Most SCBs fail to meet insurance entry terms

Strict riders from the RBI on entry of state cooperative banks (SCBs) and district central cooperative banks (DCCBs) into the insurance sector will disqualify 80 per cent of these entities.

The RBI recently said that these entities can enter the sector only as corporate agents without risk participation.

"Although the apex bank has allowed scheduled SCBs and DCCBs to undertake corporate agency they have added a host of riders to the permission which will lead to as many as 80 per cent of these entities not being eligible. There are around 900 DCCBs and 29 SCBs," said sources from National Bank for Agriculture and Rural Development (Nabard).

SCBs and DCCBs will only be allowed entry into the sector if these banks have a minimum positive networth of Rs 100 crore as per the latest Nabard Inspection Report. Most of the banks' were likely to fail on this single rider.

These banks should have registered profits for the last three years and should not have any accumulated losses.

On the non performing asset front its gross NPA should not be more than 10 per cent. SCB's 29 and DCCB's 900 will not be allowed entry if it has violated any prudential norms including individual and group exposure norms fixed by RBI and Nabard.

The rider on networth coupled with NPA will render almost 80 per cent banks ineligible Other riders included compliance with instructions issued by RBI and Nabard on loans and advances to directors, relatives, firms etc.

These banks will also not be allowed to open premium collection accounts with them and, premium collected will have to be directly paid to the insurance companies.

Nevertheless, SCB's and district central cooperative banks should obtain prior permission from the central bank and Irda.

The permission granted by RBI would be valid for two years subject to review before expiry of the period.