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No escape for banks on insurance biz model

DNAThe government may not dilute its directive that banks must adopt broker model for the insurance business. According to financial services secretary Rajiv Takru the committee that has been set up to look into the issues raised by public sector banks will only explore how best the transition can be made possible and will not look at possible models. He has said the committee’s mandate is to define the exact road map or the smoothest way to implement the multi-company sale model. The Indian Banks’ Association (IBA) had discussed the issue in two separate meetings with the finance ministry and the RBI. K R Kamath, chairman of Punjab National Bank and IBA chief, said it has been decided that a small group comprising banks, insurance companies, RBI and IRDA would look into the matter.

The insurance broking model has the backing of the Insurance Regulatory and Development Authority (IRDA). IRDA has emphasized that the guidelines will be the same for both state and private sector banks. An official said there cannot be a distinction that state-run banks are selling all products while private banks continue to peddle product of their own group companies. IRDA guidelines state that while acting as brokers, banks will have to cap business from their own group companies at 25% for both life and non-life business. The regulator may look at changing this cap or defer its implementation. At present, banks are allowed to sell products of one life, non-life and one health insurance company. If banks act as brokers, they can sell products of all companies. In November, the RBI allowed banks with capital adequacy ratio of not less than 10% and net non-performing loans of not more than 3% to undertake insurance broking business departmentally.

Meanwhile, several corporate agency tie-ups between banks and insurance companies are coming up for renewal in 2014, and IRDA has indicated that existing arrangements may not continue. If banks continue to have the option of following a corporate agency model, it would defeat IRDA’s attempts to open up banks and get them to give customers a choice of products.

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