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RBI issued final guidelines for banks to act as Insurance brokers

Jan 16, 2015 16:16 IST

Reserve Bank of India on 15 January 2015 issued final guidelines for banks to act as insurance brokers.

Earlier, the banks were allowed to undertake insurance business as agents of insurance companies on fee basis with an aim to increase insurance penetration in the country. The banks were allowed to look forward for participation in insurance business in accordance to Union Government’s notification in which it allowed banks to do business of insurance under Section 6(1)(o) of the Banking Regulation Act, 1949.


Banks were allowed to undertake referral business through their network of branches on 29 October 2002.

RBI issued guidelines for both types of banks, who are setting JV or are undertaking insurance broking and they are
Banks setting up a subsidiary or joint venture (JV) for undertaking insurance business with risk participation: they will not be allowed to undertake insurance business with risk participation departmentally and may do so only through a subsidiary/JV set up for the purpose. These banks can approach RBI to set JV or subsidiary for undertaking insurance business with risk participation, if in case they satisfy the eligibility criteria as on 31 March 2014. The criteria is
a) The net worth of the bank should not be less than 1000 crore rupees
b) The CRAR of the bank should not be less than 10 percent
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
Banks undertaking insurance broking/corporate agency through a subsidiary or joint venture: they require prior approval of RBI for setting up a subsidiary or JV. Those banks may approach RBI for approval for setting up the subsidiary or JV if in case they satisfy the eligibility criteria as on 31 March 2014.  The criteria are
a) The net worth of the bank should not be less than 500 crore rupees after investing in the equity of such company
b) The CRAR of the bank should not be less than 10 percent
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

Background
Earlier, Reserve Bank of India on 29 November 2013 issued draft guidelines on Entry of Banks into Insurance Business - Insurance Broking Business for public comments.


The guidelines were placed for comments in accordance to the budget speech 2013-14 presented by Finance Minister in which he said that banks will be permitted to act as insurance brokers.

The Insurance Regulatory and Development Authority (IRDA) formulated and notified the IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013. These regulations were notified to enable banks to take up the business of insurance broking departmentally.

Earlier, Insurance Regulatory and Development Authority (IRDA) Act, 1999 was passed to permit banks to enter into insurance business.

The above mentioned guidelines are in accordance to the process that was followed to finalise the guidelines that will allow banks to enter into Insurance Business.

 

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