{"id":1694,"date":"2021-01-28T05:35:26","date_gmt":"2021-01-28T05:35:26","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=1694"},"modified":"2021-01-28T05:35:27","modified_gmt":"2021-01-28T05:35:27","slug":"how-can-nbfc-participate-in-insurance-business","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/how-can-nbfc-participate-in-insurance-business\/","title":{"rendered":"NBFC in Insurance Business: How can NBFC Participate in Insurance Business?"},"content":{"rendered":"\n<p>\u201cNBFC\u201d, whenever we hear this term, it\nmakes us realize that it a company incorporated under the provisions of the\nCompanies Act 2013, but for regulation, the owner needs to obtain NBFC\nRegistration from RBI. However, the question is that can an NBFC operate in\nInsurance Business? The answer to this is that the RBI has allowed the\noperation of an NBFC in Insurance Business. <\/p>\n\n\n\n<p>However, it shall be taken into consideration that NBFCs are not allowed to operate in an independent framework and needs to follow the guidelines issued by the Apex Bank through the Circular No. DNBS (PD)CC No.13\/02.01\/99-2000, issued on 20.06.2006.<\/p>\n\n\n\n<p>In this blog, we will discuss in depth\nabout the concept of NBFC in Insurance Business.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3abba183b96\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3abba183b96\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/how-can-nbfc-participate-in-insurance-business\/#Concept_of_Insurance_Business\" title=\"Concept of Insurance Business \">Concept of Insurance Business <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/how-can-nbfc-participate-in-insurance-business\/#Requirements_for_Participation_of_NBFC_in_Insurance_Business\" title=\"Requirements for Participation of NBFC in Insurance Business\">Requirements for Participation of NBFC in Insurance Business<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/how-can-nbfc-participate-in-insurance-business\/#Eligibility_Criteria_for_Participation_of_NBFC_in_Insurance_Business\" title=\"Eligibility Criteria for Participation of NBFC in Insurance Business\">Eligibility Criteria for Participation of NBFC in Insurance Business<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/how-can-nbfc-participate-in-insurance-business\/#Concept_of_Insurance_Joint_Ventures\" title=\"Concept of Insurance Joint Ventures\">Concept of Insurance Joint Ventures<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/how-can-nbfc-participate-in-insurance-business\/#Eligibility_Criteria_for_Participation_of_NBFC_in_Insurance_Joint_Ventures\" title=\"Eligibility Criteria for Participation of NBFC in Insurance Joint Ventures\">Eligibility Criteria for Participation of NBFC in Insurance Joint Ventures<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/how-can-nbfc-participate-in-insurance-business\/#Consequences_if_an_NBFC_fails_to_satisfy_Eligibility_Criteria\" title=\"Consequences if an NBFC fails to satisfy Eligibility Criteria\">Consequences if an NBFC fails to satisfy Eligibility Criteria<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/blog\/how-can-nbfc-participate-in-insurance-business\/#Other_Provisions_for_NBFC_in_Insurance_Business\" title=\"Other Provisions for NBFC in Insurance Business\">Other Provisions for NBFC in Insurance Business<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/blog\/how-can-nbfc-participate-in-insurance-business\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concept_of_Insurance_Business\"><\/span>Concept of Insurance Business <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The term \u201cInsurance\u201d denotes a contract\nin which a person receives financial safeguard and reimbursement of damages\nfrom the insurance company or insurer. That means, insurance means a sort of\nprotection against the possible losses. <\/p>\n\n\n\n<p>Further, the concept of Insurance is\nbased on the notion that an insurer will opt to spend small timely amounts\nagainst the chances of a huge unexpected loss.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Requirements_for_Participation_of_NBFC_in_Insurance_Business\"><\/span>Requirements for Participation of NBFC in Insurance Business<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>RBI has allowed the participation of\nNBFC in Insurance Business based on the conditions as follows:<\/p>\n\n\n\n<ol><li>NBFCs\nmust notuse any practice that restricts the Customer\u2019s Interest to work with\nsome alternative agencies in regard to financed assets;<\/li><li>NBFCs\nmust mention in the publicity material that the acceptance of insurance product\nis fully voluntary in nature;<\/li><li>The\nInsurer needs to pay the insurance premium directly to the concerned insurance\ncompany without involving the NBFC;<\/li><li>NBFCs\nare not allowed to share their risk with the Insurance Agencies;<\/li><li>There\nmust not be any linkage involved between the financial services provided by\nNBFC, its customers, and the usage of the insurance products;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Eligibility_Criteria_for_Participation_of_NBFC_in_Insurance_Business\"><\/span>Eligibility Criteria for Participation of NBFC in Insurance Business<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The eligibility criteria for participation of NBFC in Insurance Business are as follows:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Eligibility-Criteria-for-Participation-of-NBFC-in-Insurance-Business.png\" alt=\"NBFC in Insurance Eligibility Criteria\" class=\"wp-image-1696\" width=\"412\" height=\"518\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Eligibility-Criteria-for-Participation-of-NBFC-in-Insurance-Business.png 600w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Eligibility-Criteria-for-Participation-of-NBFC-in-Insurance-Business-238x300.png 238w\" sizes=\"(max-width: 412px) 100vw, 412px\" \/><\/figure><\/div>\n\n\n\n<ol><li>Must obtain registration from IRDAI (Insurance Regulatory and Development Authority of India)&nbsp; as \u201cComposite Corporate Agent\u201d;<\/li><li>Must obtain <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFC Registration<\/a><\/strong> from RBI under the provisions of the RBI Act 1935;<\/li><li>Should have the Net Worth of at least Rs 5 crores;<\/li><li>Must have