Banks Can Take Up Insurance Broking Biz

Banks will now be able to provide customers a choice of insurance companies whose products can be bought through the bank with the central bank permitting banks to get into insurance broking. Banks can choose whether to be tied to one company as a corporate agent or to become an independent broker. However, RBI has put on banks the onus of ensuring the suitability of insurance product sold to their customers.

Reserve Bank of India on Thursday tightened norms for entry of bank into the insurance joint ventures by requiring a minimum capital adequacy of 10%, equity capital of Rs 1000 core and net nonperforming assets below 3%.However, it has said that banks can take up insurance distribution through a corporate agency or broking structure within the bank without any prior permission.

Banks that choose to float a broking subsidiary or a joint venture will however will need to obtain a clearance from RBI. They also need to meet some minimum criteria which includea a capital adequacy requirement of 10%. These banks would also need to have a minimum net wroth of Rs 500 crore and should contain their bad loans below 3%. The stiff norms on capital requirement are likely to deter many public sector banks that are weak on capital adequacy .

The finance Minister in the budget speech 2013-14 announced that banks will be permitted to act as insurance brokers with the objective of increasing insurance penetration using the entire network of bank branches. At presentmost banks are associated with an insurance company as a corporate agent. However, bulk of the premium from the bancassurance channel is generated by a handful of new generation private banks such as HDFC Bank and ICICI Bank. Although close to a dozen public sector banks have equity stake in insurance companies, they have not been as successful as private banks in distributing through bank branches.

The insurance industry meanwhile is almost equally divided between companies that have equity participation from banks and those that do not. Companies that do not have a bank partner have been lobbying with the regulator and the government for an open architecture system where one bank can sell products of multiple companies

Source: The Times of India

News: January 16, 2015

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