Union finance minister P. Chidambaram with K.N. Prithviraj (left), CMD of Oriental Bank of Commerce, Clive Bannister (centre), group managing director, insurance, HSBC, and M.B.N. Rao, CMD of Canara Bank, in New Delhi on Monday. Picture by Ramakant Kushwaha

New Delhi, March 5: Canara Bank and Oriental Bank of Commerce (OBC) have forged an alliance with the insurance arm of HSBC to set up a life insurance company in India.

Canara Bank will have a controlling stake of 51 per cent in the joint venture, while OBC will hold 23 per cent and HSBC Insurance (Asia-Pacific) Holdings the remaining 26 per cent. The company will provide management services to the joint venture.

According to insurance guidelines, a foreign partner can have a maximum of 26 per cent stake in an insurance venture.

The insurance company will have a paid-up capital of Rs 325 crore. Of this, HSBC will contribute Rs 170 crore, which includes premium to access the vast branch network of public sector banks.

Canara Bank will invest Rs 102 crore and OBC will invest Rs 46 crore in the joint venture. M.B.N. Rao, chairman and managing director of Canara Bank, said, “The new company will have exclusive access to customer bases of the two state-owned banks and HSBC in India.”

The two banks together have more than 40 million customers and have a nationwide network of 3,600 branches.

“Eighty per cent of Indians do not have access to insurance products — not home, not fire, not riot, not theft. In fact, insurance products are unknown to millions of people in the country,” Union finance minister P. Chidambaram said while speaking on the occasion.

He said, the new venture would go a long way in increasing the insurance penetration in the country. It would obtain regulatory approval in the next few months and start operations soon.

HSBC Group managing director (insurance) Clive Bannister said this was a unique opportunity to expand HSBC’s footprint in one of the major emerging markets.

Under the arrangement, HSBC will provide a range of management services, he said, adding this would not affect their distribution tie-up with Tata AIG in the country.

Bannister said the company would design the products to suit all sections of society.

Meanwhile, Bangalore-based Canara Bank today said it would raise $100 million through hybrid instruments during this month.

“The proposed hybrid tier-I instrument will be raised through our Hong Kong branch, which will come up shortly,” said Rao.

The process will be completed before the end of this fiscal. “The capital adequacy ratio (CAR) of the bank currently stands at 12.4 per cent,” he said, adding, “We will maintain it in the future.”

In India, premium income collected by life insurance companies has grown at an annual rate of 21 per cent the market was opened to private players in 1999, and exceeded $20 billion in 2005.

With an insurance penetration rate of 2.5 per cent in 2005, the market has a strong long-term growth potential.