How banks must use insurance to cover risks

The banking sector is not buying insurance covers for the risks it needs to transfer; it is buying insurance for the risks it doesn't need to

The Indian banking sector has been attracting lot of public attention of late. Be it the recent fraud reported at a major public sector bank, NPA resolution, the need for recapitalisation and the impact on fiscal deficit or rising cyber-crime.

But before we look into various risk issues, let me make a provocative statement on the state of the Indian banking industry and the use of insurance as an effective risk transfer solution: The banking sector in India is largely not buying insurance covers for the risks which it needs to transfer; rather, it is buying insurance for the risks