Mumbai: The alternative channel distribution of financial products is emerging as one of the big business opportunities for India's commercial banks. Bancassurance, the first test case for selling the insurance products through alternative channels, has been gaining ground among the banks.

According to sources in the insurance industry, around 20 per cent of fresh life insurance business (in terms of premium income) is getting generated through banking channels.

Says Birla Sun Life Insurance senior vice-president (alternative channels and group life) P Nandagopal: "Bancassurance contributed around 22 per cent of the total business of the company during fiscal 2002-03."

Birla Sun Life has already tied up with 10 commercial banks in the country and another six are in the offing to sell its life insurance products. The company has generated Rs 30 crore through the bancassurance route.

In the case of a life insurance company like Aviva, the sources say, the proportion of sales through bancassurance is as high as 73 per cent. For MetLife, fresh business through the bancassurance route is around 60 per cent.

Going by the rationale that a customer will trust the branch manager of his local bank more than an agent, the insurance and mutual fund industries are relying increasingly on banks for selling products.

"Building adequate incentives for bank employees selling policies is one of the prime factors making this distribution channel more active," says Nandagopal. Almost all banks in the country now have bancassurance tie-ups with insurance companies.

Says Bank of Rajasthan chairman P K Tayal: "During the last fiscal we made a business of over Rs 1 crore through bancassurance. We have set a target of Rs 5 crore for this year. Around 100 employees have been trained to sell insurance products."

It is estimated that there are over about 18-crore bank accounts in India. If a bank sells one insurance policy to each of these accountholders over a period of five years with an average first-year premium per policy of Rs 5,000 and an average commission of 15 per cent, banks can earn a total commission of Rs 13,500 crore (going by a simple back-of-the-envelope calculation: Rs 5,000 x 15 per cent x 18-crore accounts). This is only from life insurance and pension policies, the industry sources add.

Says IDBI Bank product head (insurance) Lubna Usman: "It's a win-win situation for both banks and insurance companies. It a logical extension for banks as they sell other financial products such as housing loans and car loans and there is virtually no risk factor involved in bancassurance."

Says SBI Life Insurance CEO R Krishnamurthy: "During the previous fiscal, 12 per cent of our premium collection came from bancassurance. Our target this year is 30 per cent. When others talk about bancassurance, it means referral of the bank and the agents sell the policies. In our case, it is the bank's staff that sells the policies. We believe that the former model might not be sustainable as you might be breaching client confidentiality."