Business

Insurance: RBI relaxes norms for NBFCs

MUMBAIMUMBAI, FEB. 11. TFEB. 11. he Reserve Bank of India has permitted non-banking finance companies registered with it to take up insurance agency business on fee basis and without risk participation and the need to seek the bank's approval.

In a notification issued here today, the RBI said such NBFCs should obtain permission from the Insurance Regulatory and Development Authority and comply with the IRDA regulations for acting as "composite corporate agent'' with insurance companies.

The NBFCs should not adopt any restrictive practice of forcing its customers to go in only for a particular insurance company in respect of assets financed by the NBFC and customers should be allowed to exercise their own choice, the central bank said. As the participation by an NBFC's customer in insurance products was purely on a voluntary basis, it should be stated in all publicity material distributed by the NBFC. There should be no "linkage'' either direct or indirect between the provision of financial services offered by the NBFC to its customers and use of the insurance products.

The premium should be paid by the insured directly to the insurance company without routing through the NBFC and the risks, if any, involved in insurance agency should not get transferred to the business of the NBFC, it added.

The RBI in June 30, 2000 circular had permitted NBFCs registered with it to set up insurance joint ventures for undertaking insurance business with risk participation and also to undertake insurance business as agents of insurance companies on fee basis, without any risk participation.

However, before entering into the insurance business, the NBFCs were required to obtain prior approval of the IRDA and the RBI.

The RBI, in the February 10, circular said, those NBFCs satisfying the eligibility criteria laid down earlier would continue to obtain the prior approval of the central bank.

Bank finance for ESOP shares

MUMBAIMUMBAI, FEB. 11. TFEB. 11. The Reserve Bank of India today said banks could exercise discretion in extending finance to employees for purchasing shares of their company either under the Employee Stock Option scheme or IPO, subject to regulations, including margin on IPO financing.

All such loans should be treated as banks' exposure to capital market within the overall ceiling of 5 per cent of the banks' total outstanding advances as on March 31 of the previous year, the RBI said in a notification here.

As per the extant instructions, bank finance to assist employees to buy shares of their own company under the employees quota is restricted to Rs. 50,000 or six months salary of an employee, whichever is less. The assistance is also limited to 90 per cent of the purchase price of shares.

These instructions have been recently reviewed by the RBI in the context of companies offering their employees stock options in conformity with SEBI guidelines as an incentive package as well as through specific reservation to the employees during IPOs; and increased awareness among banks of risks involved in such financing as well as introduction of robust system of assessing risks.

— PTI

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