The proposed reforms include lower expenses of management (EoM) limits for insurers and product- and channel-specific caps on commissions. The proposals also envisage separate limits for individual and corporate distributors, with higher caps for individuals to account for the greater effort involved in sales. Banks, which are major insurance distribution channels and promoters of several insurers, are preparing their feedback for the regulator in the coming days.
Axis Bank said it would explore multiple ways to mitigate the impact, including higher sales volumes, changes in product mix and discussions with insurance partners to expand its share of the business.
“We will pursue a combination of all these measures. However, it is still at an early stage,” Subrat Mohanty, executive director at Axis Bank, said during the bank’s post-earnings media call. He added that lower insurance prices could benefit customers and support volumes.
HDFC Bank said it would assess the proposals before submitting its comments.
Srinivasan Vaidyanathan, chief financial officer (CFO) of HDFC Bank, said the proposed reduction in commissions was significant, but the overall impact would depend on whether lower costs translated into better policy persistency and higher volumes. “The cut down in the commission rate is quite high. There are three other things that one needs to watch out for — what kind of persistency pick-up it provides, so that it could have a positive effect. The other could be lower cost of insurance, which could mean more volumes,” he said.
Vaidyanathan added that both distributors and insurers would need to review their cost structures as commissions and EoM limits changed.
ICICI Bank expects the impact to be limited, given the relatively small contribution of third-party products to its income. The bank said it sells insurance products from the ICICI group.
“In the overall context, the third-party [income] seems to be less than 1 per cent of our total income. So, I think whatever changes happen, they will have minimal impact on the bank,” Sandeep Batra, executive director at ICICI Bank, said. He added that the bank would provide feedback on the proposals and support the final guidelines.
The impact could be more pronounced at some lenders. RBL Bank has estimated a 50-60 per cent reduction in its bancassurance income if the proposed norms are implemented in their current form.
Canara Bank has estimated an impact of up to Rs 200 crore on its distribution income, including Rs 120-145 crore from life insurance distribution, if the proposals are implemented in their current form. Federal Bank has also indicated that the changes could affect its income, but said it was too early to quantify the impact before the final guidelines and implementation timeline were known.
Analysts at IIFL Capital have estimated that bancassurance contributes nearly 10 per cent of banks’ fee income and around 3 per cent of their profit after tax (PAT), limiting the overall earnings impact for the sector, though the effect will vary across lenders. The brokerage estimated the banking system’s bancassurance income pool at about $2.2 billion, after a compound annual growth rate of 28 per cent over the past three years.
The contribution is highest at Axis Bank, followed by HDFC Bank and Kotak Mahindra Bank, while it is lower at state-owned lenders and ICICI Bank, according to the brokerage.
