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  • MARCH 17, 2000

Banks to spur insurance sector competition

The Reserve Bank of India has eased norms for banks entry into the insurance sector. It has reviewed its earlier guidelines as they were stringent and as a result of which majority of PSU banks were unable to step foot into this sector.

It has changed the earlier measures and has made the platform easier for banks to enter this sector:

However the norms on reasonable level of NPAs is not very clear and the RBI has added that the banks entry will be made after a case by case clearance by the central bank. There is not much clarity in this.

As per the net worth requirement of Rs 5 bn all the big PSU banks like State Bank of India, Bank of Baroda and Bank of India are eligible.

The earlier guidelines issued, were very strict and this resulted in keeping the big daddies of the banking sector out, hence RBI has decided to relax these norms. The only bank which met the NPA norms earlier was HDFC Bank. However with the decision to relax NPA norms, SBI, Bank of Baroda, IDBI, ICICI etc. should be able to enter the sector.

The main reason for doing so would be that RBI wants the entry of strong players in the insurance sector and hence they cannot afford to leave out these large banks due to their extensive branch networks and large balance sheet size. This is also done to encourage more competition in the insurance sector to make it more efficient than it currently is.

As the large banks in the past had not shown much efficiency in managing their assets, it is a cause of concern that RBI has not specified the regulations for NPAs.

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