French banking major, Societe Generale's (SocGen) proposed joint venture with State Bank of India (SBI) for operating custodial and depository services in India has received its approval from the Foreign Investment Promotion Board (FIPB) on September 4, 2008.

The approval of the FIPB is an important step in launching this new entity which targets to provide high-quality securities to domestic and foreign investors in India. Initially, FIBP had kept this proposal on hold due to objections by the RBI. Reserve Bank of India raised concerns over the French major's recent securities fraud of $7 billion.

A joint venture between these two major financial institutions is expected to initiate its operations from early 2009.

The proposed joint venture will benefit from the reputation of State Bank of India (SBI) in the Indian financial sector as well as the knowledge of Societe Generale Securities Services (SGSS), said the French company.

According to the signed agreement in June this year, SBI will hold a majority 65 percent stake in the JV while the French major will hold the remaining stake. A SBI official associated with the project said, "Now we will have to get approvals from SEBI and RBI, and expect to commence operations in early 2009. The initial capital expenditure for operations is likely to about Rs 100 crore."

Also, both parties had agreed that the CEO of the new company would be from SBI and the Deputy CEO from the French firm. SBI is going to invest Rupees 52 crore in the venture while SocGen is to bring in the foreign direct investment worth 28 crore.

The custodial business encompasses a range of services, including safe-keeping and settlement, reporting, corporate actions, dividends collection and distribution, proxy voting, tax reclaim services and fund administration, besides providing market news and information.

SBI is planning to use float funds for the transactions as the bank considers it beneficial. In addition, the foreign exchange business linked with the transaction is also expected profit SBI.

The custodial bank services are used by major players like Foreign Institutional Investors (FIIs) in the Indian stock market. Over the long run, this new entity is likely to raise the fee based income of SBI.

Also, State Bank of India is expected to finalize the terms for its joint venture in General Insurance segment with Insurance Australia Group (IAG) by this month. Under the pact, State Bank will hold a 74 percent stake in the entity and the Australian partner the rest 26 percent.