{"id":11502,"date":"2020-06-26T14:03:38","date_gmt":"2020-06-26T08:33:38","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=11502"},"modified":"2024-12-19T18:41:48","modified_gmt":"2024-12-19T13:11:48","slug":"participation-of-nbfcs-in-insurance-business","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/participation-of-nbfcs-in-insurance-business\/","title":{"rendered":"A Complete Overview on Participation of NBFCs in Insurance Business"},"content":{"rendered":"\n<p class=\"has-drop-cap\">It&#8217;s a well-known fact that RBI has rendered their permission to NBFCs to diversify its footprint in the insurance business. NBFCs gain this authorization under the light of their success in the Indian financial markets that they have reaped over the years. However, NBFCs haven&#8217;t got permission to operate in an independent framework yet. Instead, they must follow the predetermined RBI&#8217;s guidelines to conduct their operation in the insurance sector. The advent of NBFCs helps <strong><a href=\"https:\/\/corpbiz.io\/insurance-company-license\">Insurance companies<\/a><\/strong> stabilize their capital and meet ancillary requirements under the IRDAI provisions. In this blog, we will shed some light on the Participation of NBFCs in Insurance Business. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/participation-of-nbfcs-in-insurance-business\/#Participation_of_NBFCs_in_Insurance_Business_Prerequisites\" >Participation of NBFCs in Insurance Business: Prerequisites<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/participation-of-nbfcs-in-insurance-business\/#What_If_NBFC_fails_to_meet_the_eligibility_criteria\" >What If NBFC fails to meet the eligibility criteria?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/participation-of-nbfcs-in-insurance-business\/#Other_Provisions_of_Insurance_Companies\" >Other Provisions of Insurance Companies:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/participation-of-nbfcs-in-insurance-business\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Participation_of_NBFCs_in_Insurance_Business_Prerequisites\"><\/span>Participation of NBFCs in Insurance Business: Prerequisites<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NBFCs or any other private lender companies aren&#8217;t authorized to work outside the regime of authorities. Having said that, there is mandatory approval that NBFCs required to obtain from the<em> <\/em><strong><em>RBI &amp; Regulatory, and Development Authority of India (IRDAI<\/em><\/strong><sup><a href=\"https:\/\/www.irdai.gov.in\/\"><strong><em>[1]<\/em><\/strong><\/a><\/sup><strong>),<\/strong> to operate seamlessly in the insurance business. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Insurance Agency Business<\/h3>\n\n\n\n<p><strong><a href=\"https:\/\/corpbiz.io\/rbi\">RBI <\/a><\/strong>approved NBFCs may enter insurance agency businesses based on a fee and risk participation, which deals with the following conditions. <\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" width=\"644\" height=\"510\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/06\/image-165.png\" alt=\"NBFCs code of conduct\" class=\"wp-image-11503\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/06\/image-165.png 644w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/06\/image-165-300x238.png 300w\" sizes=\"(max-width: 644px) 100vw, 644px\" \/><\/figure><\/div>\n\n\n<ul>\n<li>No RBIs approval is required here. <\/li>\n\n\n\n<li>In such a case, NBFCs require mandatory approval from <strong><a href=\"https:\/\/corpbiz.io\/irda\">IRDAI <\/a><\/strong>to act as a `composite corporate agent&#8217; with insurance companies.<\/li>\n\n\n\n<li>The NBFCs should not confine the customer&#8217;s interest to work with alternative agencies in the context of financed assets. <\/li>\n\n\n\n<li>Since the acceptance of the insurance products is made voluntarily, it should be duly mentioned in the NBFCs publicity material. <\/li>\n\n\n\n<li>NBFC should not render any linkage to its customer concerning the provisions of financial services.&nbsp; <\/li>\n\n\n\n<li>The insurance premium should go to the insurance company rather than NBFC. <\/li>\n\n\n\n<li>NBFCs are not accountable to share the risk in the insurance agencies. <\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Insurance Joint Ventures<\/h3>\n\n\n\n<ul>\n<li>NBFCs which met all the required provisions and aim to\nestablish a joint venture with equity contribution based on risk participation\nmust avail RBI approvals to ensure the continuation. Similarly, this same\ncondition is also applied to NBFCs who seek significant investment in the\ninsurance company.&nbsp; <\/li>\n\n\n\n<li>In Joint Venture, the NBFC has an authority to hold up\n50% paid-up capital (in the form of equity shares) of the insurance firm. <\/li>\n\n\n\n<li>A subsidiary branch of NBFC or another company engaged\nin the same area of interest is not permitted to take any involvement in the\ninsurance company on a risk basis. <\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Eligibility Criteria<\/h3>\n\n\n\n<ul>\n<li>NBFC must have at least Rs. 500 crore of Owned Fund under its possession.