India’s largest banking institution, State Bank of India (SBI) has signed up a memorandum of understanding (MoU) with Insurance Australia Group (IAG) to form a general insurance joint venture (JV) later this year.

The Indian bank will hold the majority stake of 74 percent in the joint venture, whereas IAG holds the remaining 26 percent.

Deepak Chawla, deputy managing director, SBI stated, “Establishing a general insurance joint venture is a key element of SBI's strategy to pursue emerging, high growth opportunities to build on our position as a pre-eminent financial services group in India.”

“IAG’s proven capabilities in technical and underwriting expertise, pricing and risk management, and its track-record in working successfully with other partners in the Asian region, makes IAG an ideal partner. We look forward to working together to grow a successful general insurance business

IAG Chief Executive Officer Michael Hawker said he was very happy as IAG had been selected as SBI’s favored associate ahead of several major international insurers.

“Forming a general insurance partnership in India with a premier partner such as SBI, the largest bank in the country, is a significant step in IAG’s Asian expansion strategy,” Mr. Hawker added.

“A joint venture with SBI would allow us to combine our core capabilities with the local knowledge and distribution network of one of the largest and most recognised financial services organisations in India.”

“We identified India four years ago as a market we wanted to enter as part of our stated strategy to diversify into fast growing general insurance markets in Asia, and we’ve been discussing opportunities with SBI for more than 18 months. India has a large, high growth economy. Its general insurance sector has grown at a compound annual growth rate of 14% over the last five years, and is predicted to grow 15%-20% per annum over the next ten years,” he also said.

Currently, SBI has 100 million customers and over 10,000 divisions in India and IAG is an international general insurance group, which specializes in non-life business and works in Australia, New Zealand, Asia and the UK. The group underwrites about US $7.4bn of insurance premiums every year.

SBI already has a JV with French insurer Cardif - a unit of BNP Paribas - for the life insurance business. SBI's life insurance venture is the third-biggest among all new-generation insurers.

India has 18 life and non-life insurance companies, and has one of the lowest penetration levels in Asia, with less than 5% having insurance policies.

At 12:45 pm, the shares of SBI gained 0.9% at Rs 1,678 on the Bombay Stock Exchange (BSE).