Banks get nod to act as insurance brokers

Move despite RBI's concerns that this could lead to conflict of interests

Finance Minister P Chidambaram today said banks would be allowed to act as insurance brokers to increase insurance penetration in the country despite concerns expressed recently by the banking regulator against such a move.

The Reserve Bank of India (RBI), in its recent Financial Stability Report, had said banks assuming the role of insurance brokers might lead to conflict of interests, where the bank was also the promoter of an insurance company. "Further, some provisions of the exposure draft, if implemented, may expose the banks to reputational risks," RBI had said.

The Insurance Regulatory and Development Authority (Irda), in its draft norms on bancassurance, had said banks could become brokers and sell multiple insurance companies' products. The insurance industry, though, is sceptical of this becoming a reality and is awaiting clarity from RBI.

Amitabh Chaudhry, managing director (MD) and chief executive officer (CEO) of HDFC Life, said that while the move to allow banks to become brokers was welcome, Irda would have to announce the final bancassurance rules, with approval of RBI. "Also, there is an apprehension on whether banks would like to become brokers."

Under current rules, banks cannot tie up with more than one life and non-life insurer each to sell their policies. Amarnath Ananthanarayanan, MD & CEO, Bharti AXA General Insurance, said that it was still to be seen what RBI's stance on the proposal would be.

The Budget also said insurers would be empowered to open branches in tier II cities and below without prior approval of Irda.

On social insurance side, the finance minister said the Rashtriya Swasthya Bima Yojana will now be extended to other categories such as auto-rickshaw drivers.