Money & Banking

RBI not in favour of banks buying out insurers

Surabhi Mumbai | Updated on September 06, 2019 Published on September 06, 2019

Can acquire up to 30% stake

Banks, keen on branching out into insurance ventures by acquiring an insurer, may have to review their plans.

The Reserve Bank of India is not in favour of banks buying out insurance companies — they will not be able to acquire more than 30 per cent stake in insurance companies at one go.

Sources close to the development said that the RBI is keen that banks should focus on consolidating their own financial position before venturing out into new businesses.

“Sale and distribution of insurance products can often be a natural progression in the business activities of banks. In the past, many lenders have already started their own insurance ventures or have tied up with companies,” noted the person familiar with the development, adding that there is sufficient scope for banks to work for insurance distribution and increasing penetration.

“Most banks are just coming out of their own NPA cycles, and with concerns in the financial sector over the last one year, the RBI is of the view that now may not be the right time for banks to consider buying into insurance companies,” the sources said.

The advice comes at a time when many banks were keen on branching out into insurance sales and distribution by acquiring insurance companies. A number of lenders, especially a few from the private sector, are understood to have approached the regulator on the issue, while some insurance companies have also been looking for investors.

Earlier, in 2015, the RBI had come out with guidelines permitting banks to act as brokers for insurers and set up their own insurance subsidiaries.

“Banks may undertake insurance agency or broking business departmentally and/or through subsidiary,” the RBI had said in its guidelines for entry of banks into the insurance business.

There is also a view that with open architecture permitted for bancassurance, banks can easily use the channel to further their insurance business.

Published on September 06, 2019
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