Singh's re-election good news for insurer
The Age
Tuesday June 9, 2009
INSURANCE Australia Group's hopes of expanding in India have been increased by the newly re-elected Government's plans to allow overseas companies to increase their stakes in the financial services industry.Prime Minister Manmohan Singh is expected to submit a bill to Parliament allowing insurers such as IAG to take a 49 per cent stake in local operators now that he no longer needs communist allies to support his government.Mr Singh's previous political backers had blocked such liberalising economic reforms in his first term - a stance that has restricted IAG's shareholding in a recently established joint-venture general insurance company to 26 per cent.Formed in November with the country's largest commercial bank, the State Bank of India, the new business is due to start writing its first insurance cover this year in what is likely to become one of the biggest of IAG's international operations.IAG has an option to increase its shareholding to 49 per cent but that has been considered a long-term desire on the Australian company's part rather than a realistic short-term goal.IAG has initially pumped $170 million into the new business and in return will have representation on the board, the right to appoint certain senior executives and will have voting approval over key business decisions.The company's growth prospects are directly linked to the State Bank of India's ability to exploit its national network of 11,000 branches with their 100 million customers - about 10 per cent of India's population.The bank predicts the general insurance industry will expand by 15 per cent to 20 per cent a year in the next decade. But the global recession has undermined growth in India, with the economy expanding at its slowest pace since 2003.The reforms being planned by Mr Singh, who was re-elected last month, are designed to encourage more direct foreign investment and underpin the country's GDP growth target of 6 per cent this year. Nonetheless, an IAG spokeswoman was yesterday cautious about the planned changes."Any (increase in our stake) would be dependent on a number of commercial conditions, including a change to India's foreign investment rules, as well as other conditions which will have a bearing on whether or when we exercise our option," she said.
© 2009 The Age
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