Under the new plan, IDBI will hold a sub-50 per cent stake in the insurance outfit, with the rest of the shares being offered to joint venture partners, private sector players and, subsequently, to the public.

``We have to be innovative while setting up subsidiaries for undertaking insurance activities in order to compete with private sector players. Keeping our stake below 50 per cent is an appropriate idea,'' says IDBI chairman and managing director GP Gupta.

By keeping a stake below 50 per cent, institutions like IDBI and IFCI will also be able to keep the new subsidiaries out of government control. The finance ministry has made it clear that it is not infavour of allowing government-owned financial institutions to enter the insurance sector since this would tend to perpetuate the public sector's monopoly even after the sector is opened up.

While the ministry is prepared to allow public sector banks to participate in the insurance sector it is not so keen to allow the financial institutions to do so. Gupta feels he can get around this objection by changing tack and keeping his direct stake below the majority level.

Meanwhile, ICICI, the other major financial institution, is ``actively pursuing the plan to enter the insurance sector and the existing tie-up with Prudential is meant for that,'' says ICICI's senior general manager, Kalpana Morporia.

All these plans are being readied in the expectation that the Insurance Bill will be cleared at least by the winter session of parliament.

RBI is in the process of finalising its own policy for allowing state-owned banks to enter the sector. It is expected that a set of internal norms based on parameters likeNPAs, profitability, and future fund flow projections will be checked before the RBI allows banks to enter the insurance sector.

INSIGHT
Ministry off the mark

The thinking in ministry circles apparently is that financial institutions should not be allowed to take a stake in the insurance business, as that will stifle competition from private players. Institutions like IDBI have found a neat solution to this absurd logic by stating that they are willing to take a less than 50 per cent stake in an insurance venture. It can also be argued that if the ministry is so concerned about public sector players snuffing out competition, all that needs to be done is divest the government stake in IDBI. The synergies between the FIs' requirement of long-term funds and the supply of such funds which the insurance industry generates are obvious.

Manas Chakravarty