Govt may annul order of state run banks acting as insurance brokers

State-run banks are likely to get a respite with the government likely to set aside its order directing them to act as insurance brokers. Reflective of government’s softening stance over this issue, the finance ministry is mulling allowing banks to choose whether to act as brokers or pursue the existing model of insurance agent of a single insurer. Presently, recommendations of working group are under discussion and once they are finalized, the insurance regulator may also contemplate amendments to the regulations.  Further, this issue already has been transferred to Financial Stability and Development Council (FSDC), and will be discussed upon during the next meeting. IRDA could relax the guidelines which state that, while acting as brokers, banks will have to cap business from their own group companies at 25% for both life and non-life business. At present, banks are allowed to sell products of one company from life, non-life and health insurance businesses. However, if banks act as brokers, they can sell products of all companies. Back in December, the ministry had urged public sector banks to become insurance brokers instead of remaining corporate agents of an insurance company, a development which was in line with the budget announcement that paved the way for banks to act as insurance brokers and offer products of more than one insurance company. However, this led to complaints that the directive could pose an issue of conflict of interest for the banks which were partners in insurance joint ventures. It is post to this that a working group, including representatives of the insurance regulator IRDA, Reserve Bank of India and Indian Banks' Association (IBA) - was then set up to examine the issue.