India's central bank and the banking regulator Reserve Bank of India (RBI) has said that it does not envisage any ban or restrictions on bancassurance. According to a report in the financial daily livemint the RBI governor Mr Sanjay Malhotra has said the regulatory safeguards in this regard should, however, be strengthened.
Mr Malhotra was responding to questions from news-reporters last week after a post-policy conference. He said the complaints against misselling are rising but rather than curb it, the regulators will focus on strengthening the safeguards.
He said the RBI has warned the banks about the rising complaints against misselling and they are acting on it but there is a scope to do much more in this regard.
Mr Malhotra said bancassurance is a key distribution channel and important for financial inclusion via distribution of insurance products and should not be disrupted.
Bancassurance is an effective distribution channel in India, where insurance penetration is low, especially in the general insurance sector, with a penetration rate of just about 1%. Banks, viewed as one-stop shops for financial products, should offer a wide range of insurance products, including health, personal accident, motor, cyber, life, and property insurance.
Banks contribute nearly 55% of life insurance premiums but only about 6% of general insurance premiums, indicating a need to increase general insurance penetration to protect assets.
India’s banking system has a vast reach, including rural regional banks (RRBs), scheduled commercial banks, foreign banks and private banks. According to the data from the Department of Financial Services, with over 23,000 RRB branches, 160,000 scheduled commercial bank branches, and numerous private bank branches, the network ensures banking services, including bancassurance, reach even the remotest areas of the country.
Industry captains are also of the opinion that once the awareness about insurance products as a means of risk-transfer rises, the instances of misselling of insurance products will come down drastically. As such the insurance companies should focus on creating better customer awareness about insurance.