BoR contract to provide a raise to insurance arms of ICICI

ICICI Bank’s proposed acquisition of Bank of Rajasthan will expand the distribution reach of ICICI Prudential Life Insurance and ICICI Lombard General Insurance — subsidiary of ICICI Bank.

Shares of ICICI Bank fell by 7% per cent on Wednesday, as investors nervous that the bank had overpaid for acquiring Bank of Rajasthan. On Monday, the bank had indicated an exchange ratio which reflected an 89% premium on Bank of Rajasthan’s market price. Bank of Rajasthan’s price rose 20% to Rs 119.

Bank of Rajasthan presently distributes insurance products for Aviva Life Insurance and United India Insurance. Existing guidelines of the Insurance Regulatory and Development Authority (Irda) do not permit a bank to distribute products of more than one life insurance and one general insurance company.

According to industry sources, the loss of Bank of Rajasthan as a sharing partner will not make a significant dent on the sales of Aviva. Unlike the new generation private banks which have a big wealth management team that is active in selling thirdparty products, BoR sales were more in the form of referrals.

This is the second time that Aviva is losing a bancassurance partner, following an M&A activity. Earlier the insurance firm, which had partnered Centurion Bank of Punjab, lost a big chunk of business after the HDFC Bank-CBoP merger. “Bank of Rajasthan’s distribution capabilities are no where close to that of the erstwhile CBoP and it is unlikely that Aviva will be affected,” said an industry official.

For ICICI Bank, however, BoR provides a significant distribution opportunity. The old generation private bank has close to 500 branches and a large number of savings accounts. “Going by what happened in Bank of Madura (another old generation private banks acquired by ICICI Bank), I expect that BoR will be completely included into ICICI Bank’s IT network soon,” said a banker on condition of anonymity.

There is a proposal with Irda to allow banks to distribute products of multiple companies. However, insurance companies say even if there is a relaxation, banks may be allowed to sell policies of 2-3 life companies.

“It is unlikely that banks will be allowed become a virtual broking firm, offering products of all companies as it would be very difficult for employees to understand the features of so many products,” said a banker.