Can SBI overtake LIC?
Aug 21, 2000

Author: PersonalFN Content & Research Team

The 19th floor of the State Bank of India (SBI) building located at Nariman Point (one of the biggest nationalised banks in the country) is currently bustling with activity. Reason: the bank is sketching a blueprint for making an entry into the much-awaited insurance market.

But can SBI give LIC a run for its money?
Probably! A look at the distribution channel of both the gigantic institutions clearly states that SBI with its 9,000 branches throughout the country can easily take on LIC (Life Insurance Corporation), which has close to 3,000 branches across the country.

The bank expects that its over 80 mn plus retail customers, about 1.5 mn corporate clients and over 4 mn NRI customers will serve as a readymade client base. The fact that the bank has much wider reach compared to LIC is expected to give it an edge over the institution. According to bank officials, it can offer products at competitive rates vis-à-vis the institution as it can cut down on its operational cost.

Although LIC has the `first mover' advantage, SBI's entry will take away a marginal chunk of the business from the institution owing to lower service cost and better service standards. However the road to success is expected to be quite rough, as the bank will have to launch better products to attract customers.

The moment the bank gets a green signal from the Reserve bank of India (RBI), it will take a leap into the insurance market. The bank is currently finalising plans to enter life insurance and pension management business through a separate company in which the bank plans to hold 74% stake.

The capital base of the subsidiary is expected to be over the prescribed limit of Rs 1 bn. SBI is also finalising an overseas partner and working on a business plan for insurance products.

SBI is planning to market the insurance products through a select group of 100 branches across the country in the first year. Apart from SBI branches, SBI's seven associate banks will also be engaged in selling insurance products. The bank's strong brand equity in the market and its strong capital base will insure marginally higher public response.