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ing a deal with the state-owned lender, Syndicate Bank, for a partnership in the life insurance business.The Aditya Birla group company has offered 600 crore as advance commission based on future sales to Manipal-based Syndicate Bank, which will use part of the money to buy 6% stake in the life insurance firm, said a person familiar with the transaction.The deal structure will enable the Syndicate bank to pick up a minority stake in the lucrative life insurance sector without dipping into its capital reserves.

In recent years, the Reserve Bank of India has discouraged a few banks from investing in the cash-guzzling insurance business."It's at the final stage...Talks are on to arrive at a valuation," said the person. Syndicate Bank has sent the proposal to the government, its main stakeholder, for approval and a formal announcement is expected soon, the person said, not wanting to be named. Ajay Srinivasan, Chief Executive Officer of Aditya Birla Financial Services, declined to comment.

The final agreement is likely to carry a clause that seeks to address a situation arising from the bank's failure to meet the sales target.After identifying a dozen insurers for stepping into life insurance, Syndicate had shortlisted three players - Birla Sun Life, Max New York Life and the Japanese major Sumitomo. "Birla Sun Life is definitely a preferred bidder.But, we are still negotiating with the three shortlisted parties. We will take a decision soon," said a senior Syndicate Bank official. Ernst & Young is the bank's advisor to the deal.The deal will give Birla Sun Life access to 2,500 branches of the commercial bank.

Besides, 600 regional rural banks where Syndicate has a stake can be used to market Birla Sun Life products.Many insurance companies are keen to pursue the bancassurance model to expand sales by entering into equity or strategic partnership with commercial banks. The first to do it was Max New York Life which sold 4% stake to the private lender Axis Bank.MetLife India is awaiting regulatory clearance for selling 30% stake to Punjab National Bank.

Birla Sun Life has business relationships with Citibank, Deutsche Bank, Catholic Syrian Bank and DBS for selling insurance through the branches of these banks, which have a large pool of nigh net worth clients.Birla Sun Life, a JV between the Aditya Birla Group and the Canadian financial services group Sun Life, recorded a net profit of 300 crore in the last financial year.The sixth-largest insurance company in the country has reported 20% fall in new business income for the nine months ended December 31.Insurance industry circles believe that even though banks have entered into pacts to sell policies of insurance companies, insurers are yet to tap the full potential of such partnerships. Of the 80,000 bank branches in India, only 7,000 are selling insurance.

According to a report by the Insurance Regulatory and Development Authority (Irda), premium collected through bancassu- rance business was 21,947 crore in 2009-10, which is 7.31% of the total premium income of life and non-life insurance companies.