India: Govt-owned banks may have to form broking arms by Feb

The Indian Finance Ministry is planning to make it mandatory for government owned banks to float insurance broking units by next February and to sell the products of multiple insurance companies, according to a top official in the ministry.

Financial Services Secretary, Mr Rajiv Takru, says that the government will ensure that all insurance products are available through the 100,000 branches of these banks. The banks will not be allowed to renew existing corporate agency tie-ups with insurance companies, reports the Hindu Business Line.

At present, banks are allowed to tie up with only one insurance company and sell the products of only that insurer under the corporate agency channel.

Mr Takru also says that the Finance Ministry will also encourage private sector banks to become insurance brokers. “According to our assessment, chances of mis-selling will be less if banks become brokers,” he said.

The government is promoting insurance broking operations among banks in a bid to increase insurance penetration in the country.

However, banks are generally icy to the idea. One reason is that most major banks in both the public and private sectors have stakes in insurance companies. As brokers, they will have to cap business from their own insurers at 25 percent of total annual sales for life and non-life insurance business under guidelines finalised by the Insurance Regulatory and Development Authority. As brokers, they will also have to bear fiduciary responsibility towards customers.