)
K R Kamath, CMD, Punjab National Bank and chief of Indian Banks’ Association, said representatives of banks had met finance ministry and regulatory officials on the matter.
"The priority is to see what is good for the customer. Banks should give options to customers. While each model has pros and cons, one particular model may not be the right way. There are contractual obligations of different banks who have joint ventures (with insurance companies). We hope to come up with an acceptable solution, keeping the customer at the centre," he said.
Kamath said banks would set up the group with representations from banks, insurance companies, Insurance Regulatory and Development Authority (Irda) and Reserve Bank of India (RBI) “to come out with an acceptable solution”.
According to him, though some public sector banks have their licences as corporate agents coming in for renewal in February, they might renew the licence for now and wait for the final guidelines to come.
In December 2013, the finance ministry had sent a circular to public sector banks to become insurance brokers, in order to boost insurance penetration.
Irda chairman T S Vijayan said, "We will not discriminate between public sector banks and private banks. They have to decide how to go about this process."
Finance Minister P Chidambaram, in his last Budget speech, had said banks could become insurance brokers. After this, Irda and RBI brought out enabling legislations facilitating the same.
Irda guidelines said banks could become insurance brokers after their individual proposals were approved by RBI. Now, Irda is looking to make insurance broking model compulsory for banks.
Bancassurance, which refers to banks selling insurance products, now follows a corporate agency structure. The central bank, on the other hand, bought out stringent norms on this model. RBI said only banks with strong capital base can become brokers. Further, their net non-performing assets (NPA) should be below three per cent.
"You are requested to implement the spirit of the budget announcement within the framework of guidelines by Irda and RBI in this regard under intimation to this department (department of financial services) by January 15, 2014," said the circular by department of financial services.
The stringent deadline and mandatory nature of the circular has created some discontent among public sector banks, especially those who have shareholder agreements in insurance joint-ventures.
Public sector banks have already expressed displeasure in implementing this regulation. In a recent interview to Business Standard, Vijayalakshmi Iyer, chairperson and managing director, Bank of India said, "We have said banks that have an insurance subsidiary have the obligation to honour the MoU signed among various partners.”
The Indian Banks’ Association (IBA) — the banking industry lobby group — in an internal meeting had earlier decided that each PSB’s board will discuss the finance ministry circular on becoming such brokers.
Officials had felt that given the differences in the structure and the size of the banks, it is difficult to take a collective view on this issue.
As an insurance broker, a bank will be liable for each policy sold to a customer. Under current bancassurance norms, the banks are not responsible for policies sold.
At present, bank-promoted insurers have almost 55-60% business coming from the bancassurance channel. If these banks become brokers, these insurers have to look towards other channels. Also, the bank executives fear that misselling would become rampant, sinvce each bank would sell multiple insurance products.
