New Delhi, May 11: Power Finance Corporation (PFC) plans to set up a non-life insurance unit as it will help the term-lender raise long-term resources for institutional funding.

The term-lender, which has also applied to the Reserve Bank of India (RBI) to undertake commercial banking, said it would tie up with off-shore insurance firms for its proposed insurance subsidiary.

“We would start holding discussions with foreign insurance firms to acquire a 26 per cent stake after we receive the RBI’s approval for commercial banking,” sources said, adding that both the banking and insurance businesses are expected to commence during the current financial year.

The insurance business, which would provide coverage only to the power sector, is expected to clock a growth rate between 15-20 per cent over the next decade, an official said.

“We are also planning to increase our branch network keeping in mind the nature of insurance business which requires a large network of branches,” the official said. “We are looking to acquire a bank which has the required critical branch-network for it would aid our insurance business,” he added.

Bankers said it is cheaper to acquire an existing bank with an established branch network rather than set up branches from scratch and are expecting a rise in merger and acquisition activity once a new government is in place.

However, with funds overweight in banks, the banking index has risen around 10 per cent since the beginning of 2004 against a rise of around 1 per cent in the sensex.

Earlier in April, the term-lender, however, had to shelve its plan to float an initial public offer, as the finance ministry refused to buy 50 per cent of its stock, under a buyback programme, at face value.