Banks can act as insurance brokers: FM

However, the move comes at a time when bancassurance norms underlining the same reform is still under discussion before Irda

Banks to be permitted to act as insurance brokers to increase insurance penetration was one of the key reform by the Finance Minister P Chidambaram for the insurance sector. However, the move comes at a time when bancassurance norms underlining the same reform is still under discussion before Insurance Regulatory and Development Authority (Irda). Reserve Bank of India (RBI) had also expressed concerns against these draft rules.

Three weeks ago, Irda had said that further changes would be made to the bancassurance regulations before it is finalised. They had decided to have further consultations with insurance advisory committee on new elements proposed to be included before approving regulations.

Reserve Bank of India (RBI), in its recent Financial Stability Report said that extant regulations do not permit banks to become insurance brokers. RBI had also said that banks assuming the role of insurance brokers may also lead to conflict of interests where the bank is also the promoter of an insurance company.

"Further, some provisions of the exposure draft, if implemented, may expose the banks to reputational risks," RBI had said in the report. The recent bancassurance draft permitting banks to act as brokers for insurance companies, was others like the Reserve Bank of India have expressed concerns about this. RBI had said that this could lead to reputational risks for banks.

Bancassurance wherein banks can sell policies of insurers with whom they have tied up, acts as an alternate distribution channel for insurers. Under current rules, banks cannot tie up with more than one life and non life insurer each to sell their policies. Insurers have demanded an open architecture for bancassurance.