The possibility of regulatory arbitrage for lending by insurance companies needs to be checked, said RBI in its Financial Stability Report.
“The lending activity of life insurance companies is not large in comparison to total banking sector lending, but it is nevertheless significant… A coordinated approach and sharing of information, being facilitated by the Financial Stability and Development Council, will enhance the efficiency of monitoring of exposure details of large borrowers…” said RBI in the report.
According to the report, lending by insurance companies, which stood at ₹88,870 crore as at end-March 2014, constitutes less than 5 per cent of the assets under management (₹20.99 lakh crore as at end-March 2014) of insurance firms.
The RBI pointed out that there was a need to align the practices and regulations applicable to lending by insurance companies with those of banks.
The report also states that there was a need to look at a desirable target level of the reserve ratio for Deposit Insurance and Credit Guarantee Corporation (DIGC).
Published on June 26, 2014
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