• PAGE ONE
• INDEX
• HOME

Oriental Bank drops plans for MF entry, insurance arm

Sarbajeet K. Sen

NEW DELHI, Feb. 25

THE plans of Oriental Bank of Commerce (OBC) to float its first set of subsidiaries has met a dead-end with the bank deciding to drop its proposal to float separate outfits to enter the insurance and mutual fund businesses.

While the entry into the mutual fund business has been dumped completely, the bank has, however, decided that it would have a presence in the insurance sector by taking up distribution of insurance products.

Talking to Business Line, the Chairman and Managing Director of OBC, Mr B.D. Narang, said that the decision to stay away from floating an insurance subsidiary was prompted by the twin considerations -- the Reserve Bank of India's restriction th at a bank would have to restrict its holding to 50 per cent in the proposed venture and the ``unreasonable'' demands of the foreign companies.

He said that the foreign companies with which the bank had held talks for holding 26 per cent equity wanted to have management control in the venture, which was unacceptable to the bank.

OBC, which has been working on a life insurance subsidiary for the past two years, had sought exemption from the RBI from 50 per cent restriction on equity holding and which it wanted to be hiked to 74 per cent.

Till date, only the State Bank of India has been granted the permission to hold 74 per cent stake in its insurance venture.

``We have decided to restrict ourselves to distribution of insurance products against a fee for which we do not have any capital requirement,'' Mr Narang said.

He said that the bank had also taken a decision to restrict itself to distribution of life insurance products.

Mr Narang did not rule out the likelihood of the bank reconsidering its proposal to float an insurance subsidiary at a later date.

``We may again think of making an equity investment in an insurance subsidiary after a few years. By that time, we would have gained some experience in the insurance business,'' he said.

The OBC chief felt the insurance industry might face a shakeout with some of the new players dropping out, unable to take the pressure of competition. ``We would like to fill in the void at that time,'' he said.

On the plans to enter the mutual fund business by floating an AMC, Mr Narang said that the bank management felt that the conditions were not ripe for such a foray.

``Banks are not good in the secondary market operations. They have not been able to get a firm foothold in the mutual fund business,'' Mr Narang said.

He said that the plans also received a setback with news that banks such as Bank of India and Indian Bank were planning to sell off their AMCs.