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Delay in issue of Govt notification -- Banks to miss insurance's first bus

Sarbajeet K. Sen

NEW DELHI, Aug. 13

THE entire banking industry would be missing the excitement during the initial period of activity at the office of the Insurance Regulatory and Development Authority (IRDA) when it begins to accept applications for registration of private insurance compa nies on August 16.

Banking industry sources said that none of the banks has been able to finalise the details of its business plans for the insurance subsidiaries on account of the delay on the part of the Government to issue the notification under the Banking Regulation A ct (BRA), 1949, allowing banking companies to undertake insurance business. The notification was issued by the Finance Ministry during the second week of August.

``It is only because of the bureaucratic delays that the banks would not be among the initial applicants seeking registration with the IRDA,'' a top official of a premier public sector bank said.

The banking industry is expected to be a major player in the insurance sector with several leading private and public sector banks, including Bank of Baroda, Corporation Bank, Punjab National Bank, Oriental Bank of Commerce, Bank of India, Canara Bank, J ammu and Kashmir Bank and Global Trust Bank, known to be working on plans to float subsidiaries for entering insurance business. Banks which would not participate in equity of a subsidiary would provide distribution and marketing services to other insura nce ventures.

With the Government clearing the legal hurdle for banks to take up insurance activity, it would now be required to approach the Reserve Bank of India for its initial clearance of proposals for taking up insurance business, only after which it would be ab le to approach the IRDA with its application for registration.

The RBI, on its part, is expected to grant its first set of approvals towards the end of the current week, which would include the proposal put in by the State Bank of India. However, when contacted, RBI officials remained tightlipped on the issue, and r efused to give a time-frame within which their approval is likely to be given.

Bankers said that the blame of the banks being made to miss the initial period of registration should be shared by the RBI also. They pointed out that the central bank took several months to finalise its guidelines for the entry of banks and FIs into the insurance sector, which resulted in banks being unable to commence the formalities for entering into the business.

While the RBI had issued its first draft guidelines in December 1999, the final guidelines outlining parameters for banks to enter insurance were announced along with the Credit Policy statement on April 27, 2000.

The stiff guidelines, which have allowed banks to hold only 50 per cent stake, except special cases where higher stake would be allowed, have forced many banks which had earlier planned to set up insurance subsidiaries with 74 per cent holding to rework their proposals. Some of the banks are working out three-way tie-ups, which would include a foreign partner holding 26 per cent stake as permitted under the IRDA Act.