The central bank has laid out a set of five parameters -- including a minimumnet worth of Rs 500 crore as on March 31, 2000 -- as a precondition to seek thelicence to float an insurance subsidiary by a bank or financial institution.The other four requirements are a minimum capital adequacy ratio of 10 percent, a three-year continuous profit record, at least one per cent below theindustry average net non-performing assets (NPA) and a good track record inthe case of subsidiaries. Most of the state-run banks are likely to stumbleon the net NPA criterion.

The apex bank has also indicated that the investment by banks andinstitutions in the insurance outfit should not exceed 10 per cent of theirnet worth. In addition to that, the investment in the insurance ventureshould also not exceed 30 per cent of the paid-up capital of the company,the draft guidelines said.

According to sources, the central bank is likely to soften its stance anddilute some of the parameters as otherwise none of big banks will be able toenter the insurance sector. A string of banks has made presentations to theRBI as well as the finance ministry seeking dilution in the guidelines. "Thecentral banks has circulated draft guidelines. The final shape will be givento the entry norms after due consultations with banks and institutions,"sources said.

On the basis of performance and financial parameters in fiscal 1999, thedraft regulations effectively debar all banks -- except Corporation Bank andOriental Bank of Commerce (OBC) -- from entering the insurance sector. Most ofthe state-run banks including the giant State Bank of India will not be ableto float insurance ventures as they may not qualify. The apex bank has saidthat only financially sound banks and FIs with good track records will bepermitted to provide fee-based services (as agents of insurance companies)by undertaking selling of insurance products without assuming theunderwriting risks. "However, for risk participation, only a few banks onhighly selective basis who fulfill the five criteria will be considered toundertake insurance business," RBI has stipulated.

According to the RBI's Report on Trend and Progress of Banking in India for1998-99, net NPAs of the PSU banks increased to Rs 24,211 crore in 1998-99from Rs 21,232 crore in 1997-98. During this period, net NPAs as apercentage to total assets declined to 3.1 per cent in 1998-99 from 3.3 percent in 1997-98.