Mumbai:
The Reserve Bank of India has asked banks which want
to start insurance activities to explain how they will
organise capital for their proposed joint ventures, which
need large amount of funds. The central bank''s query is
in response to applications from a number of Indian banks,
which have signed MoUs for insurance JVs.
Five
JVs have been signed between Indian banks and foreign
insurers in the last one year, involving 10 Indian banks,
with many more showing an interest in the insurance business.
Banks
say the RBI''s concern comes from the fact that in the
future banks will require more resources to meet capital
norms for Basel II, which will be implemented from 2008.
According
to Indian Banks Association, the Indian banking sector
will need close to Rs50,000 crore to adhere to the Basel
II norms and over and above this banks will require funds
to sustain the growing credit demand.
Those
banks, which have applied for the RBI''s approval to enter
the insurance venture, have to convince RBI about how
they plan to arrange capital for Basel II and insurance
business.
There
is also a regulatory requirement that banks cannot invest
more than 20 per cent of their net-owned funds in non-banking
activities.
So
far, only two large banks - SBI and ICICI Bank - have
been allowed to enter the insurance business. Also, recently
RBI had approved Allahabad Bank''s plans to enter the non-insurance
JV with Sompo Japan Insurance.
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