Seeking to increase insurance penetration in the country, the Reserve Bank today allowed banks to act as brokers for insurers, set up their own subsidiaries and also undertake referral services for multiple companies.
“Banks may undertake insurance agency or broking business departmentally and/or through subsidiary,…,” RBI said in the guidelines for entry of banks into insurance business.
The banks have also been allowed to set up subsidiaries and joint venture companies for undertaking insurance business with risk participation, it said.
They can also act as corporate agents without seeking prior approval from the RBI. However, they will have to comply with IRDA guidelines.
Under existing bancassurance guidelines, a bank can act as a corporate agent and sell policy of only one life insurer and one non-life insurance company.
The new guidelines allow banks to act as brokers permitting them to sell insurance policies of different insurance companies.
The guidelines follow an announcement made by the former Finance Minister P Chidambaram in 2013-14 Budget.
“Banks will be permitted to act as insurance brokers so that the entire network of banks’ branches will be utilised to increase the penetration of insurance,” the Budget had said.
There are about 87 commercial banks in the country with 1.2 lakh branches across the country.
There are 52 insurance companies operating in India; of which 24 are in the life insurance business and 28 are in general insurance business. In addition, GIC is the sole national reinsurer.
There has been a long pending demand from the insurance industry to allow banks to act as insurance brokers. Regulator IRDA has already issued guidelines in this respect.
According to the RBI guidelines, banks are not allowed to undertake insurance business with risk participation departmentally and may do so only through a subsidiary/JV set up for the purpose.
Banks which satisfy the eligibility criteria (as on March 31 of the previous year) may approach RBI to set up a subsidiary/joint venture company for undertaking insurance business with risk participation, it said.
Elaborating on the condition for setting up subsidiary/joint venture company, it said, the net worth of the bank should not be less than Rs 1,000 crore and the CRAR of the bank should not be less than 10 per cent.
The level of net non-performing assets should be not more than 3 per cent, it said, adding the bank have made a net profit for the last three continuous years.
The track record of the performance of the subsidiaries, if any, of the concerned bank should be satisfactory, it said.
“It may be noted that a subsidiary of a bank and another bank will not normally be allowed to contribute to the equity of the insurance company on risk participation basis,” it said.
For banks undertaking insurance broking through a subsidiary or JV without risk participation, the the net worth of the bank should not be less than Rs 500 crore after investing in the equity of such company.
“RBI approval would also factor in regulatory and supervisory comfort on various aspects of the bankâ€™s functioning such as corporate governance, risk management, etc,” it said.
For setting up JV, a comprehensive board approved policy regarding undertaking insurance distribution, whether under the agency or the broking model should be formulated and services should be offered to customers in accordance with this policy.
The policy will also encompass issues of customer appropriateness and suitability as well as grievance redressal.
“It may be noted that as IRDA Guidelines do not permit group entities to take up both corporate agency and broking in the same group even through separate entities, banks or their group entities may undertake either insurance broking or corporate agency business,” it said.
“It must be ensured that no incentive (cash or non-cash) should be paid to the staff engaged in insurance broking services by the insurance company,” it added.
Violation of the above instructions will be viewed seriously and will invite deterrent penal action against the banks.