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RBI floats draft guidelines for banks to act as multiple insurance brokers

The Reserve Bank of India (RBI) issued a draft notification permitting banks to sell insurance products for multiple insurers. With the implementation of the new system

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Last Updated - May 16, 2023
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The Reserve Bank of India (RBI) issued a draft notification permitting banks to sell insurance products for multiple insurers. With the implementation of the new system banks will be able to utilize its branches for increasing insurance penetration.

This new draft regulation is in line with Finance Minister Mr. P. Chidambaram’s budget speech allowing banks to act as an insurance agent and subsequent rules and regulations issued by insurance market regulator Insurance Regulatory and Development Authority in this regard.

This notification, issued by the RBI, comes with the following clauses:

Banks need to disclose the details of remuneration, in any form, from the broking business to the customers and report fees / brokerages in the notes to accounts in the balance sheet
Banks should keep dedicated and specialized staff for the insurance broking business. Further, this staff should not be given any incentive for getting business
Bank staff cannot receive any incentive, either by way of cash or otherwise, directly from the insurer.

Further, any banks wanting to operate as an insurance broker should have to seek specific prior approval of the RBI and should have and comply with the following norms:

Bank should have net worth over Rs. 500 crores.
Capital adequacy ratio of bank should to be 10%
Non-performing assets to be less than 3% of the outstanding loans
Reported profit for the last 3 years.

RBI has given time till 31st December 2013 to public to give their suggestion and feedback on the draft guidelines.  Further, the draft guidelines require every bank to have a board – approved policy for the business and also keep away from conflict of interest by not entering into separate agreements with a commercial agency or for referrals. 

At present, i.e before this new guideline is applicable; under bancassurace form a bank is allowed to act as an agent for only one general insurer and one life insurance company. As per new guidelines a bank can act as agent of multiple insurers (both life and non life).

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