The Insurance Regulatory and Development Authority in India should soon be authorising banks to partner-up with up to four insurance companies. Banks, at present, are allowed to have bancassurance deals with only one life insurance and one non-life insurance firm.
An Irda-appointed panel on banassurance recently suggested that banks be allowed to have a bancassurance pact with up to four insurance companies, for life, non-life and health insurance. The move was aimed at offering higher standards of service for the insurance customers.
The move would greatly help banks like Indian Bank, which incidentally also plans to foray into the insurance sector. “When compared to investing in a capital intensive business like insurance, which is a long term game, tying up with more insurance firms can earn higher non-interest income. Once the recommendations are implemented we hope to see many banks, including us, tie up with more insurance firms to step up our fee-based income,” said Indian Bank chairman, TM Bhasin.
With interest rates having been hiked 10 times, many banks are apprehensive about its impact on their NIMs. The 50 basis point increase in savings bank interest rate to 4 per cent is also expected to shrink the margins of the banks further. So many banks have stepped up their efforts in increasing their non-interest income from activities like selling life insurance, mutual fund products and gold coins among others.
“The panel’s recommendations, when implemented, will help small banks that do not have a direct presence in the insurance business. However, it remains to be seen how it helps the insurance sector as it has been witnessing a lot of competition and the commissions are also falling,” says Vaibhav Agarwal, banking sector analyst at Angel Broking.
“We have a bancassurance tie-up with LIC, which is a leader in the overall life insurance business. I doubt if tying up with an additional life insurance company will help us in selling more number of life insurance policies,” N Kamakodi, managing director, City Union Bank asserts.
However, banks, which have an insurance subsidiary, are against the move as increased competition could result in rivals offering higher incentives and commissions to lure customers. Also, bank staff may not be highly trained to explain to customers the difference in features of the products and may result in mis-selling, they say.
Source : Mydigitalfc
