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The Non-Banking Financial Companies (NBFCs) are considered almost similar to the conventional banks except a few differences which make them their counterparts. As per latest developments in the financial markets, the NBFCs are entering into the insurance sector also. The Reserve Bank of India has laid down the guidelines for NBFC Registration in India in the Insurance sector. In this article we will look at NBFCs in Insurance Business.
Any Non-Banking Financial Company (NBFC) which has obtained NBFC registration with RBI for carrying out its operations and having a net owned fund (NOF) of Rs. 500 lakhs as per the last audited balance sheet shall be permitted to undertake insurance business as an agent of insurance companies on a fee basis, without any risk participation.
Prior to this, the concerned NBFCs shall also take approval from Insurance Regulatory and Development Authority (IRDA)[1].
Under the following conditions, the approval of RBI is not required and the NBFCs can straightaway take the entry into the insurance business:
The desired NBFC shall make an application to the Reserve Bank of India along with the necessary documents and particulars duly certified by their statutory auditors to the Regional Office of Department of Non-Banking Supervision under whose jurisdiction the registered office of the NBFCs is situated.
The NBFCs planning to step into the business of insurance sector is required to hold the maximum equity contribution of 50 % of the paid-up equity capital of the Insurance Company with whom it has entered into the joint venture. In some cases, the Reserve Bank can allow a higher equity contribution by a promoter NBFC.
The Indian Insurance Industry is blooming gradually and so is the demand and supply cycle for all type of insurance in the country. This has added to the growth meter of NBFCs heading into this sector. The growth of interest towards insurance among Indians, innovative product designs and easy to access distribution channels are further accelerating the scale of the insurance sector. Also, the government has liberalized various policies for private players like NBFCs. The recent decision by the Indian parliament has further cleared the path for raising FDI (foreign direct investment) in the insurance sector thereby generating more employment opportunities, improved customer services, and competitive premiums rates.
Read our article:Surrendering the NBFC license: Reasons and procedure
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