RBI/2004-05/456
RPCD.CO.NB. BC.No. 98 /03.03.116/2004-05
May 6, 2005
Chairmen of all State Cooperative Banks / District
Central Cooperative Banks
Dear Sir,
Entry of State Cooperative
Banks (SCBs) / District Central Cooperative Banks (DCCBS) into insurance business
A reference is invited to our circulars
RPCD.No.NB.BC.No.59/03.03.116/2004-05
and RPCD.No.NB.BC.78/03.03.116/2004-05
dated November 18, 2004 and February 17, 2005 respectively allowing scheduled
or licensed SCBs and licensed DCCBs complying with certain norms to undertake
insurance business as corporate agent without risk participation.
2. On a review, it has now been
decided to allow all State Co-operative Banks and District Central Cooperative
Banks to undertake insurance business on a referral basis, without any
risk participation through their network of branches. Under the referral arrangement,
banks provide physical infrastructure within their select branch premises to
insurance companies for selling their insurance products to the bank's customers
with adequate disclosure and transparency, and in turn earn referral fees on
the basis of premia collected. The above permission is subject to the following
conditions:
i. The bank should comply with
the IRDA regulations for undertaking referral business with insurance companies.
ii. The bank should not adopt
any restrictive practice of forcing its customers to go in only for a particular
insurance company in respect of assets financed by the bank. The customers should
be allowed to exercise their own choice.
iii. The bank desirous of entering
into referral arrangement, besides complying with IRDA regulations, should also
enter into an agreement with the insurance company concerned for allowing use
of its premises and making use of the existing infrastructure of the bank. The
agreement should be for a period not exceeding three years at the first
instance and the bank should have the discretion to renegotiate the terms depending
on its satisfaction with the service or replace it by another agreement after
the initial period. Thereafter, the bank will be free to sign a longer term
contract with the approval of its Board.
iv. As the participation by
a bank's customer in insurance products is purely on a voluntary basis, it should
be stated in all publicity material distributed by the bank in a prominent way.
There should be no 'linkage' either direct or indirect between the provision
of banking services offered by the bank to its customers and use of the insurance
products.
v. The risk, if any involved
in referral arrangement should not get transferred to the business of the bank.
The banks need not obtain prior approval of
the RBI to undertake referral business.
3. Please acknowledge receipt of the circular
to our Regional Offices.
Yours faithfully
(C.S.Murthy)
Chief General Manager-in-Charge