Government may set aside order that state-run banks act as insurance brokers
08 May, 2014 12:12 PM
State-run banks are likely to get a respite as the government may set aside its order directing them to act as insurance brokers.

The finance ministry is considering allowing banks to choose whether to act as brokers or pursue the existing model of insurance agent of a single insurer, an official said, indicating that the government has softened its stance on the issue.

"The recommendations of the working group are being discussed. Based on the recommendations, the insurance regulator may also contemplate amendments to the regulations," said the official, who did not wish to be identified.

The issue has already been transferred to Financial Stability and Development Council (FSDC), and will be taken up during the next meeting, another finance ministry official said.

FSDC has representation from all the sectoral regulators.

"The regulators will work out a mechanism," the official said, adding that IRDA could relax the guidelines which state that while acting as brokers banks will have to cap business from their own group companies at 25% for both life and non-life business. At present, banks are allowed to sell products of one company from life, non-life and health insurance businesses. If banks act as brokers, they can sell products of all companies.

In December, the ministry had asked public sector banks to become insurance brokers instead of remaining corporate agents of an insurance company. This was in line with the Budget announcement that paved the way for banks to act as insurance brokers and offer products of more than one insurance company.

But this led to complaints that the directive could pose an issue of conflict of interest for the banks which were partners in insurance joint ventures. A working group - including representatives of the insurance regulator IRDA, Reserve Bank of India and Indian Banks' Association (IBA) - was then set up to examine the issue.

Two foreign insurers, New York Life and ING, have already exited their Indian ventures.

"The committee is also of the view that the decision should be left to the bank boards. In any case, this is the decision of the incumbent government. The new government may not adhere to it at all," said a senior IBA official.

In his 2013 Budget speech, finance minister P Chidambaram had said that banks would be allowed to act as insurance brokers so that the banking network could be utilised to deepen insurance coverage in the country.

In November, RBI allowed banks with capital adequacy ratio of not less than 10% and net non-performing loans of not more than 3% to undertake insurance broking business departmentally.
Source : The Economic Times

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