• 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.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407