Entry of Banks into Insurance Business : Now,Banks can take up insurance broking business

Highlights:

  • According to RBI, now, banks will be able to provide customers a choice of insurance companies whose products can be bought through the bank with the central bank permitting banks to get into insurance broking.
  • Banks can choose whether to be tied to one company as a corporate agent or to become an independent broker.
  • However, RBI has put on banks the onus of ensuring the suitability of insurance product sold to their customers.
  • Reserve Bank of India recently tightened norms for entry of bank into the insurance joint ventures by requiring a minimum capital adequacy of 10%, equity capital of Rs 1000 core and net non-performing assets below 3%.
  • However, banks can take up insurance distribution through a corporate agency or broking structure within the bank without any prior permission.
  • Banks that choose to float a broking subsidiary or a joint venture will however will need to obtain a clearance from RBI.
  • They also need to meet some minimum criteria which include a capital adequacy requirement of 10%.
  • These banks would also need to have a minimum net wroth of Rs 500 crore and should contain their bad loans below 3%.
  • The stiff norms on capital requirement are likely to deter many public sector banks that are weak on capital adequacy.