While SBI will pump in Rs 111 crore (Rs 1.11 billion) as the base capital, the Australian partner will put in Rs 39 crore.
According to analysts, this is the highest premium paid by a foreign insurer to a domestic partner. Japan's Dai-Ichi had paid Rs 170 crore (Rs 1.70 billion) for 26 per cent in its life insurance joint venture with Bank of India and Union Bank. HSBC paid Rs 125 crore (Rs 1.25 billion) for a tie-up with Canara Bank and Oriental Bank of Commerce and UK-based Legal & General paid about Rs 225 crore (Rs 2.25 billion) for a 26 per cent stake in its life insurance venture with Bank of Baroda and Andhra Bank. Universal Sompo paid 86 crore for stake in a non-life insurance venture with Allahabad Bank and Indian Overseas Bank.
In a statement, IAG said the company will have the option of increasing its stake to 49 per cent when regulation permits.
At present, foreign direct investment in India is capped at 26 per cent. In November 2008, the Cabinet had cleared the proposal to increase FDI in the insurance sector to 49 per cent. The bill now needs parliament's approval to effect the change.
Initially, IAG was expected to route its investment via Mauritius but later decided to invest directly as Indian regulators expressed discomfort with the Mauritian route.
"The investment will be funded from internal resources. The capital has been invested directly into the joint venture vehicle and no further capital is expected to be required until at least the fourth year of operation" IAG said.
"The subsidiary is expected to start commercial operations in the first half of the calendar year 2010 subject to final approvals from Insurance Regulatory and Development Authority," SBI said.
The venture is expected to break even in three and a half years from starting operations.