PSU banks may have to sell rivals’ insurance products

Dec 19, 2013, 04.54 PM IST

As per the RBI draft, the public sector banks will have to set up a separate department to sell insurance policies. The move may result in capping the group company's business at 25%.

Tags  PSBs, Insurance Policies, Insurance Brokers, SBI, Bank of India, PNB, Bank of Baroda, Union Bank

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PSU banks may have to sell rivals' insurance products

As per the RBI draft, the public sector banks will have to set up a separate department to sell insurance policies. The move may result in capping the group company's business at 25%.

Like this story, share it with millions of investors on M3

PSU banks may have to sell rivals' insurance products

As per the RBI draft, the public sector banks will have to set up a separate department to sell insurance policies. The move may result in capping the group company's business at 25%.

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The Finance Ministry is planning to make it mandatory for public sector banks to become insurance brokers, reports CNBC Awaaz. In other words, a bank will have to sell insurance products of its rivals as well. The corporate agency licences of the PSBs will not be renewed. Under the corporate agency licence, a bank could sell a life insurance and a general insurance policy of its own choice, but after becoming an insurance broker they will have to sell policies of all insurance companies. The banks will have to apply for insurance broking licence by March.

Also Read: Banks not keen to act as insurance brokers

As per the RBI draft, state-owned banks will have to set up a separate department to sell these products. Moreover the onus of mis-selling will also come on banks.

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.

The banks that are going to be affected by the move are State Bank , Bank of India , Punjab National Bank , Bank of Baroda and Union Bank .

SBI stock price

On December 19, 2013, State Bank of India closed at Rs 1730.45, down Rs 34.45, or 1.95 percent. The 52-week high of the share was Rs 2550.00 and the 52-week low was Rs 1452.90.

The company's trailing 12-month (TTM) EPS was at Rs 179.98 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 9.61. The latest book value of the company is Rs 1445.60 per share. At current value, the price-to-book value of the company is 1.20.

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