RBI issue notice to banks to reveal insurance commissions & fees

The banks have been asked by the Reserve Bank of India (RBI) to disclose all the information related to commissions and other fees that they receive from insurance companies, mutual fund houses and other financial companies for marketing or referring their products. The RBI has said the banks will have to disclose the information with immediate effect. It is believed this move will help in bringing transparency in bancassurance channel.

Bancassurance means banks selling insurance products.

The RBI sources said, banks are just referral agents thus they can only market the products and cannot give any discretionary advice to the customers for mutual funds, insurance and other financial products. As per existing norms banks are not required to take RBI approval to offer only referral services on non-risk participation basis to their customers, for financial products depending on certain conditions.

According to RBI notification issued to the banks on Monday, “Banks also provide non-discretionary investment advisory services to clients for which approvals are granted by us on a case-to-case basis. Further, in some cases, banks have also been permitted to offer discretionary portfolio management services through their subsidiaries, subject to certain conditions”.

At present banks can market mutual fund products of more than one company but they cannot act as a distributor for insurance of more than one insurance company each in life and general. Meanwhile the Insurance Regulatory and Development Authority (Irda) looking at the proposal for allowing banks to sell policies of 2-3 insurers at the same time.

When banks were given approval to distribute insurance products for insurers, most of the new- generation companies tied up with the major banks. Now many banks such as SBI, ICICI Bank, Bank of Baroda, HDFC Bank, Union Bank, Bank of India and Kotak Mahindra Bank are getting into insurance business and this will leave less distribution options for insurance companies. The bancassurance committee is likely to announce its recommendations by end of current calendar year.

RBI said there is probability that banks might be marketing or referring several competing products of mutual funds, insurance or financial companies to customers.

RBI stated, “Keeping in view the need for transparency in the interest of the customers to whom the products are being marketed or referred to, it has been decided that banks should disclose to the customers, details of all the commissions or other fees (in any form) received, if any, from the various mutual fund, insurance and other financial companies for marketing or referring their products”.