What changed
RBI issued a master circular consolidating all existing instructions on NBFCs entering insurance business, issuing credit cards, co-branded credit cards, and distributing mutual fund products. This circular updates and replaces earlier notifications listed in the appendix, bringing all current rules into one document as of June 30, 2012.
What it means for you
NBFCs now have a single reference for rules on insurance agency (fee-based, no risk) and joint ventures (max 50% equity). Investments in insurance companies by ineligible NBFCs are capped at lower of 10% of owned fund or Rs 50 crore. Prior RBI approval is mandatory for any risk participation or investment in insurance. Banks and NBFCs must ensure no risk transfer from insurance to NBFC.
What you must do
- Review the master circular to ensure compliance with consolidated instructions on insurance, credit cards, and mutual fund distribution.
- For insurance agency on fee basis without risk, verify conditions are met; no RBI approval needed.
- For insurance JV or investment, apply to the Regional Office of Department of Non-Banking Supervision with statutory auditor certification.
- Ensure group companies' stakes in an insurance JV are counted toward the 50% equity cap.
- Maintain clear separation between NBFC and insurance business to avoid risk contamination.
Who it affects
All NBFCs registered with RBI, NBFCs planning to enter insurance business, NBFCs issuing credit cards or co-branded cards, NBFCs distributing mutual fund products
Can an NBFC take up insurance agency without RBI approval?
Yes, if it is on a fee basis and without risk participation, subject to conditions specified in the circular. No prior RBI approval is needed.
What is the maximum equity an NBFC can hold in an insurance joint venture?
Normally 50% of the paid-up capital of the insurance company. If multiple group companies invest, their combined stake counts toward this limit.
What is the investment limit for NBFCs not eligible for insurance JV?
Such NBFCs can invest up to 10% of their owned fund or Rs 50 crore, whichever is lower, in an insurance company, subject to eligibility criteria.