This will also be subject to approval from the Reserve Bank of India. The project will initially be launched with an equity of Rs 100 crore, which will go up to Rs 200-300 crore in the course of the next two to three years to fund growing volumes.

The bank is currently in the process of shortlisting consultants and then identifying a foreign partner for the joint venture. SBI's point of entry into insurance, which has been causing a great deal of speculation in the financial sector, was finalised at a board meeting held inMumbai on Monday.

SBI plans to enter the non-life segment eventually, sources said. However, this may not be feasible as initially the government policy (to be adopted by the IRA after its empowerment) is likely to be circumspect about granting dual licences to all players -- even major ones such as SBI.

The bank, which will presumably be the first one to receive a licence for entry into the insurance sector, was negotiating with six international consultants who made presentations to the board. The six investment bankers and consultants are JP Morgan, Lehman Brothers, Boston Consultancy, Price Waterhouse Coopers, Arthur Anderson and Warburg, Dillon and Read. Three of these consultants -- whose names are kept under wraps -- have been shortlisted and asked to submit fee bids. A final decision on who will eventually receive the mandate is expected to be taken around the middle of November.

In turn, the shortlisted consultants are currently negotiating with around 20 potential joint venture partners in theinternational markets. According to market sources, negotiations are on with Aetna Insurance (US), Axa (Australia), Mutual Life (UK), Aegon (Netherlands) and Nippon Life (Japan). The joint venture partner is likely to be identified by December this year.

Both life and non-life insurance hold a huge untapped potential in India. Viability studies conducted by a leading international consultant show that the premium per capita per year in India in 1997-98 was 6.4 per cent of which life insurance constituted 4.55 per cent and non-life 1.85 per cent. The corresponding figures for other emerging economies were: China 6 per cent, Japan 13 per cent, Indonesia 12 per cent, Thailand 68 per cent, Malaysia 181 per cent, Taiwan 679 per cent and Singapore 1191 per cent.

On similar lines, life insurance premium as a percentage of GDP reflects low penetration in India. For example, in the case of India, it is 1.38 per cent while that of premium to GDP in the G7 countries is 9.2 per cent, in Singapore 3 per cent, SouthKorea 10.3 per cent, the UK and US it is 8 per cent and 3.8 per cent, respectively.

Insurance consultants, who describe the life insurance business as almost a virgin area considering the fact that Life Insurance Corporation gives a 2 per cent return, expect private sector players to give not just higher returns but better service as well, which has been the bane of the monopolistic public sector insurance companies. Besides, while there is an entire range of products (except for term life policies) which is available in India, none is customised. All private sector players like SBI are expected to take a hard look at this lacuna.

In the pensions segment, LIC has a separate pension division, but this focuses on group business where the employer takes the cover for his employees. This leaves the vast unexplored tract of individual pensions that could be marketed to self-employed professionals, traders and small-time businessmen, among others.

State Bank, with its brand equity, could justifiably expect apremium from its partner. As the experiences in countries like the US, Germany, France, Mexico and Spain have shown, banks which have tied up with insurance companies have been able to sell such products at competitive prices because of their strength of a ready infrastructure.

Other banks which are also likely to enter the insurance sector are Bank of Baroda, Vysya Bank, Development Credit Bank, Global Trust Bank and possibly Bank of India and Punjab National Bank.