Takru to meet IBA on Jan 28 on banks' insurance broking row

Faced with reservations by banks over switching to insurance broking, citing current business obligations with insurers, a top Finance Ministry official said a meeting has been planned with the Indian Banks Association (IBA) to iron out issues in this regard."The government is not asking banks to stop doing what they are doing immediately," Financial Services Secretary Rajiv Takru said here today. "We are saying: Phase it out...I am meeting the IBA on this on January 28 to work out the nitty-gritty on what to do, how much to do and how to do."In the Budget for this financial year, Finance Minister P Chidambaram had said banks would be allowed to sell insurance products from multiple companies, not just one insurer as is the present practice under the bancassurance model, to help increase the penetration of insurance products.After the Reserve Bank issued a notification on November 29 allowing banks to enter insurance broking, the Finance Ministry recently asked banks to begin switching over to the broking model and start phasing out the bancassurance model. The IBA wrote to the Finance Ministry last fortnight, saying bank managements should be given the freedom to decide whether they would be competent to sell products of more than one insurer.The RBI's guidelines have a strong set of riders, such as disclosing the remuneration received from insurers and requiring dedicated staff with specialisation for insurance broking. Earlier, the Insurance Regulatory and Development Authority had also issued norms."To enable banks to leverage their branch network for increasing insurance penetration, it has been decided to permit banks to undertake insurance broking departmentally," the RBI had said in its notification.The bancassurance model allows a bank to become a corporate agent of one life and general insurance company each. Under the broking business, it will be able to sell products of multiple companies."No bank has refused to do anything in this regard. We only told the banks that this is where they have to go. Let me also clarify that a decision in this regard is to be taken by bank managements," Takru said.Takru said banks have two options -- "either to follow the law as laid down by the IRDA and the RBI or alternatively, move out of the business. These are the only two options." Stating that a decision will not be forced with a deadline, Takru said each bank board will have to take that call."We are all aware that there are certain problems with the corporate agency model of banks and they have to be addressed. So ultimately, what we have said is the way forward.""You have to move away from this model that encourages mis-selling, creates a problem for the consumer very often and the RBI, IRDA and the government are absolutely one on this. I also don't think that any bank management will like any type of mis-selling," the secretary said. Many state-run banks say the government proposal is not implementable and the board of Canara Bank has reportedly rejected the plan.The Finance Ministry directive would allow banks to sell products of multiple insurers. Most of them sell policies under the corporate agency arrangement that prohibits them from dealing in the products of more than one life insurer and one general insurer. Banks also have their own insurance subsidiaries. The proposal is aimed at improving the reach of insurance products as state-run banks have a wide network of branches. Asked about the second round of capital infusion for banks, as promised by the ministry to nudge them to offer credit at lower rates in the last festive season, Takru said a decision will be taken next month after analysing how much each bank has lent under this. "The scheme is open till January 31. Based on their performance, we will give them additional capital. I don't know what the amount will be as that needs to be worked out. "We have not earmarked anything because the Finance Minister had given a promise saying that whatever you do we will find the resources to provide you the capital at that stage," he said.