Lenders look to exit insurance biz as bad loans bite

NEWDELHI: Cash-strapped public sector banks, including State Bank of India, Punjab National Bank, Bank of Baroda, Andhra Bank, Canara Bank and Oriental Bank of Commerce

NEWDELHI: Cash-strapped public sector banks, including State Bank of India, Punjab National Bank, Bank of Baroda, Andhra Bank, Canara Bank and Oriental Bank of Commerce are re-examining their investments in the insurance sector. A few of them could even look at exiting the highly capital-intensive space.

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Banks earn non-interest income from businesses, such as, insurance and mutual funds.

“With the surge in non-performing assets and weakening of balance sheets, public sector banks’ (PSBs’) capital base has been eroding, and this is one area (selling stakes in insurance joint ventures) that banks are evaluating,” said a senior public sector bank official, who did not wish to be identified.

According to the finance ministry, PSBs require ₹1.8 lakh crore by 2018 to meet the Basel III or capital adequacy norms. Of this, the government has committed to inject ₹70,000 crore.

State-owned banks reported a combined net loss of ₹18,000 crore during January-March, primarily due to RBI’s stringent provisioning norms.

“Banks will take a call on this based on the valuation (of the insurance business that they are in) and the returns,” said the bank official quoted above.

“Lenders must take decisions on this (exiting the insurance business) purely on commercial basis,” said Nirupama Soundarajan, economist and senior fellow, Pahle India Foundation.

Finance minister Arun Jaitley has also asked banks to divest their non-core businesses to boost their financial health.