RBI puts stiff norms for NBFC entry into insurance

The RBI has also proposed a minimum 12 per cent capital adequacy. If the company holds public deposits, the minimum capital adequacy has been proposed at 15 per cent. Last month, the RBI announced detailed guidelines for banks to enter the insurance business. The Union government had last year cleared legislation allowing foreign and private firms to enter the insurance business, dismantling decades of state-control over this sector.

The central bank said the track record of the NBFC subsidiaries should also have to be "satisfactory". "In case where a foreign partner contributes 26 per cent of the equity with the approval of Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one NBFC may be allowed to participate in the equity of the insurance joint venture," the statement said.

The central bank said no NBFC will be allowed to conduct the insurance business departmentally. For NBFCs not eligible as joint venture participants, the RBI rules permit them to make investments upto 10 per cent of their owned funds or Rs 50 crore, whichever is lower. "Such participation shall be treated as an investment and should be without any contingent liability for the NBFC," the RBI statement said.

The central bank said the capital adequacy ratio of the NBFCs will have to be minimum 12 per cent if they are in the equipment leasing/hire purchase finance activities and 15 per cent in case of a loan or investment company.These companies must have three years of continuous profits and minimum NPA levels of five per cent of total outstanding leased/hire purchase assets and advances. "All NBFCs registered with RBI entering into the insurance business will be required to obtain prior approval of the Reserve Bank. The Reserve Bank will give permission to NBFCs on a case to case basis keeping in view all relevant factors," the RBI said.

Analysts say with Monday’s RBI regulations, none of the present NBFCs will qualify to get into the insurance business unless they come up with some surprise in their balance sheet. The RBI norms even bar companies like Kotak Mahindra from entering the sector which has recently broke off its ties with Chubb Insurance.