Government wishes PSU banks going to exit from Insurance, which is a non core activity

Government wishes PSU banks going to exit from Insurance, which is a non core activity.
Everyone one wants to diversify when times are good but when the times are tough there is heat to squeeze. The banks have been asked by the government to get out of non core business such as Insurance. It could be a big blow to banks if this is implemented. Some of the banks would have to exit joint venture and industry would be seriously hampered, considering the agency model for insurance is under question due to high attrition and lack of professionalism.

As per the news published in Economic Times the Government’s pre-conditions for capital infusion stems from the concern that a number of non-core banking activities, particularly life and non-life insurance activities are capital guzzlers. Banks have to infuse capital for years in these ventures since it may take several years to break even. "The government is worried that demand for capital will rise every year if banks decide to undertake these activities. As an owner, they will then be obliged to infuse more capital to sustain the bank, something they would want to avoid when the fiscal deficit is out of control," said a senior bank official from public sector bank.

If this is indeed implemented then we as a country will need new non banking players to enter the insurance business In the recent past many business houses who entered got disheartened and have been in the mode to exit. Some of these are

• Bharti Axa : Bharti

• DLF Pramerica : DLF

• Future Generali : Future group

We wonder whether 49% FDI in insurance sector will make much impact.