RBI revises norms for banks undertaking insurance business

Reserve Bank of India (RBI) has issued revised guidelines for banks undertaking insurance business and has now advised thm that while banks would be allowed to undertake insurance business by setting up a subsidiary or joint venture, such 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.

RBI has permitted banks to enter the insurance business through separate entities as well as undertake insurance broking/ insurance agency/either departmentally or through a subsidiary.

However, 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.

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 of 31 March of the previous year) may approach the RBI with the proposal for setting up a subsidiary/joint venture company for undertaking insurance business with risk participation.

For this, the bank should have:

• A net worth of not less than Rs1,000 crore;
• CRAR of not less than 10 per cent;
• Net non-performing assets of not more than 3 per cent;
• Should have m ade a net profit for the last three continuous years; and
• Satisfactory track record of the performance of subsidiaries, if any.

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.

For undertaking insurance broking / corporate agency through a subsidiary/JV, banks require prior approval of RBI for setting up a subsidiary/JV. Accordingly, banks desirous of setting up a subsidiary for undertaking insurance broking/corporate agency and which satisfy the eligibility criteria (as of 31 March of the previous year) may approach RBI for approval to set up such subsidiary/JV.

Such banks should have:

• A net worth of not less than Rs500 crore after investing in the equity of such company;
• CRAR of not less than 10 per cent;
• Net non-performing assets not exceeding 3 per cent;
• Should have made a net profit for the last three continuous years; and
• Satisfactory track record of the performance of the subsidiaries, if any, of the concerned bank should be satisfactory.

As hitherto, RBI approval would also factor in regulatory and supervisory comfort on various aspects of the bank's functioning such as corporate governance, risk management, etc.

Banks undertaking corporate agency functions/broking functions departmentally need not obtain prior approval of the RBI to act as corporate agents on fee basis, without risk participation/undertake insurance broking activities departmentally, subject to IRDA regulations, and compliance with prescribed conditions.

However, in terms of IRDA (Sharing of Database for Distribution of Insurance Products) Regulations 2010, no bank is currently eligible to conduct insurance referral business, RBI noted.