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RBI releases draft norms for NBFCs keen on insurance foray

The Reserve Bank of India, or RBI, has announced draft norms that specify minimum net worth, capital adequacy and non-performing assets requirements for non-banking financial companies, or NBFCs, to enable them to enter the insurance business.

"Any NBFC registered with the RBI having net owned funds of Rs 50 million as per the last audited balance sheet would be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation," the RBI said in a statement.

The RBI has also mooted a minimum 12 per cent capital adequacy for NBFCs who want to enter into insurance joint ventures. If the company holds public deposits, the minimum capital adequacy has been proposed at 15 per cent.

Some of the other requirements that the RBI has proposed for NBFCs are minimum net worth requirement of Rs 5 billion, three years of continuous net profit, and maximum non-performing assets of 5 per cent of the total outstanding leased/hire purchase assets and advances.

The RBI released detailed guidelines for banks to enter the insurance business in April. India allowed foreign and private firms to enter the insurance business last year, virtually doing away with government control over the sector.

The RBI said that the track record of the NBFCs' subsidiaries should also have to be 'satisfactory'. "In case 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 RBI said no NBFC would be allowed to conduct the insurance business departmentally. For NBFCs not eligible as joint venture participants, the RBI rules permit them to make investments up to 10 per cent of their owned funds or Rs 500 million, 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 RBI said that 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 non-performing asset, or 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 RBI. The RBI will give permission to NBFCs on a case to case basis keeping in view all relevant factors," the RBI said.

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