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June 10, 2000
BUDGET 2000 |
RBI lays down tough insurance entry norms for NBFCsThe Reserve Bank of India, or RBI, on Friday set tough entry norms for non-banking financial companies, or NBFCs, wanting to enter the insurance business. The final guidelines specify that any NBFC registered with the RBI that satisfies the following eligibility criteria will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. The maximum equity contribution such an NBFC can hold in the joint venture company will normally be 50 per cent of the paid-up capital of the insurance company. On a selective basis, the RBI of India may permit a higher equity contribution by a promoter NBFC initially, pending divestment of equity within the prescribed period. The eligibility criteria for joint venture participant will be as per the latest available audited balance sheet and as under:
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. As such, participants will also assume insurance risk, only those NBFCs that satisfy the criteria given in paragraph 2 above, would be eligible. No NBFC would be allowed to conduct such business departmentally. A subsidiary or company in the same group of an NBFC or of another NBFC engaged in the business of an non-banking financial institution or banking business will not normally be allowed to join the insurance company on risk participation basis. NBFCs registered with RBI that are not eligible as joint venture participant, as above can make investments up to 10 per cent of the owned fund of the NBFC or Rs 500 million, whichever is lower, in the insurance company. Such participation would be treated as an investment and should be without any contingent liability for the NBFC. The eligibility criteria for these NBFCs will be as under:
All NBFCs registered with RBI entering into insurance business as agents or investors or on risk participation basis will be required to obtain prior approval of the RBI. The RBI will give permission to NBFCs on a case to case basis keeping in view all relevant factors. It should be ensured that risks involved in insurance business do not get transferred to the NBFC and that the NBFC's business does not get contaminated by any risks that may arise from the insurance business. The RBI guidelines also say:
ALSO SEE NBFCs seek institution for financing, banks' SLR RBI modifies NBFC prudential norms RBI modifies deposit acceptance norms for NBFCs
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