It is argued that since five government-owned companies -- four in the general insurance segment and one in life insurance -- are already operating in the market, the entry of more government-controlled FIs and banks would lead to unnecessary competition among the public sector outfits.

The ministry feels that FIs and banks should focus on their core business areas rather than than diversifying into insurance. Among institutions, IFCI could be one exception to the rule since it is now treated as a private outfit where the government holding is less than 50 per cent. However, it is unlikely that the Delhi-based institution willtake the plunge into insurance in view of the general feeling in the finance ministry against the entry of more public sector players.

IFCI, which missed the bus for launching a bank like its Mumbai-based counterparts, has been very keen to enter the insurance sector and is reportedly in touch with the a couple of leading international insurance companies for the purpose. It may be mentioned that while ICICI and IDBI launched banks, IFCI failed to firm up its mind and could not follow suit despite being the oldest financial institution in the country.

ICICI, which has been working closely with the UK-based Prudential in other fields, has already made known its views against entering the genaral insurance business but is interested in life segment. ICICI's idea is to become a financial supermart providing all kinds of financial services, including term loans, working capital finance and insurance cover. ICICI being a private sector institution may not find its insurance ambitions blocked, but the samecannot be said about public sector banks like the SBI, which had expressed their keenness to enter the insurance business in the event of opening up of this sector. If the Centre finally decides to block fresh public sector players in insurance, the international firms which have signed MOUs with them would have to look for partners in the private sector.

Insight

A retrograde step
A decision to ban public-sector banks from getting into insurance is retrograde, and will harm competition. The intention of opening up the sector is not to favour either the public or the private sector but to ensure that competition results in lower premiums and a better deal to the consumer. In Europe, banacassurance is a fact of life, and banks have great synergies with the insurance business. Disallowing banks from entering the sector will be also be a disservice to shareholders of these banks.