Finance ministry, RBI on different tracks

Last Updated: Wed, Mar 06, 2013 04:52 hrs

The finance minister's Budget proposal to allow banks to become insurance brokers comes at a time when the Reserve Bank of India (RBI) has cautioned against the move.

While the Insurance Regulatory and Development Authority (Irda) is yet to finalise the regulations on this, banks aren't very optimistic. "We haven't really discussed it internally. We have not spent time in deciding whether we would be interested to act as insurance brokers. It is unlikely we will firm up our plans anytime soon," said a senior executive in charge of retail banking business at a large private bank.

Under Irda's current bancassurance structure, banks are allowed to sell insurance policies of a life insurer and a non-life insurer. New insurance companies couldn't tie up with any bank to boost the distribution of insurance products and sell their products across the bank's branches, as leading banks had already entered into agreements with other insurers.

To address this, Irda had brought out the draft norms on bancassurance in 2012. According to these, banks could become brokers and sell the products of multiple insurance companies.

"We still do not know how it would benefit us as a bank. We will probably evaluate it. But it is not an easy business. Only if it adds significant value and brings sizeable remuneration would we consider entering this business," said an official with a mid-sized private sector bank.

RBI had said if banks became brokers, especially in cases in which they were promoters of insurance companies, there would be a conflict of interest. "Further, some provisions of the exposure draft, if implemented, might expose the banks to reputational risks," RBI had said in its Financial Stability Report.

A senior executive with a private bank said, "According to existing terms, we are allowed to sell bancassurance products of only one insurance company. We are not sure if our insurance partner would allow us to sell products of its rival companies...Even if it is done through a subsidiary, it would only be a structural change. At the end of the day, you would still be selling products of different insurers. We are not sure if our existing insurance partner would want that."

For long, insurers have demanded an open bancassurance structure to ensure they are able to tap into the wide distribution network of banks. G Srinivasan, chairman and managing director of New India Assurance, said if the proposal was implemented, it would help the company tap all banks to distribute its products, apart from increasing investments from banks into this segment. Currently, New India Assurance has three major partners " Union Bank, Corporation Bank and Catholic Syrian Bank " apart from a few co-operative banks.

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