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RBI sets stiff norms for foray into insurance - Views on News from Equitymaster
 
 
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  • Jan 11, 2000

    RBI sets stiff norms for foray into insurance

    The Reserve Bank of India (RBI) has set stiff norms for banks and financial institutions to enter the insurance sector. According to reports, these guidelines kill the entry plans of almost all big players except Housing Development Finance Corporation Limited (HDFC).

    The highlights of the guideline are:

    • Minimum net worth of Rs 5 bn
    • Capital adequacy ratio (CAR) of atleast 10%
    • Investment in insurance venture not to exceed 10% of net worth
    • Investment in insurance venture not to exceed 30% of paid up capital
    • Cumulative investment in joint ventures and subsidiaries not to exceed 20% of net worth
    • The level of net non performing assets should be 1% below the industry average
    • Existing subsidiaries must have a satisfactory track record
    • Moreover, the stipulations have to be met by March 2000

    The banks and financial institutions will have to take measures like beefing up their capital base, improving their profitability and exiting non-profitable businesses. Most of them will however not be a part of the first set of companies that make a foray into the insurance sector. The RBI's move should be appreciated from the point of view that it will force the banks to get their houses in order before they can enter lucrative businesses like insurance. On the other hand it would prevent most banks, for whom it is the most logical extension of their business, from entering the business.

     

     

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