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Unhappy at FinMin plan, RBI panel says donít force banks to become insurance brokers

May 05 2014, 14:26 IST
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The reluctance on the part of the RBI and banks is clearly visible in the latest report being prepared by an RBI panel. (Photo: Thinkstock) The reluctance on the part of the RBI and banks is clearly visible in the latest report being prepared by an RBI panel. (Photo: Thinkstock)
SummaryLike RBI, most of the top banks are also not happy about govt plan on selling insurance policies.

Should banks sell the policies of all insurance companies instead of the current practice of sticking to one company? The jury is not yet out.

The finance ministry is keen on it. The Insurance Regulatory and Development Authority (Irda) is all for it. However, thereís discomfort in the Reserve Bank of India. Most of the top banks in the country are also not happy about the government pushing for it.

The reluctance on the part of the RBI and banks is clearly visible in the latest report being prepared by an RBI panel. The RBIís working group on bancassurance has suggested that no model should be unilaterally imposed on banks and that the choice of becoming a multiple corporate agent or a broker should be left to the respective banks and their boards. Under the existing regulations, a bank is allowed to distribute policies of one life and one non-life insurer as its corporate agency partner.

The panelís interim report says that the Irda should amend the regulations to give five years to a bank to reach the 25 per cent cap on the insurance business placed with the insurance company of the promoter group required by the Irda. Put in other words, the RBI committee is saying that the Irda should not issue blanket orders to banks which are regulated by the RBI.

However, the panel is not unilaterally opposing the Irda/government move. The RBI panel suggests that by the end of the first year of operations, a maximum of 75 per cent of the insurance business could be placed with the group insurance company. At the end of the second year of operations, this should decrease to 60 per cent; end of the third year a maximum of 50 per cent; end of the fourth year a maximum of 35 per cent and a bank should achieve the 25 per cent cap by fifth year end.

The committee, headed by Reena Banerji, general manager, RBI, has members from the RBI, Irda, Indian Banks Association and senior officials from commercial banks and will submit its report to the finance ministry soon.

Why banks, RBI oppose?

Several banks at their meeting with the Central bank and the insurance regulator had expressed reservations about a clause in the broker regulations of the Irda, which said not more than 25 per cent of the insurances handled by an insurance broker (read bank) in any financial year should be placed

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