Banks to take final call on insurance broking foray

IBA Chief Executive M.V. Tanksale says boards of banks will have to take their own decisions on whether to opt for insurance broking business model as each bank has adopted a different approach to selling insurance products

On rising bad loans, IBA has suggested the use of business correspondents as recovery agents of banks, which will boost their earnings and better utilise their services
On rising bad loans, IBA has suggested the use of business correspondents as recovery agents of banks, which will boost their earnings and better utilise their services

MUMBAI : Boards of banks in the country will have to take their own decisions on whether to opt for insurance broking business model as each bank has adopted a different approach to selling insurance products, Indian Banks Association Chief Executive M.V. Tanksale said on Monday.

“Banks having existing agency arrangements or joint ventures in insurance business will have to carefully evaluate the implications before taking a call on broking business. It has been decided that bank boards will examine the issue in detail,” Tanksale told reporters at a select media meet.
Reserve Bank of India had issued draft norms for insurance broking operations by banks on Nov 29, and final norms are expected in the next 10 days. The department of financial services has asked public sector banks to take steps to transform their insurance selling into the broking business structure.
As per the draft norms, a person involved in insurance broking services should not be entrusted with any other transactions at bank branches.
Another key issue is that the bank or insurance company cannot pay any incentive, cash or non-cash to the staff involved in the broking business. Tanksale said that IBA has sought greater clarity on transition from one model to another by banks and the impact it can have on servicing customers in the interim.
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The IBA has come up with an inter se agreement incorporating a format for regularly exchanging credit and stress information on a borrower, amongst members of the joint lending agreement.
This will speed up identification of a bad asset, tackling of the issue and early recovery efforts, he said.
Keeping in mind the size of the state-owned bank share in domestic banking, IBA has revived the sectoral committee on public sector banks, which will be chaired by SBI Chairman Arundhati Bhattacharya. IBA has suggested the use of business correspondents as recovery agents of banks, which will boost their earnings and better utilise their services.
The IBA is largely supportive of the measures suggested by the RBI in its discussion paper on non-performing assets, but points out that the accelerated provisioning in case of bad assets will have the potential to hurt profitability for banks.
The IBA will give its views on paper to RBI by next week and expects final norms on the issue by Jan 15.

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