Giving more choice to people, Reserve Bank of India (RBI) on Thursday allowed the commercial banks to undertake insurance business.

Under existing bancassurance guidelines, a bank can act as a corporate agent and sell policy of only one life insurer and one non-life insurance company. The new guidelines issued on Thursday will allow banks to act as brokers and sell insurance policies of different insurance companies.

There are about 87 commercial banks in the country with 1.2 lakh branches.

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Following the finance minister’s (P Chidambaram) announcement in the budget of 2013-14, the IRDA had notified the Licensing of Banks as Insurance Brokers Regulations, 2013, to enable banks to take up the business of insurance broking departmentally.

The reason for allowing banks to enter insurance market as stated by the finance minister in his budget speech was to “use the wide network the bank branches for increasing insurance penetration.”

There has been a long pending demand from the insurance industry to allow banks to act as insurance brokers. Regulator IRDA has already issued guidelines in this respect.

According to reviewed guidelines of the RBI, banks may undertake insurance business by setting up a subsidiary or joint venture, as well as undertake insurance broking or insurance agency or either departmentally or through a subsidiary.

Banks who qualify following criteria can apply for setting up a subsidiary or joint venture company for undertaking insurance business with risk participation:

a) The net worth of the bank should not be less than Rs.1000 crore.

b) The Capital to Risk (Weighted) Assets Ratio (CRAR) of the bank should not be less than 10 per cent.

c) The level of net non-performing assets should be not more than 3 percent.

d) The bank should have made a net profit for the last three continuous years.

e) The track record of the performance of the subsidiaries, if any, of the concerned bank should be satisfactory.

Further, banks who intend to set up a subsidiary for undertaking insurance or broking have to qualify following eligibility norms:

a) The net worth of the bank should not be less than Rs.500 crore after investing in the equity of such company.

b) The Capital to Risk (Weighted) Assets Ratio  CRAR of the bank should not be less than 10 per cent.

c) The level of net non-performing assets should be not more than 3 per cent.

d) The bank should have made a net profit for the last three continuous years.

e) The track record of the performance of the subsidiaries, if any, of the concerned bank should be satisfactory.

However banks need not obtain prior approval of the RBI to act as corporate agents on fee basis, without risk participation or undertake insurance broking activities departmentally.