NEW DELHI: The government is unlikely to show flexibility on its directive that banks must disband the corporate agency model for insurance products and adopt the broker model, a top finance ministry official has indicated.
Financial services secretary Rajiv Takru told ET that the panel looking into the concerns raised by PSU banks will only explore ways of smoothening the transition. “The committee’s mandate is to define the exact road map or the smoothest way to implement the multi-company sale model,” he said.
In December, the finance ministry had asked public sector banks to become insurance brokers instead of remaining corporate agents. This was in line with the budget announcement that paved the way for banks to act as insurance brokers.
The insurance broking model also has the backing of the Insurance Regulatory and Development Authority(IRDA). A senior IRDA official said that the guidelines will be the same for both state and private sector banks. “There cannot be a distinction that state-run banks are selling all products while private bankscontinue to peddle product of their own group companies,” the official said, adding that the regulator is open to relaxing the norms to facilitate this transition.
IRDA guidelines 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. According to the official, the regulator could consider changing this cap or defer its implementation.
But bankers and insurance companies are unhappy. “Our foreign partners are already questioning their decision to enter India when the policy keeps changing arbitrarily,” said the executive director of a state-run bank. “The whole joint venture was on the premise that they will use our branch network for expansion.” Two foreign insurers – New York Life and ING – have already exited their Indian ventures.
At present, banks are allowed to sell products of one life, non-life and one health insurance company. If banks act as brokers, they can sell products of all companies. In his 2013 budget speech, Finance ministerP Chidambaram had said that banks will be allowed to act as insurance brokers so that the banking network can be utilised to deepen insurance coverage in the country.
In November, the 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.