State Bank of India (SBI) has said it is planning to set up a holding company for its insurance and asset management businesses. ICICI Bank has already set up such a holding company that is valued at nearly $11 billion (Rs44,660 crore).
Many others in the Indian corporate sector are doing something similar—Bajaj Auto, for example, and the Tata group for its new financial services thrust. Why are holding companies suddenly gaining in popularity in the top echelons of the Indian corporate world?
The main reason is that these groups have spread into several different areas in recent years. It is far more difficult to convince long-term strategic investors to buy into a diversified giant—these investors may not want to put money in every business that the Indian company has under its roof. A holding company that owns a group of more tightly focused subsidiaries is one way to get over the problem, especially in emerging areas such as insurance.