Societe Generale (SG), France?s second-largest lender, and Indiabulls Financial Services have decided to sever ties for setting up a life insurance joint venture in India. Sources close to Indiabulls confirmed the development to FE.

While Indiabulls was keen to go ahead with the joint venture, SG had decided to pull out of the one-and-half year partnership just before launching operations due to the financial problems faced by it internationally in the aftermath of the global financial crisis.

Although it is not clear whether SG will change its mind at a later stage, sources point out that Indiabulls has already started looking out for a new foreign partner for the JV.

?But for the financial problems with SG, the JV would have kickstarted in March this year. The delay was caused by SG and ultimately led to the closure of the deal,?? said the sources. SG and Indiabulls had forged the alliance in April 2008, with the former having a 26% stake, the maximum FDI allowed in the insurance sector.

Recently, Indiabulls received the Reserve Bank of India?s (RBI) special dispensation to hold up to 74% in its proposed life insurance JV With this, Indiabulls had joined the club of RBI-regulated banks such as HDFC, ICICI Bank and SBI that had received special dispensation to hold up to 74% stake in their life insurance subsidiaries.

For most other RBI-regulated financial entities, the central bank has insisted that their holding be restricted to 50% as prescribed in its guidelines in 2000.

In fact, large state-owned banks such as Bank of India, Bank of Baroda and Canara Bank have entered into three-way joint ventures with other local banks to keep their holdings in life JVs below 50%. However, it may not be that difficult for Indiabulls to find a suitable foreign partner for life insurance operations, as several life multinationals are now looking out for a local alliance in the country.

Ergo, whose joint venture with Hero Group for setting up a life insurance company had collapsed recently, is also understood to be looking for a new partner. US-based Principal Group will also need a new local partner for its life insurance operations as its existing ally Punjab National Bank (PNB) has already decided to discontinue the partnership.