1. Any scheduled commercial bank would be permitted to undertake insurance business as agents of insurance companies on fee basis, without any risk participation. The subsidiaries of any bank which have been set up with the approval of the Reserve Bank will also be allowed to undertake distribution of insurance product on agency basis.

2. Banks which satisfy the eligibility criteria given below will be permitted to set up a joint venture company for undertaking insurance business. The maximum equity contribution such a bank can hold in the joint venture company will be 50 per cent of the paid-up capital of the insurance company. The eligibility criteria for joint venture participant will be as under as on March 31, 2000 :

1. The net worth of the bank should not be less than Rs.500 crore.
2. The CRAR of the bank should not less than 10 per cent.
3. The level of non-performing assets should be reasonable.
4. The bank should have net profit for the last three continuous years.
5. The track record of the performance of the subsidiaries, if any, of the concerned bank should be satisfactory.

3. In cases where a foreign partner contributes 26 per cent of the equity with the approval of IRDA/FIPB (Foreign Investment Promotion Board), any other nationalized bank or a private sector bank would be allowed to participate in the equity of the insurance joint venture. As such participants will also assume insurance risk, only those banks which satisfy the criteria given above would be eligible.

4. Any subsidiary of the same bank or of another bank will not be allowed to join the insurance company on risk participation basis. This would include bank subsidiaries undertaking merchant banking, securities, mutual fund, leasing finance, housing finance business etc. For this purpose, the Associate Banks of State Bank of India will be reckoned as a subsidiary where the State Bank of India is a partner.

5. Banks which are not eligible as joint venture participant, as above, can make investments up to 10 per cent of the networth of the bank or Rs.50 crore, whichever is lower, in the insurance company for providing infrastructure and services support. Such investments will be on one time basis and without any contingent liability for the bank. Such contribution will be treated as an investment. The criteria for these banks will be as under as on March 31, 2000.

1. The CRAR of the bank should not be less than 10 per cent.
2. The level of NPA should be reasonable.
3. The bank should have net profit for the last three continuous years.

6. All banks entering into insurance business will be required to obtain prior approval of the Reserve Bank. The Reserve Bank will give permission to banks on case to case basis keeping in view all relevant factors including the position in regard to the level of non-performing assets of the applicant bank so as to ensure that non-performing assets do not pose any future threat to the bank in its present or the proposed line of activity, viz., insurance business. It should be ensured that risks involved in insurance business do not get transferred to the bank and that the banking business does not get contaminated by any risks which may arise from insurance business. There should be ‘arms length’ relationship between the bank and the insurance outfit.

March 16, 2000