Mumbai-based public sector banks Union Bank of India and Bank of India (BOI) and the Bank will set up a life insurance joint venture along with the Dai-ichi Mutual Life Insurance Co.
The two banks have been cross-selling insurance products and feel that they would gain from an in-house insurance arm.
The share holding of the three JV partners, who signed a MOU in New Delhi today, will be: Bank of India, 51 per cent; Dai-ichi, 26 per cent and; Union Bank, 23 per cent.
M V Nair, chairman and managing director, Union Bank, said that the two public sector banks have entered into a formal working arrangement to leverage their network infrastructure and skills for this venture.
In addition to the profits, once they start accruing, the two banks would also earn a commission income from the insurance products sold through their branches, providing them with regular non-interest income.
According to Union Bank, despite its past growth the life insurance penetration in India is still low, with several product opportunities waiting to be tapped in the Indian market, currently on a high-growth curve with high rates of personal savings.
According to an ASSOCHAM study, the Indian insurance business is set to grow to $60 billion by 2010 from $10 billion now. Rural and semi-urban areas, areas where the two banks have strong presence, are expected to account for life insurance market of $20 billion.
With banking and life insurance becoming increasingly complimentary to each other, an entry into this sector would help moth public sector banks move towards 'one stop financial services shops'.