* Winner to get access to about 5,500 bank branches
* Sale is part of HSBC's exit from noncore businesses
* Foreign ownership in Indian insurers now capped at 26 pct
* State-run LIC controls 65 pct of Indian life insurance
By Denny Thomas and Sumeet Chatterjee
HONG KONG/MUMBAI, April 10 Canada's Manulife
Financial Corp and the Indian affiliate of Standard
Life plc are among the suitors to place first-round bids for
HSBC plc's Indian life insurance business, a stake valued around
$200 million, people familiar with the matter told Reuters.
HSBC plc, Europe's biggest bank, is selling its 26
percent stake in a life insurance joint venture with two Indian
state-run banks, as it sheds noncore businesses globally.
The winner of the auction will get immediate access to about
5,500 branches of the two state-run banks. Bancassurance - an
arrangement in which a bank and an insurance firm tie up so that
the insurer can sell its products to the bank's customers - is
emerging as a key tool to sell insurance products across Asia as
the life insurance industry matures in the region.
HDFC Life, a joint venture between India's top mortgage
lender HDFC Ltd and British insurer Standard Life
; Birla Sun Life, a venture between Indian conglomerate
Aditya Birla Group and Canada's Sun Life; and ICICI Prudential
Life, a joint venture between India's No. 2 lender ICICI Bank
and Britain's No. 1 insurer Prudential, are
among the bidders to submit first-round bids last week, the
HSBC's two Indian partners in the venture - Canara Bank Ltd
and Oriental Bank of Commerce Ltd - could
also pare their stakes, the people said, although no final
decision has been made on this. That could push the deal value
to $800 million, including a bank distribution agreement, they
"The biggest attraction for any Indian or foreign bidder in
this joint venture would be the vast distribution network, which
is absolutely essential in a country like India," said one of
the sources directly involved in the process. "There are a very
few good partnership opportunities available for foreign players
in India, this venture is one of them."
HSBC, HDFC Life, ICICI Prudential, and Manulife declined to
comment. Aditya Birla Nuvo, majority owner of Birla Sun Life,
also declined to comment.
Canara Bank Chairman R.K Dubey was not immediately available
for comment. Oriental Bank of Commerce Chairman S.L. Bansal
declined to comment.
The sources declined to be identified because the sale
process is confidential.
The sale is part of HSBC's exit from nonstrategic
businesses. It has got out of about 50 businesses globally since
Chief Executive Stuart Gulliver took over at the start of 2011,
including its recent profitable sales of its $9.4 billion stake
in Ping An Insurance Group Co of China Ltd and its
$2.1 billion Panama business.
Indian laws limit foreign ownership in domestic insurers to
26 percent, although the government has announced plans to ease
the cap to 49 percent in the future.
"High competition, strict regulations and a moderate growth
outlook make this a tough operating market," Barclays said in a
report on the Indian life insurance sector last month. "In this
environment, the relatively cost-efficient bank channel becomes
a ticket to play."
Canara HSBC Oriental Bank of Commerce Life Insurance - as
the venture is called - was launched in June 2008 and is 51
percent owned by state-owned Canara Bank, 23 percent by
state-owned Oriental Bank of Commerce and the remainder held by
It ranks 16th in India's 24-player life insurance sector by
first-year premium - a gauge of an insurer's ability to win new
business - which was about 4.07 billion rupees ($74.9 million)
as of the end of January, according to the Insurance Regulatory
and Development Authority.
The joint venture earned a profit of about 90 million rupees
in the October-December quarter, compared with a loss of 74
million rupees a year earlier, according to its website.
HSBC would become the third overseas insurer to exit India's
life insurance sector in the last year. The industry lost a
combined $4 billion in the past decade and was hit by a 2010
clamp-down on the sale of lucrative equity-linked products.
State-run Life Insurance Corp of India is the nation's
biggest insurer, controlling about 65 percent of the market.
India's insurance business was full of promise when it was
thrown open to competition in 2000, but instead has been
battered by losses, regulatory change, uncertainty and a sharp
slowdown in economic growth.
Life insurance penetration in India is about 4.4 percent of
the country's gross domestic product in terms of total premiums
underwritten annually, according to the insurance regulator.
That compares with 8 percent in Japan and 9.5 percent in
Britain, offering new entrants and existing players ample room
for growth. The big reforms expected to the change the face of
the industry include easing the cap on foreign ownership.