A recent RBI circular dated 5 January 2015 has added further clarifications and guidelines to the participation of banks in the insurance sector, which activity has been permitted since 2000 and whose scope has been steadily increasing since then.
Banks can undertake insurance business by: (i) setting up a subsidiary or joint venture on a risk participation basis and/or (ii) acting as insurance brokers or as agents of insurance companies on a fee basis (without any risk participation by the banks and their subsidiaries), either (a) through a subsidiary or joint venture or (b) through an existing department in the bank. Note that only one entity in a banking group can undertake insurance distribution through either mode (ii)(a) or mode (ii)(b) above.
RBI approval is required for (i) and (ii)(a). No RBI approval is required for (ii)(b).
Originally published in March 2015.
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