RBI issues guidelines for entry of Banks into Insurance Business
With the objective of increasing insurance penetration using the entire network of bank branches, IRDA formulated and notified the IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013 to enable banks to take up the business of insurance broking departmentally.
Accordingly, RBI has decided that banks may undertake insurance business by setting up a subsidiary/joint venture, as well as undertake insurance broking/ insurance agency/either departmentally or through a subsidiary. However, it may be noted that if a bank or its group entities, including subsidiaries, undertake insurance distribution through either broking or corporate agency mode, the bank/other group entities would not be permitted to undertake insurance distribution activities, ie, only one entity in the group can undertake insurance distribution by either one of the two modes mentioned above.
1) Banks setting up a subsidiary/JV for undertaking insurance business with risk participation
Banks are not allowed to undertake insurance business with risk participation departmentally and may do so only through a subsidiary/JV set up for the purpose. Banks which satisfy the eligibility criteria (as on March 31 of the previous year) given below may approach Reserve Bank of India to set up a subsidiary/joint venture company for undertaking insurance business with risk participation:
a) The net worth of the bank should not be less than Rs.1000 crore;
b) The CRAR of the bank should not be less than 10 per cent;
c) The level of net non-performing assets should be not more than 3 percent.
d) The bank should have made a net profit for the last three continuous years;
e) The track record of the performance of the subsidiaries, if any, of the concerned bank should be satisfactory.
RBI approval would factor in regulatory and supervisory comfort on various aspects of the bank’s functioning such as corporate governance, risk management, etc.
It may be noted that a subsidiary of a bank and another bank will not normally be allowed to contribute to the equity of the insurance company on risk participation basis.
It should be also be ensured that risks involved in insurance business do not get transferred to the bank and that the banking business does not get contaminated by any risks which may arise from insurance business. There should be an ‘arms length’ relationship between the bank and the insurance outfit.
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