Good assets vital for banks to enter insurance’

The Reserve Bank of India (RBI) has said banks with weak capital base and net non-performing assets (NPAs) of more than three per cent of total loans will not be allowed to enter the insurance broking business.

In its draft norms on the criteria for banks to step into the insurance broking segment released on Friday, the central bank said such lenders must have a capital adequacy ratio of at least 10 per cent, compared with the regulatory mandate of nine per cent. Also, these banks should have recorded profits for three consecutive years. The net worth of such banks should be at least Rs 500 crore, RBI said.

Public sector banks have been reeling under asset quality pressure and most of these have NPAs of about three per cent.State Bank of India, the country’s largest lender, reported net NPAs of 2.91 per cent for the quarter ended September 2013. Its capital adequacy ratio, however, stood at a comfortable 12.09 per cent.

Banks will be allowed to conduct insurance broking departmentally; there is no need to form a subsidiary or a joint venture. “In order to avoid any conflict of interest, banks undertaking insurance broking cannot enter into agreements either for corporate agency or for referral arrangements for insurance, either departmentally or through subsidiaries/group companies,” RBI said, adding these guidelines would be reviewed after three years. The validity for the approvals granted would also be three years.

While vetting applications, the track record of banks’ performance in other joint ventures and subsidiaries will also be taken into consideration.

“A robust internal grievance redressal mechanism should be put in place, along with a board-approved customer compensation policy to resolve issues related to the services offered,” RBI said.

 

Source: Business Standard

Date: 3rd December 2013

 

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