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Public sector banks against directive on insurance

Public sector banks may reject the finance ministry’s directive to discontinue selling insurance policies of one insurance company exclusively but become insurance brokers selling policies of multiple insurers. The banks are planning to discuss the issue at their respective boards and evolve a consensus. The ministry had asked the banks to take up insurance broking by January-end to keep up with the spirit of the budget announcement of increasing insurance penetration in the country. This was an attempt to break the deadlock in the industry with half the insurance companies lobbying hard for corporate agency and the other half wanting banks to sell products of multiple companies. Public sector banks are not keen of becoming brokers as they feel most of the large banks have an equity stake in an insurance company and have an interest in promoting their own firm.Secondly, these group companies are joint ventures and almost all public sector banks have received upfront payment from the foreign partner in exchange for an exclusive distribution agreement. RBI guidelines, however, allow only strong banks to become insurance brokers although banks themselves perceive corporate agency to be a more profitable arrangement.

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