State Bank of India (SBI), one of the largest public sector banks in the country has received green signal from the banking regulatory authority - Reserve Bank of India (RBI) for setting up an insurance subsidiary in the country - after a long wait.

The fact that RBI has allowed SBI to hold atleast 75% stake in the new venture even though the maximum equity holding fixed by the central bank for banks foraying into the insurance sector is fixed at 50% clearly states that the gigantic institution is capable of taking on competition.

SBI with its 9,000 branches throughout the country can any day take on LIC (Life Insurance Corporation) or any other bank as far as networking and distribution is concerned. As compared to SBI, LIC - the only life insurance organisation in the country today has only 3,000 branches. Apart from its huge network of branches, SBI will also able to sell insurance products through its seven associate banks. The bank's strong brand equity in the market will definitely push a major chunk of the retail market into its kitty.

Owing to its wide distribution network the nationalised bank will be able to pare its operational cost to a large extent and charge competitive premium rates. SBI's entry may force LIC to realign its premium rates. Over the last few months, LIC has already realigned rates on a couple of its pension plans in line with the market.

The entry of SBI and other such gigantic institutions in the country will serve a boon for the prospective policyholders mainly in terms of product pricing. 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. Contemporary product development is expected to become the lifeline for new players planning an entry into the insurance segment.

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