Mumbai: Bank of India (BoI), a leading public sectorbank, today announced that its board of directors has cleared a joint venture proposal for a life insurance company with Japanese major Dai Ichi Mutual Life and an Indian partner.

Dai Ichi is the second-largest life insurance company in Japan, and the sixth-largest globally. BoI has also roped in Andhra Bank as the third partner in the venture. Indian banks (except the State Bank of India) are not allowed to hold over 49-per cent stake in an insurance joint venture, according to the insurance regulations in the country, so most banks opt for a third partner.

IDBI Bank, for instance, has tied up with Federal Bank and Dutch insurer Fortis, while Punjab National Bank and Vijaya Bank are planning a life insurance foray with Principal Financial group of the US.

There is also a ceiling on foreign insurers in India, who face a 26-per cent equity cap. The United Progressive Alliance (UPA) government is keen to hike the ceiling to 49 per cent, but the UPA government's Left supporters are opposed to the move.

Interestingly, many of the banks, including BoI, that are planning a foray into the life insurance sector already have arrangements with existing life insurers.

BoI, for instance, has been selling life insurance products of ICICI Prudential Life Insurance Co since 2001.

Almost a thousand BoI branches sell ICICI Pru life insurance policies, giving the bank vast experience in 'bancassurance.' BoI has also developed a co-branded mortgage reducing term assurance (MRTA) product, bundled with its Star Home Loan, where borrowers' life can be covered during the currency of the loan.

But with BoI planning to float a new venture with Dai Ichi and Andhra Bank, it will have to terminate its agreement with ICICI Pru.