Faced with reservations by banks over switching to insurance broking, citing current business obligations with insurers, a top Finance Ministry official said a meeting has been planned with the Indian Banks Association (IBA) to iron out issues in this regard.
"The government is not asking banks to stop doing what they are doing immediately," Financial Services Secretary Rajiv Takru said here today. "We are saying: Phase it out...I am meeting the IBA on this on January 28 to work out the nitty-gritty on what to do, how much to do and how to do."
In the Budget for this financial year, Finance Minister P Chidambaram had said banks would be allowed to sell insurance products from multiple companies, not just one insurer as is the present practice under the bancassurance model, to help increase the penetration of insurance products.
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After the Reserve Bank issued a notification on November 29 allowing banks to enter insurance broking, the Finance Ministry recently asked banks to begin switching over to the broking model and start phasing out the bancassurance model.
The IBA wrote to the Finance Ministry last fortnight, saying bank managements should be given the freedom to decide whether they would be competent to sell products of more than one insurer.
The RBI's guidelines have a strong set of riders, such as disclosing the remuneration received from insurers and requiring dedicated staff with specialisation for insurance broking. Earlier, the Insurance Regulatory and Development Authority had also issued norms.
"To enable banks to leverage their branch network for increasing insurance penetration, it has been decided to permit banks to undertake insurance broking departmentally," the RBI had said in its notification.
The bancassurance model allows a bank to become a corporate agent of one life and general insurance company each. Under the broking business, it will be able to sell products of multiple companies.
"No bank has refused to do anything in this regard. We only told the banks that this is where they have to go. Let me also clarify that a decision in this regard is to be taken by bank managements," Takru said.
