Draft norms for NBFCs' insurance entry

By Our Special Correspondent

MUMBAI, MAY 15. Any non-banking finance company (NBFC) registered with the Reserve Bank of India having net owned funds of Rs. 5 crores as per the last audited balance sheet would be permitted to undertake insurance business as an agent of insurance companies on fee basis, without any risk participation, the RBI has stated in its draft guidelines for entry of NBFCs into insurance.

The guidelines which were released today by the RBI state that the maximum equity an NBFC can hold in the joint venture insurance company will normally be 50 per cent of the paid-up capital. On a selective basis, the RBI may permit a higher equity contribution by a promoter NBFC, pending disinvestment of equity within a prescribed period. The eligibility criteria for joint venture participant will be as under, as per the latest available audited balance sheet.

(i) The net worth of the NBFC should not be less than Rs. 500 crores, (ii) the CRAR of the NBFC engaged in loan and investment activities holding public deposits should not be less than 15 per cent and for other NBFCs 12 per cent irrespective of their holding public deposits, (iii) the NBFC should have net profit for the last three continuous years and (iv) it should have regulatory compliance and servicing public deposits.

In cases where a foreign partner contributes 26 per cent of the equity with the approval of the 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.

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 which are not eligible as joint venture participant as above can make investments up to 10 per cent of the owned funds or Rs. 50 crores, whichever is lower, in the insurance company . Such participation shall 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:

The CRAR of the NBFC (applicable only to those holding public deposits) should not be less than 12 per cent if engaged in equipment leasing/hire purchase finance activities and 15 per cent if it is a loan or investment company;

The level of NPA should be 5 per cent of total outstanding leased/hire purchase assets and advances;

The NBFC should have net profit for the last three continuous years.

All NBFCs registered with RBI entering into insurance business will be required to obtain prior approval of the Reserve Bank.

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Section  : Business
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