Insurers may have to change custodian banks

SBI Life Insurance Company, HDFC Standard Life Insurance, HDFC Ergo General Insurance and ICICI Lombard General Insurance will soon have to change their custodian banks.

The Insurance Regulatory Development Authority of India (Irda), while finalising the revamped investment norms for insurance companies at its board meeting on March 25, is likely to propose that custodian banks managing the assets of insurers should not be a part of promoter groups.

Though a section of experts says that the purpose of the revised norm is to avoid a possible conflict of interest among financial institutions, others feel that the real intent is to avoid duplicity of regulations between Irda and the Securities and Exchange Board of India (Sebi).

Sebi norms do not permit mutual fund houses to have custodians which are part of their promoter banks. The move is to ensure that Ulips from insurance companies are also governed through the same type of regulation as mutual funds.

Though most insurers already have custodians other than promoter banks, SBI Life Insurance Company, HDFC Standard Life Insurance, HDFC Ergo General Insurance and ICICI Lombard General Insurance continue to have their promoter banks as their custodians. SBI Life Insurance Company has three custodians, namely State Bank of India, SBI DFHI and Stock Holding Corporation of India.

"Irda will be giving us two to three months' time after changes are made in regulations for custodians," said an SBI Life Insurance official.

Although ICICI Prudential Life Insurance has Deutsche Bank as its custodian, ICICI Lombard General continues to have ICICI Bank as the custodian. However, since the total assets under management of ICICI Lombard is Rs 2,500 crore, the loss of revenue for ICICI Bank will be minimal.

In India, banks act as custodians for financial institutions. A custodian keeps in safe custody all securities and other such instruments belonging to a fund.

It manages the banking transactions, settles the accounts, informs insurer on policy changes in terms of investments and provides market information. Certain custodians earn a fixed fee, while others earn on the deal amount which could be 0.1 per cent of the transaction amount. In many cases, custodians earn a fee ranging from 0.5 to 1.5 per cent of the total assets under management.