JM Financial Raises Concerns Over IRDAI Proposals
JM Financial has issued a cautionary note regarding the potential ramifications of the Insurance Regulatory and Development Authority of India's (IRDAI) proposed distribution reforms on selected banks and non-banking financial companies (NBFCs). The brokerage firm is closely monitoring the situation and will await final guidelines before adjusting its financial estimates.
Details of the Proposed IRDAI Reforms
The IRDAI's consultation paper outlines several key changes, including lower Expenses of Management (EOM) caps for both life and general insurers. It also proposes the reintroduction of segment-level commission caps, which were previously eliminated from FY24. Furthermore, the draft paper includes specific observations pertinent to the bancassurance channel, which is a significant revenue stream for many financial institutions.
Impact on Banks: Fee Income at Risk
According to JM Financial's analysis, multi-tie-up banks currently receive an average total payout of 33 percent of life new business premium, substantially higher than the 13 percent for single-tie-up banks. The assessment of disclosures by JM Financial indicates that banks such as Ujjivan Small Finance Bank Ltd, AU Small Finance Bank Ltd, IDFC First Bank Ltd, Bandhan Bank Ltd, DCB Bank Ltd, and Axis Bank Ltd derive a relatively higher contribution from insurance fee income. For these lenders, insurance fee income is estimated to contribute approximately 18-25 basis points (bps) to their FY26 return on assets (RoA), a figure that could be negatively affected by the proposed regulatory changes.
NBFCs Also Face Significant Headwinds
The consultation paper also underscores the expanding role of NBFCs in insurance distribution, noting a nearly threefold increase in new business premium sourced through this channel between FY23 and FY25. Payouts to NBFCs have reached 42 percent of premiums, with around 93 percent of this business originating from credit life insurance. JM Financial has identified L&T Finance Ltd, Home First Finance Company India Ltd, Cholamandalam Investment and Finance Company Ltd, Bajaj Finance Ltd, Aadhar Housing Finance Ltd, Mahindra & Mahindra Financial Services Ltd, and HDB Financial Services Ltd as NBFCs with a higher reliance on insurance fee income. For these entities, insurance fee income is estimated to contribute around 40-80 bps to their FY26 RoA, making them particularly vulnerable to the proposed reforms.
Awaiting Final Guidelines
The IRDAI has invited stakeholders to submit their feedback on the consultation paper by October 25, 2026. JM Financial has stated its intention to await the final guidelines before making any revisions to its financial estimates. Following the news of the proposed reforms, shares of several companies mentioned in JM Financial's analysis were observed trading lower, with L&T Finance notably falling by as much as 9.99 percent in Thursday's trade.