<\/li>\n\n\n\n<li>NBFC, who holds public deposits, cannot pursue\/enter the insurance business unless its CRAR (Capital to Risk Assets Ratio) is higher than 15%. Similarly, the conventional NBFCs who have no possession of the public deposit should maintain their CRAR higher than 12%. <\/li>\n\n\n\n<li>The limit for non-performing assets in the NBFC is not more than 5% of the total outstanding assets, such as leased\/hire purchases and loans. <\/li>\n\n\n\n<li>NBFC should not be under the influence of financial loss, at least for the last three years. <\/li>\n\n\n\n<li>The subsidiaries of the concerned NBFC must have an exemplary track record of rendering services. <\/li>\n\n\n\n<li>The computation of NBFCs net owned funds seek some investments which come under the provision of Reserve Bank of India. <\/li>\n\n\n\n<li>Servicing public deposits and Regulatory compliance, if held.<\/li>\n<\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/types-of-nbfcs-in-india\/\">\nTypes of NBFCs in India \u2013 An Overview<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_If_NBFC_fails_to_meet_the_eligibility_criteria\"><\/span>What If NBFC fails to meet the eligibility criteria?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>RBI approved\nNBFCs, which are not entitled to become a part of a joint venture, can make 10%\nof the owned fund of Rs 50 investment, whichever is lower, in the insurance\ncompany. Such funding ought to be accepted as an investment that is free from\ncontingent liability for the NBFC.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Eligible criteria regarding such NBFC<\/h3>\n\n\n\n<ul>\n<li>The NBFC, which possesses public deposits and\ninvolved in services like equipment leasing\/hire purchase, must have a CRAR of\nat least 12%. On the contrary, the NBFC, which deals with loan\/credit service,\nshould have a CRAR of 15%. <\/li>\n\n\n\n<li>Maximum net NPA in such cases should be 5 percent of total outstanding assets and loans.  <\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Acceptance of Deposits<\/h3>\n\n\n\n<p>The provisions\non Acceptance of Public Deposits regarding NBFC allow the exemption on the\ndeposit from the director&#8217;s relative. However, that funding cannot be routed\ndirectly to the NBFC until an application is submitted from a depositor end.\nNBFCs are under the provision of authorities to provide substantial details of\nevery incoming deposit to maintain transparency. <\/p>\n\n\n\n<p>However, the above provision shall be treated violated if the relationship between directors and depositors found to be compromised on the date of acceptance of such notice. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Other_Provisions_of_Insurance_Companies\"><\/span>Other Provisions of Insurance Companies:<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>When the foreign\npartner accounted for 26% of the contribution regarding equity approved by the\nForeign Investment Promotion Board\/Regulatory and Development Authority, in\nthat event, multiple NBFC becomes eligible for the participation in the equity\nof the insurance joint venture.<\/p>\n\n\n\n<p>The eligible criteria, in this case, will be presumed violated if the participants cannot bear the insurance risk.  In the case of multiple companies (identical to NBFC) wants to acquire some stake in the insurance company, the contribution in the same group by all firm will be counted for a limit of 50% which will be allocated for NBFC in a joint venture. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The participation of NBFCs in Insurance Business has opened up endless possibilities for insurance companies. NBFC could help insurance companies to operate with more agility and meet their ancillary requirements. The NBFCs and the identical companies that seek swift initiation of insurance business either by independent undertaking or joint venture needs to follow to RBI and IRDAI guidelines carefully. <\/p>\n\n\n\n<p>Corporate seeking additional business opportunities can opt for <strong><a href=\"https:\/\/corpbiz.io\/nbfc-registration\">NBFC registration<\/a><\/strong>. It is one of the promising business realms at this point in time. However, getting into such business won&#8217;t be an easy task. The company has to avail NBFC registration<strong> <\/strong>from RBI to get started with such business. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/prerequisites-of-nbfc-registration-in-india\/\">\nPrerequisites of NBFC Registration: A Comprehensive Overview\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>It&#8217;s a well-known fact that RBI has rendered their permission to NBFCs to diversify its footprint in the insurance business. NBFCs gain this authorization under the light of their success in the Indian financial markets that they have reaped over the years. However, NBFCs haven&#8217;t got permission to operate in an independent framework yet. Instead, [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":11532,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[702],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":6323,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/11502"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=11502"}],"version-history":[{"count":13,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/11502\/revisions"}],"predecessor-version":[{"id":67960,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/11502\/revisions\/67960"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/11532"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=11502"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=11502"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=11502"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}