Mumbai, Feb. 11: The Reserve Bank of India has allowed non-banking finance companies (NBFCs) registered with it to take up insurance agency business on fee basis and without risk participation.

For NBFCs, which are going through a rough patch, the RBI announcement will come as a welcome relief as the central bank has even waived the requirement of seeking approval from it.

The central bank, in a notification issued here today, said such NBFCs should obtain permission from the Insurance Regulatory and Development Authority (IRDA) and comply with the regulations for acting as “composite corporate agent” with insurance companies.

“The NBFCs 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 NBFC and customers should be allowed to exercise their own choice,” the central bank said.

“As the participation by an NBFC customer in insurance products was purely on a voluntary basis, it should be stated in all publicity material distributed by the NBFC in a prominent way,” RBI said.

There should be no “linkage” either direct or indirect between the provision of financial services offered by the NBFC to its customers and use of the insurance products.

“The premium should be paid by the insured directly to the insurance company without routing it through the NBFC and the risks, if any, involved in insurance agency should not get transferred to the business of the NBFC, it added.

The RBI, in June 2000, had permitted NBFCs registered with it to set up insurance joint ventures for undertaking insurance business with risk participation and also to undertake insurance business as agents of insurance companies on fee basis, without any risk participation.

Bank funds for ESOP

The RBI today said banks can exercise discretion in extending finance to the employees for purchasing shares of their company either under ESOP or IPO, subject to the regulations, including margin on IPO financing.

All such loans should be treated as banks’ exposure to the capital market within the overall ceiling of five per cent of the banks’ total outstanding advances as on March 31 of the previous year.

As per the extant instructions, bank finance to assist employees to buy shares of their own company under the employees quota is restricted to Rs 50,000 or six months’ salary of an employee, whichever is less. The assistance is also limited to 90 per cent of the purchase price of shares.