Audited Balance Sheets for the last three financial years;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concept_of_Insurance_Joint_Ventures\"><\/span>Concept of Insurance Joint Ventures<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Whenever, an NBFC satisfies all the conditions\nof the eligibility criteria and wants to start an Insurance Joint Venture with\nthe equity contribution on risk participation basis or wants to make\ninvestments in the Insurance Companies, would require approval from RBI on a\nmandatory basis. <\/p>\n\n\n\n<p>Further, the maximum equity contribution\nrequired by an NBFC to start a joint venture is 50% of the total paid up\ncapital of the Insurance Company. <\/p>\n\n\n\n<p>However, a subsidiary company involved\nin the operations of banking business or non banking financial company shall\nnot be permitted to join an insurance company based on risk participation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Eligibility_Criteria_for_Participation_of_NBFC_in_Insurance_Joint_Ventures\"><\/span>Eligibility Criteria for Participation of NBFC in Insurance Joint Ventures<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The eligibility criteria for the\nparticipation of NBFC in Insurance Joint Ventures are as follows:<\/p>\n\n\n\n<ol><li>Must\nbe registered with the Reserve Bank of India;<\/li><li>Must\nhave a Net Worth of at least Rs 500 crores;<\/li><li>The\nCAR (Capital Adequacy Ratio) of an NBFC, engaged in loan and investments\nactivities must not be more than 15%. However, for any other NBFC the CAR must\nnot be more than 12%;<\/li><li>The\nNPAs (Non Performing Assets) of an NBFC must not be more than 5% of the total\noutstanding leased&nbsp; or hire purchase\nassets and advances;<\/li><li>NBFC\nmust have profits for at least last three consecutive financial years;<\/li><li>All\nthe subsidiaries of an NBFC must have an exemplary track record in rendering\nservices;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Consequences_if_an_NBFC_fails_to_satisfy_Eligibility_Criteria\"><\/span>Consequences if an NBFC fails to satisfy Eligibility Criteria<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>However, if in case an NBFC fails to satisfy the criteria of becoming a part of a joint venture, the same can make investments up to 10% of the Total Owned Fund or of Rs 50 crores, whichever is less, in the insurance company. However, such a funding need to be accepted as an investment which is free from all sorts of contingent liability for an NBFC.<\/p>\n\n\n\n<p>Further, the eligibility criteria for\nsuch NBFCs are as follows:<\/p>\n\n\n\n<ol><li>The CRAR of the Non Banking Financial Company must not be less than 12%, if in case the same is engaged in hire purchase, equipment leasing, or finance activities. However, if the same is a loan or an investment company, then, in that case, the CRAR will be 15%;<\/li><li>The total level of NP A (Non Performing Assets) must not be more than 5% of the total outstanding hire purchase or leased assets, and advances;<\/li><li>A Non Banking Financial Company must have net profits for the last three financial years;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Other_Provisions_for_NBFC_in_Insurance_Business\"><\/span>Other Provisions for NBFC in Insurance Business<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If in case a foreign company contributes\naround 26% or more with the approval of IRDAI (Insurance Regulatory Development\nAuthority of India) or FIPB (Foreign Investment Promotion Board), then, in that\ncase, more than one NBFC will be permitted to participate in the said joint\nventure. However, the same is possible only if all the participating NBFCs are\nable to satisfy the setting up criteria.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In a nutshell, RBI is working hard to\nincorporate as many NBFCs as possible to enter the market of Insurance. If in\ncase an NBFC is not that big, then also, the same can enter the world of\ninsurance by operating as agents to the Insurance Companies. This will assist\nthe small NBFCs to enter the market risk-free. Moreover, the same assist the\nsmaller NBFCs in entering the market in a risk free manner. <\/p>\n\n\n\n<p>However, the large NBFCs have great\npotential and capacity to handle risks, and therefore, they are permitted to\nset up a Joint Venture undertaking insurance business.<\/p>\n\n\n\n<p>All the reasons encourage a new comer to move further in the Insurance sector and\nbenefit from the booming growth. As a result, the new companies are looking\nforward to start their business operation by acquiring NBFC Registration from\nRBI. <\/p>\n\n\n\n<p>In case of any other doubt or dilemma, collaborate with <strong><a href=\"https:\/\/swaritadvisors.com\" class=\"text-primary\">Swarit Advisors<\/a><\/strong> our experienced professionals are there to cater to all your needs and doubts. Also, they will guide you with best and the hassle free way to obtain NBFC Registration in India.<\/p>\n\n\n\n<p><b>Also, Read:<\/b> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/cancellation-or-surrender-of-nbfc-registration\">Cancellation or Surrender of NBFC Registration<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u201cNBFC\u201d, whenever we hear this term, it makes us realize that it a company incorporated under the provisions of the Companies Act 2013, but for regulation, the owner needs to obtain NBFC Registration from RBI. However, the question is that can an NBFC operate in Insurance Business? The answer to this is that the RBI [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":1695,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58],"tags":[296],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/1694"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=1694"}],"version-history":[{"count":5,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/1694\/revisions"}],"predecessor-version":[{"id":1702,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/1694\/revisions\/1702"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/1695"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=1694"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=1694"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=1694"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}