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Thursday 30 January 2014

Public sector banks may opt out of becoming insurance brokers

Public sector banks may opt out of becoming insurance brokers, even as the finance ministry's deadline for taking up this model has expired. The senior officials of these banks are expected to express their concerns about this model to financial services secretary Rajiv Takru.

In December 2013, the finance ministry had sent a circular to the heads of the public sector banks to become insurance brokers, in order to boost penetration of products through their branch networks.

Senior officials said that banks are expected to convey their displeasure to Takru over the immediate nature of the circular. They would also ask for a longer period to implement these reforms, if at all they were mandatory.

“Though we understand that some insurers do not have banks to sell insurance, we also have agreements with our partners to enable exclusive access to the branch network. There could be an impact, both on our business and the existing partnerships, if insurance broking is made mandatory,” said the head of a public sector bank, who is a promoter of an insurance company.

Finance Minister P Chidambaram in his budget speech in 2013 had said that banks could become insurance brokers. Post this, Insurance Regulatory and Development Authority (Irda) and Reserve Bank of India (RBI) bought out enabling legislations facilitating the same.

Irda had earlier brought out regulations that said banks could become insurance brokers, once their individual proposal to do so was approved by the RBI. Now, the regulator is looking to make insurance broking model compulsory for banks.

Bancassurance, which refers to banks selling insurance products, currently follows a corporate agency structure. This means that banks sell insurance as a corporate agent and these regulations allow each bank to sell insurance products of one life, one general and one standalone health insurance company each.

The central bank, on the other hand, came out with stringent norms on this model. RBI said that only banks with strong capital base can become brokers. Further, their net Non-Performing Assets (NPA) should be below 3%.

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