Banks not keen to act as insurance brokers

In a move that will make banks directly responsible for the sale of insurance policies, the RBI last month released draft guidelines allowing banks to become insurance brokers. But the guidelines have not spread any cheer.

While the insurance industry was anyways not too hopeful of large private & public sector banks entering the insurance broking segment, now, it seems most banks are not keen.

Commenting on the above, C Jayaram, joint md,  Kotak Mahindra Bank said: "I am not sure if it makes too much of a difference. Even as of today when most banks are allied with one insurance company which is by and large from the same group. So with that sort of structure I am not sure difference it will make whether banks are brokers or not."

Also read: 5 reasons why RBI chose to keep rates unchanged

Further, under this model, banks are likely to see a substantiatial decrease in their premium collections. As corporate agents, banks can earn up to 35 percent of the first-year premium but as brokers they would be entitled to a maximum of 30 percent.

Rajiv Anand, president - retail banking,  Axis Bank said: "There are various issues, there are greater responsibilities as well, there are some caps in terms of commissions etc and the way we need to manage our customers so we are evaluating the broking biz but as it currently stands we will stick with our agency model."

Moreover, on an average, less than 2 percent of a bank's profit comes from selling insurance policies. So if one accounts for the cost involved for banks to set up separate departments and train their staff for insurance broking, it does not seem a viable option.

Kotak Mahindra stock price

On December 18, 2013, Kotak Mahindra Bank closed at Rs 748.40, up Rs 6.35, or 0.86 percent. The 52-week high of the share was Rs 804.00 and the 52-week low was Rs 588.00.

The company's trailing 12-month (TTM) EPS was at Rs 20.20 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 37.05. The latest book value of the company is Rs 123.00 per share. At current value, the price-to-book value of the company is 6.08.

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