The Insurance Regulatory and Development Authority of India’s (Irdai’s) proposed commission caps could weigh on the insurance fee income of banks and non-banking financial companies (NBFCs), with lenders operating multiple insurer tie-ups and relying heavily on incentive-led payouts likely to face a sharper impact than those following a single-tie-up, closed-architecture model, analysts said.
The proposed cuts in commissions on credit life and short-tenure savings products, along with a ban on compulsory bundling of insurance with loans, are expected to put further pressure on the insurance distribution income of banks and NBFCs, they said.
Among NBFCs, L&T Finance is the most exposed, followed by Piramal Enterprises and Cholamandalam Investment and Finance, with the proposed changes likely to affect their fee income and overall earnings, analysts said.
“Their income comes mainly from credit-linked and motor insurance, which the draft targets through the bundling ban, the caps on staff incentives and the lower motor commissions,” analysts at JM Financial said.
Insurance commission income accounted for about 26 per cent of L&T Finance’s FY26 profit before tax (PBT), while Poonawalla Fincorp, Cholamandalam Finance and Mahindra & Mahindra Financial Services also have meaningful exposure, according to analysts. Piramal Finance, where insurance commission income accounted for 38.4 per cent of PBT in FY25, is also highly exposed.
Among private sector lenders, Axis Bank and HDFC Bank are more exposed to the proposed norms than other large banks because of the larger contribution of fee income to their revenue and PBT, analysts at Macquarie said.
Irdai, in its consultation paper, said banks accounted for nearly Rs 68,000 crore of corporate-agency premium in the life insurance business in the sample studied. Payouts were significantly higher in multiple-tie-up arrangements than in single-tie-up models, suggesting that remuneration is driven more by competition for distribution relationships than by the effort involved in distribution, the regulator said.
The NBFC channel has also emerged as one of the fastest-growing distribution channels for life insurance. New business premium sourced through NBFCs nearly tripled to Rs 10,300 crore in FY25 from Rs 3,600 crore in FY23, while payouts to NBFCs rose to Rs 4,300 crore, or about 42 per cent of the premium sourced, Irdai said.
Nearly 93 per cent of this business is loan-linked group credit life, which the regulator considers a relatively low-effort product as it is sold at the time of loan disbursement. Commission on such products rose to 28 per cent from 5 per cent in two years and to around 45 per cent when other payouts are included, the regulator said.
