Public sector, Dena Bank that had decided to start its general insurance foray defers its plan due to the current economic slowdown.
Dena Bank Chairman and Managing Director D L Rawal said, "At this stage we are not going for such business as it requires substantial capital and takes a long time to break-even. For example typically a general insurance venture takes 5-7 years to break-even, so may be after 2-3 years when we grow bigger in size, we might look into it."
Industry experts say that the bank has capital adequacy ratio (CAR) of the bank has been below the minimum required level of 12%. In December 2008, the CAR of the bank stands at 11.76% and the government has decided to scale up this ratio through a capital infusion of Rs 500 crore.
Currently the bank's priority is to focus on the main business and therefore it has to alter its business strategy and avoid assuring capital into other businesses, said the experts.
In mid 2007, Dena Bank decided to enter the general insurance space with another public sector bank. As per the joint venture between the two entities, Dena Bank was supposed to hold 26% of the stake.
Earlier in 2004, Dena Bank also signed pact with Oriental Insurance Company to distribute the latter's products. Besides, the bank has tie up with the insurance giant, Life Insurance Corporation (LIC) and some mutual fund companies to distribute their respective products.
Rawal said, "We would like to increase our fee-based income, by similar tie-ups and consequently leverage our branch networks through this channel."
Public sector banks have often entered the general insurance space in the recent times. In November, SBI declared to start its general insurance venture in association with the Australia-based Insurance Australia Group (IAG). In this joint venture, SBI owns 74% of the stake where as the remaining 26% will be held by IAG.