NBFC Registration your trusted growth partner for Non-Banking financial companies (NBFCs).

Click here to Subscribe for Newsletter

Follow Us On Social
 

Insurance business by NBFCs

Home > Insurance business by NBFCs

Insurance Business by NBFCs

NBFCs are primarily engaged in providing financial services such as lending, investment, asset financing, and money market activities. However, NBFCs are not permitted to undertake insurance business directly. Insurance business in India is regulated under the Insurance Regulatory and Development Authority of India (IRDAI), and only entities licensed by IRDAI can engage in insurance activities.

That said, there are certain ways in which NBFCs can indirectly participate in the insurance sector. For entry into the insurance business, NBFCs shall make an application along with necessary particulars duly certified by their statutory auditors to the Regional Office of the Department of Supervision of the Reserve Bank in whose jurisdiction the registered office of the NBFCs is situated.

NBFCs shall take up insurance agency business on fee basis and without risk participation, without the approval of the Reserve Bank subject to the certain eligibility conditions.

Guidelines for Entry of NBFCs into Insurance

NBFCs registered with the Reserve Bank shall undertake insurance agency business on fee basis and without risk participation, without the approval of the Reserve Bank, only subject to the following conditions:

  1. The NBFCs shall obtain requisite permission from IRDA and comply with the IRDA regulations for acting as ‘composite corporate agent’ with insurance companies.
  2. The NBFCs shall not adopt any restrictive practice of forcing its customers to go in only for a particular insurance company in respect of assets financed by the NBFC. The customers shall be allowed to exercise their own choice.
  3. As the participation by an NBFC’s customer in insurance products is purely on a voluntary basis, it shall be stated in all publicity material distributed by the NBFC in a prominent way. There shall be no `linkage’ either direct or indirect between the provision of financial services offered by the NBFC to its customers and use of the insurance products.
  4. The premium shall be paid by the insured directly to the insurance company without routing through the NBFC.
  5. The risks, if any, involved in insurance agency shall not get transferred to the business of the NBFC.

● All NBFCs registered with the Reserve Bank which satisfy the eligibility criteria issued by the RBI from time to time, shall be permitted to set up a joint venture company for undertaking insurance business with risk participation subject to safeguards.

● In the case where a foreign partner contributes 26 per cent of the equity with the approval of IRDA/Foreign Investment Promotion Board, more than one NBFC may be allowed to participate in the equity of the insurance joint venture. As such, participants will also assume insurance risk, only those NBFCs which satisfy the criteria given in the master direction issued by the RBI, shall be eligible

● NBFCs registered with the Reserve Bank, which are not eligible as joint venture participants, as above can make investments up to 10 percent of the owned fund of the NBFC or ₹50 crore, whichever is lower, in the insurance company.

Notes:

1. Holding of equity by a promoter NBFC in an insurance company or participation in any form in insurance business shall be subject to compliance with any rules and regulations laid down by the IRDA/Central Government. This will include compliance with section 6AA of the Insurance Act as amended by the IRDA Act, 1999, for divestment of equity in excess of 26 percent of the paid-up capital within a prescribed period of time.

2. The eligibility criteria shall be reckoned with reference to the latest available audited balance sheet for the previous year.