PSU Banks Wanted to Exit Insurance Ventures, but Faced This Hurdle

The promoters are finding it difficult to find a long-term partner with adequate capital. Various Public Sector Banks are slowly exiting the insurance sector to focus on their core businesses. However, the exit process may not be smooth since finding a buyer has been challenging for the existing banks.Banks like the Indian Overseas Bank, Allahabad Bank, and the Andhra Bank are some of the PSU entities looking to exit ventures. They are part of Universal Sompo and India First Life Insurance respectively.
Some of the sources claimed that there is a scramble to get a partner on board before they can exit Insurance being a capital-intensive business requires a player who can commit for a longer term to stay invested in the business.
Bringing a partner on board on an immediate basis is proving to be a challenging task since there are multiple who give insurances on the block. Insurance is a cash-intensive business and requires a commitment of at least 8-10 years. Not all investors are ready, said a senior insurance consultant who was working on few of the insurance deals.
Focusing on the Core the PSU banks have begun to focus on their core assets and this has eventually led to a decision on the stake sales or divestments in the existing businesses. The government also suggested, in its PSB Reforms Agenda, that the banks should focus on its core businesses.
Along with this, it is likely that several other PSU banks will exit their insurance joint ventures in the next Ten to Eighteen months. Some of the sources said while a few private valuation players have expressed interest to buy a stake, they are not willing to give an assurance to stay invested for the coming Ten years.
Further, in insurance companies where there are multiple joint venture partners, who are getting a go-ahead from the foreign partner has also been a challenge. Most JV agreements have a clause wherein a stake sale cannot be completed without the nod of the foreign partner.
Giving the majority stake to the foreign partners has also been challenging enough. Most JV agreements have a clause wherein a stake sale cannot be completed without the nod of the foreign partner.Giving the majority stake sale to the foreign partner is not an option since the foreign direct investment norms cap maximum investment by an international partner at 49 percent.