Intends to approach the RBI and likely to declare the formation of the committee later this month

Insurance Regulatory and Development Authority (IRDA) of India has decided to form a committee to analyse the risks met by insurance companies promoted by banks – reported Financial Chronicle.

The insurance regulator intends to approach the Reserve Bank of India (RBI) after which it is expected to declare the creation of the committee later this month.

As per a senior IRDA official, a bank-backed insurance company comes across three risks, which are: investment risk, capital risk, and cost connecting risk. The terms of reference and the formation of the committee would be declared following talks with the banking regulator.

The bank-backed insurance companies have capital related risks, as the ability to infuse more capital in the insurance venture decreases for many reasons, including increase in non-performing assets (bad loans).

IRDA has also planned to clarify the risk involved in investment in the case of a bank-sponsored insurance company. Insurance companies are not allowed to invest more than 5-10% in a single company at present.

The Authority also seeks to resolve the cost advantage banks extract from their network of branches when selling insurance. Insurance companies, which do not have a bank as a promoter, are at a disadvantage vis-a-vis bank promoted insurance firms. IRDA wants to analyse the underlying cost-connection in the case of insurance companies set up by banks, quoted