The bank will, by choosing `bancassurance', eliminate the tier of agents and put to use its and associate banks' 14,000-odd branches, delivering products cheaply.

Four global investment bankers and consultancy firms made presentations before the State Bank brass last week, and a few more are expected to do so over the next few days. The chosen investment banker or consultancy firm's brief will be to identify an overseas partner with a state-of-the-art technology for the bank to tie up with. The bank may opt for separate tie-ups for life insurance- and general-insurance sectors.

"Everything depends on the government. As things stand now, the centre may allow up to 20 per cent foreign stake in insurance ventures. The State Bank iswilling to offer the maximum stake allowed by the centre to its prospective overseas partners," sources close to the investment bankers said.

Along with the parent bank, the seven associate banks may also pick up stakes in the insurance venture that will have an initial capital base of Rs 100 crore which will be raised to Rs 300 crore over the next three years. The State Bank is expected to get a premium on its insurance venture's shares from its prospective overseas partners, sources said.

Bancassurance combines the branch network's strength and insurance-risk management skills. Credit Agricole is the largest `bancassurer' in the world, followed by Midland Bank.

`Bancassurance'--a French term that signifies a new relationship between banks and insurance companies--evolved in Europe in the '80s. In Germany, it is known as Allfinanz and in the UK, `one-stop financial shopping'.

In France, `bancassurance' accounts for 55 per cent of the total insurance industry. Its share is expected to go up to 60 percent by 2000. In Spain, the vehicle has a share of 32 per cent and in Italy, 20 per cent.

Expounding on the `bancassurance's' benefits, investment-banking sources said the use of the vehicle creates a win-win situation for insurance companies, banks as also their clients. The insurance company enjoys the benefits of a wider reach, lower acquisition costs and higher premiums. It also offers a better cash flow as premiums are deducted from bank accounts. The bank, on its part, gets a higher fee-based income and puts into better use its branch network and manpower.

For clients, the prices of products come down as there is no agent commission involved and bank branches turn out to be one-stop shops for financial products.

Insight:

Network will come handy

One obvious way in which banks can put their branch network to good use is to utilise it more efficiently. This can be done by selling more financial products through the same network. One clear choice is insurance, although others toocan easily be thought of, such as housing loans or even share- broking services. Of course, major changes in rules and regulations need to be made before `bancassurance' becomes a reality. While the current thinking seems to be to have different subsidiaries for such products (many banks have housing subsidiaries), it scarcely makes sense to duplicate an extensive branch network.