The Central Government has declared that it has no objection with public sector banks (PSBs) entering into non banking sector.
Speaking on the issue, Financial Services Secretary, R. Gopalan said, "There is no issue at all. We have never asked and there is no thinking in the ministry."
"The banks have to expand in various financial product activities so you cannot prevent them from getting into it," Gopalan said.
The arena of insurance and mutual funds has always been alluring to public sector banks. A virtual no objection certificate from the Center has allowed them to spread their dimensions. SBI is nurturing plans to enter into the General Insurance segment while mutual funds are the option selected by Union Bank of India and IDBI Bank. The banks wish to start with their new ventures in the first quarter of the upcoming fiscal.
"We are planning to venture into general insurance in the first quarter of next fiscal," said SS Ranjan, chief financial officer, State Bank of India. SBI would be entering the insurance business in a joint venture with Insurance Australia Group. The new entity would be named SBI General Insurance. The insurance business would be scaling up the bank's fee income.
"The biggest advantage for a well-capitalized bank that decides to foray into insurance is its already established branch network," said Shweta Mane, banking analyst, Centrum Broking.
The mutual fund industry currently has an asset pool worth Rs. 7.82 lakh crore. "We will launch our mutual fund venture in the first quarter of next fiscal," said P Sitaram, CFO, IDBI Bank. SEBI norms suggest that for IDBI to enter into the mutual fund industry, a minimum net worth of Rs. 10 crore would be required.
Union Bank of India would be launching its Asset Management Company (AMC) in a joint venture with Belgium-based KBC group. "We are very much going ahead with our plans to foray into mutual funds. It may be launched in April-June," said M V Arekar, deputy GM, Union Bank of India.
"It usually takes more than 6-7 years to break-even in an insurance business," said Mane.
Bank of Baroda, Andhra Bank and Canara Bank are some of the new entrants who have recently entered the insurance industry.