It's set to be the mother of all battles. India's No. 1 bank SBI, and No. 1 insurer LIC have both set their eyes on becoming a universal bank. Get ready for the fireworks.

By Ashish Gupta

JANAKI BALLABH, CMD, SBI	G.N. BAJPAI, CMD, LIC

It's the newest, and quietest rumble in Mumbai's (concrete) jungle. In the blue corner, with 9,043 branches, 9 crore account-holders, and Rs 19,680.3 crore in deposits is India's largest bank, the State Bank of India (SBI). In the red corner, with around 2 crore policyholders, an annual cash flow of around Rs 85,000 crore, and 2,084 branches is the country's largest insurer, the Life Insurance Corporation (LIC).

In the normal course of history, the two companies would have existed happily ever after in the same financial universe, traversing orbits that did not even come close. Blame it on the times then, that the behemoths find themselves, circa 2001, on collision course. And blame it on the radical changes in the financial sector that two dignified old gentlemen, LIC's Ghyanendra Nath Bajpai, 59, and the State Bank of India's Janaki Ballabh, 58-both their business cards read Chairman and Managing Director-find themselves adversaries.

You won't catch the two CMDs saying this openly, but as a senior LIC executive says, ''Our strategy is to challenge the supremacy of the State Bank of India over a period of time.'' To savour the irony of that quote readers need only consider two facts: SBI and LIC were both created through Acts of Parliament, the first in 1955, the second, a year later; and the chairman of SBI is the ex-officio director on the board of directors of LIC.

Branching Out

Recent attempts by the two monoliths to branch out into areas that take them a step closer to being justifiably termed universal banks are hardly their first efforts at diversification. SBI already has a presence in the mutual funds, investment banking, credit card, and home and consumer loans businesses. LIC, for its part, has a presence in the mutual funds and housing finance businesses.

Still, SBI's foray into insurance, through SBI-Life, a joint venture with Cardiff SA of France, and LIC's into banking, through the acquisition of a 27 per cent stake in the Mangalore-based Corporation Bank are perhaps the biggest gambles ever undertaken by the two giants. That, despite the State Bank's phenomenal reach and Corporation Bank's status as one of the best-managed banks in the country. Competition is intense in both domains: at last count there were 19 public sector, 34 private sector, and 45 foreign banks operating in the country; and at the time of going to press, six companies had secured licences from the IRDA to start operations (four of these already had).

The State Bank of India's decision may have something to do with the state of the banking business. Indian banks have seen their interest spread-the difference between the rate at which they lend money and the rate at which they borrow it- squeezed over the last five years. From a healthy 4 per cent in 1996, this has come down to around 2.7 per cent now. Predictably, the profitability of most banks, including SBI have taken a beating. Although SBI's net profits grew from Rs 831.6 crore in 1996 to Rs 1,604.25 crore in 2001, its operating profit decreased from 5.85 per cent to 5.3 per cent in the same period.

The Life Insurance Corporation's belated attempt to leverage its considerable financial and distribution muscle could have stemmed from a desire to become more than an insurance company. It is highly likely that the immediate motivation was the entry of aggressive private sector players into its home-turf, insurance. Bajpai believes the Corporation Bank deal is a win-win one: ''The proposed synergy between the two efficient public sector organisations will be mutually rewarding and help LIC in marketing, servicing, and cash flow management.''

Adds Ashwin Parekh, the managing partner at consulting major Arthur Andersen, ''The ongoing convergence in (Indian) financial markets will result in the emergence of three or four large universal banks. Both LIC and SBI want to be serious contenders for the post.''

It is logical for the two companies to want to be universal banks. ''The marriage of banking and insurance,'' explains Ravi Trivedi, an executive director with consulting firm Pricewaterhouse Coopers, ''will provide banks with a source of long-term funds to manage their short-term liabilities.'' That both companies are serious about their universal-banking ambitions is evident. Says Bajpai: ''We have put in place a very wide array of products and today we are truely a financial supermarket.''

Today 65 per cent of SBI's revenues comes from banking, and almost all of LIC's revenues come from insurance. Both are seeking to reduce this proportion over the next five years. Only, SBI is seeking to become a universal bank through organic means, while LIC has started its campaign with the acquisition of a significant stake in Corporation Bank.

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