhi on Monday, Jayaraman said.
London-based HSBC joins global firms such as New York Life, Prudential and Allianz in setting up an insurance venture in the country of 1.1 billion people, whose insurance market has doubled to more than $20 billion in annual premiums since it was thrown open to foreign investment in 2000.
“The insurance penetration rate is still extremely low and there’s a lot of scope for further expansion,” said Jayaraman, adding the partners are yet to decide on details of the joint venture.
The venture would have the advantage of marketing to the tens of millions of existing customers the three partners already have in the country.
India opened up the market, monopolized by state-run Life Insurance Corp. for 44 years, to expand coverage and make more funds available for investment in infrastructure such as power plants and roads.
But only 2.5 percent of the population has insurance coverage, said the Canara official.
The lack of a social security system, growing life spans in an economy expanding nine percent a year and a per capita income that has doubled in the past decade are spurring more Indians to buy life cover and annuities offered by insurance firms.
HSBC’s 26-percent stake is the maximum allowed by the regulator for a foreign insurance partner, with resistance from communist allies holding back government plans to raise the limit to 49 percent.
The United States and Britain have demanded that India raise the limit and open up its financial markets more to foreign firms.