IAG may Raise Stake in SBI Insurance Co

The Economic Times - - Finance & Commodities -

Mum­bai: Insurance Aus­tralia Group (IAG) is likely to raise its stake in SBI Gen­eral Insurance Com­pany to 49%, which could fetch SBI more than ₹ 1,000 crore. The stake sale could help the State Bank of In­dia (SBI) im­prove its cap­i­tal cush­ion as the gov­ern­men­thold­son­toit­spurs­es­tringsin­cap­i­tal­is­ing­banks.

“IAG has ex­er­cised its dial-up op­tion,” said a se­nior SBI Gen­eral Insurance of­fi­cial. “Now, much of it will de­pend on whether they will take a com­mer­cial call.” ‘Dial-up op­tion’ refers to the right to ex­er­cise a call within the time frame stip­u­lated in its JV MoU, which IAG has done now.

SBIhas­start­edthe­p­ro­ces­sand­will­soon­ap­pointaval­uer to de­cide on the price of the shares in the gen­eral in­sur­ance­com­pany.In2009,SBI haden­tered­in­toa­jointven­ture agree­ment with IAG for its gen­eral insurance busi­ness. IAG cur­rently owns 26% of SBI Gen­eral Insurance, with SBI hold­ing 74%.

At the time of en­ter­ing the joint ven­ture, IAG had paid ₹ 542 crore for a 26% stake in the gen­eral insurance com­pany to part­ner with the coun­try’s largest lender. Of this, ₹ 500 crore was the pre­mium for the JV. SBI had made ini­tial in­vest­ment of over ₹ 100 crore as cap­i­tal.

Given that the com­pany has set up a huge dis­tri­bu­tion net­workand­has­beenin­op­er­a­tionfor­eightyears,an­a­lysts ex­pect the joint ven­ture to fetch more than the last time. “The share sale can fetch SBI around ₹ 1,000 crore from the gen­eral insurance ven­ture,” said a part­ner with a con­sul­tan­cy­firm.SBIGen­er­al­hasp­res­en­cein17,274branch­esof SBI and 10 Re­gional Ru­ral Banks. The com­pany has a ro­bust multi-dis­tri­bu­tion model which in­cludes ban­cas­sur­ance,agency,broking&re­taildirectchan­nels.“WhenIAG came in, the joint ven­ture did not have a proven track record.To­day,ithascre­ate­d­its­dis­tri­bu­tion­net­workand­has been in busi­ness for years. The valu­a­tion will def­i­nitely be higher than last time,” the of­fi­cial said.

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