Opinion Semi Column: Send bancassurance problem to CCI
While the scale of that deception is still unravelling, another festering problem with well-regulated entities show that these delays tend to occur regularly.
One of the obvious reasons why Subrata Roy was able to build up a financial empire was because regulators slept on their jobs. Over the past decade and more, the Sahara group did what is known as regulatory shopping. Whenever RBI proved hot to handle, they moved to the turf of the ministry of corporate affairs, and when Sebi began asking tough questions the group claimed it was regulated by the state cooperative laws.
While the scale of that deception is still unravelling, another festering problem with well-regulated entities and two regulators at odds show that these delays tend to occur regularly.
This is the problem of bancassurance. It is the relationship through which a bank sells the product of an insurance company. As of now each Indian banks have a relationship with only one insurance company. Budget FY14 had wanted to do away with this position and make banks act as a sort of broker, agnostic about which insurance company products they would sell.
The stakes are high. While there are plenty of discussions about the mutual fund sector which has less than $25 billion, the reach of the insurance sector in India is far more pervasive with a turnover of over $60 billion.
And a significant percentage of the policies are being sold through the branch networks of the banks. So it matters as to whose policies are being sold and how they are sold. Among the insurance companies, obviously the larger ones would benefit from the perpetuation of this arrangement.
The insurance regulatory and development authority wants the banks to graduate out of this model to a broker model. But the RBI, wary of the risks to the balance sheets of especially the smaller banks has moved cautiously. There are reasons for this prudence through which the regulator wants to adopt a case by case approach. But what gets lost in the translation is that the needs of the Indian people and particularly that of their health insurance needs. People who are not from the organised sector have to choose but with possibly only one bank branch nearby that sells the product of only one insurer this is a huge adverse selection.
The RBI financial stability report says banks assuming the role of insurance brokers could lead to conflict of interests where the bank is also the promoter of an insurance company. How does one get around to solving this issue? One would think this is a fine case that ought to be referred to the Competition Commission of India.
The only snag is that the CCI does not have the mandate to arbitrate on financial sector issues. But then, can regulators afford to postpone a decision like this for long?
Subhomoy is a Deputy Editor based in New Delhi.
subhomoy.bhattacharjee@expressindia.com
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