RBI sets terms for banks’ entry into insurance broking

The Reserve Bank of India (RBI) has released draft guidelines for entry of banks into insurance broking business.

"Since insurance broking is a knowledge-intensive activity requiring professional expertise, this will be permitted subject to the certain conditions," the RBI said.

Banks desirous of offering insurance broking services, however, have to get specific prior approval of RBI. ``Validity period for the approval granted for insurance broking will be three years subject to review thereafter,’’ the RBI said.

According to the draft guidelines, released on Friday, banks should formulate a comprehensive board-approved policy on insurance broking. And, the services offered to customers should be in accordance with this policy. The draft guidelines have laid out certain eligibility criteria for banks. Aspiring banks should have a net worth of not less than Rs.500 crore, and CRAR (capital to risk assets ratio) of not less than 10 per cent. Further, the draft has stipulated that the level of net non-performing assets should not be more than 3 per cent. Also, the bank should have made profits for the last three consecutive years. The RBI has made it clear that the track record of the subsidiaries/JVs, if any, of the bank should be satisfactory. "To avoid any conflict of interest, banks undertaking insurance broking business should not enter into agreements either for corporate agency or for referral arrangements for insurance, either departmentally or through subsidiaries/group companies,’’ it further stated.

Source: The Hindu