Industry Odisha Bureau, Oct 31: Proposed limits could erode over half of some lenders’ insurance fees, hitting smaller banks harder.
Irdai’s proposed insurance commission cap is set to squeeze bank fee income. Smaller and mid-sized lenders are likely to be hit harder than large peers. Some could lose over half their bancassurance income. Several banks flagged the risk while reporting September-quarter earnings.
The regulator’s September 23 consultation paper proposes product-wise limits on distribution commissions. These cover payments insurers make to banks, brokers and agents. Single-premium life policies sold with loans would carry a 2% commission cap. Today, banks negotiate such commissions directly with insurers, without a fixed ceiling. Industry estimates suggest credit-life commissions can run as high as 45%. Irdai also wants to stop lenders forcing borrowers to buy insurance with loans. The rules remain proposals and are not yet final.
The real issue is dependence, not size. JM Financial data shows insurance income formed 30.8% of Bandhan Bank’s FY26 pre-tax profit. The share was 19.2% at Ujjivan SFB and 14.3% at AU SFB. HDFC Bank stood at 7.3%, and ICICI Bank at just 0.6%. These figures measure exposure, not the profit each bank will lose.
CareEdge Ratings’ Saurabh Bhalerao said topline numbers understate the damage. Measured against net profit, he said, smaller banks face a far bigger blow. Icra said private banks are more sensitive, though fee income may be only moderately hit.
Bandhan Bank expects third-party income to fall by about ₹200 crore a year. RBL Bank’s Jaideep Iyer said a 50–60% cut should be pencilled in. That applies to its roughly ₹300 crore annual bancassurance income. Karur Vysya Bank warned some life product commissions could drop up to 70%. Union Bank of India sees a possible hit of ₹100–110 crore. CEO Asheesh Pandey said insurance and other commissions form about 8% of fee income.
Ujjivan SFB looks especially exposed. Hitendra Jha heads its retail liabilities and third-party products. He said half its insurance income comes from credit-linked policies. These face the steepest cuts, and the income largely flows to the bottom line.
Large banks are split. ICICI Bank’s Sandeep Batra said bancassurance fees are under 1% of total income. HDFC Bank CFO Srinivasan Vaidyanathan called the proposed cuts quite high, warning of significant impact.
Banks are now planning ways to recover lost income. Bandhan aims to grow insurance sales in tier 2–4 towns, where commissions are higher. It will also expand mutual fund distribution. Karur Vysya hopes to lift life insurance penetration from 1.6% to 3.8–3.9%. HDFC Bank expects cheaper policies to draw more customers and improve persistency. AU SFB will lean on forex, credit cards and trade finance. Higher volumes, however, may not fully offset lower commissions.
For policyholders, the reforms could reshape sales incentives and strengthen choice. Lower commissions, though, will not automatically mean cheaper premiums. For banks, the test goes beyond insurance earnings. It is how dependent their profits have become on these fees.
