Guidelines for Entry of NBFCs into Insurance

NBFCs registered with the Reserve Bank can start insurance agency business without risk participation. They don’t need approval from the Reserve Bank, but they must follow these conditions:

They need permission from IRDA and must comply with IRDA regulations to act as ‘composite corporate agents’.
They should not force their customers to choose a specific insurance company for assets financed by the NBFC. Customers must have the freedom to choose.
Participation in insurance products should be voluntary for customers. This must be clearly stated in all promotional materials. There should be no direct or indirect link between NBFC’s financial services and the use of insurance products.
Insurance premiums should be paid directly to the insurance company by the insured, not through the NBFC.
Any risks from the insurance agency business should not affect the NBFC’s main business.

NBFCs cannot run this business internally. A subsidiary or a company in the same group as an NBFC, or another NBFC, should not join the insurance company on a risk participation basis.

NBFCs meeting certain criteria can set up a joint venture for insurance business with risk participation. They can normally own up to 50% of the insurance company. The Reserve Bank may allow more equity initially, but the NBFC must reduce it later. If multiple companies in the same group want to invest, their total contribution should not exceed 50%. The Reserve Bank might relax this limit in special cases.

The criteria for joining a joint venture are:

The NBFC should have at least ₹500 crore in owned funds.
Its CRAR should be at least 15%.
Net non-performing assets should be less than 5% of total leased/hire purchase assets and advances.
The NBFC should have made a net profit for the last three years.
If it has subsidiaries, they should have a good performance record.
It must comply with regulations and manage public deposits well, if any.

Investments in insurance will count towards the NBFC’s Net Owned Funds as per the RBI Act, 1934.

If a foreign partner contributes 26% of the equity with IRDA/Foreign Investment Promotion Board approval, more than one NBFC can invest in the insurance joint venture. These NBFCs must meet the criteria mentioned above.

NBFCs not eligible for joint ventures can invest up to 10% of their owned funds or ₹50 crore, whichever is lower, in the insurance company. This will be considered an investment without any contingent liability. The criteria for these NBFCs are:

A CRAR of at least 15%.
Net NPA less than 5% of total outstanding leased/hire purchase assets and advances.
Net profit for the last three continuous years.

Note:

Any equity holding by an NBFC in an insurance company or participation in insurance business must comply with IRDA/Central Government rules. This includes divesting equity exceeding 26% of the paid-up capital within a set time.
The eligibility criteria are based on the latest audited balance sheet from the previous year.

Introduction to RBI – NBFC Scale Based Regulation

Regulations applicable for NBFC-BL

Regulations applicable for NBFC-ML

Regulatory Instructions for NBFC-UL

Directions for NBFC – Micro Finance MFIs

Specific Directions for NBFC-Factors and NBFC-ICCs

Specific Directions for Infrastructure Debt Funds IDFs-NBFC

Scoring Methodology for Identification of NBFC as NBFC-UL

Regulatory Guidance on Implementation of Ind AS by NBFCsv

Norms on Restructuring of Advances by NBFCs

Early Recognition of Financial Distress

Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries