New Delhi: Banking, financial services and insurance stocks came under significant selling pressure on Thursday after the Insurance Regulatory and Development Authority of India (IRDAI) proposed sweeping changes to insurance distribution norms, including tighter limits on insurers’ expenses and lower commission caps.
The proposed changes added to investor concerns amid weak global market cues and rising crude oil prices. The NIFTY Bank index fell more than 2%, or 1,135.65 points, at 2:21 pm, with 13 of its 14 constituents trading lower.
Why banks were affected
Although the IRDAI proposals are primarily aimed at insurers and insurance distributors, banks also faced pressure because many lenders distribute insurance products through bancassurance channels. Banks earn fees or commissions by selling insurance policies to their customers.
Any reduction in the amount insurers can pay distributors could therefore put pressure on banks’ bancassurance income. The extent of the impact, however, is expected to vary depending on individual banks’ product mix, distribution model and dependence on insurance-related fees.
Jefferies said the proposals could be slightly negative for banks’ bancassurance fees, particularly those linked to credit-protection products. These products are often sold as single-premium policies and currently attract relatively high commissions.
Based on FY26 bancassurance commissions compared with normalised FY27 profits, Jefferies identified IndusInd Bank and IDFC First Bank as having relatively higher exposure, while ICICI Bank and public-sector banks were seen as having lower exposure. Macquarie, meanwhile, said Axis Bank and HDFC Bank could face greater impact than SBI, ICICI Bank and Kotak Mahindra Bank.
Proposed changes for insurers
IRDAI has proposed recalibrating the EoM framework through a phased five-year glide path. Under the proposal, the EoM limit for life insurers would move towards 12.5%, while that for general insurers would decline to 20%.
The regulator has also proposed changing commission structures, with limits varying according to factors such as insurance segment, line of business, distribution channel, product complexity and the effort required to sell and service policies.
HSBC said the proposed EoM limits were stringent and, if implemented, could have broad implications for insurers, brokers and lenders. It identified SBI Life as relatively less exposed, while HDFC Life and Max Financial Services could face a higher potential impact.
Macquarie similarly viewed LIC and SBI Life as relatively insulated, while noting that higher commission caps for tied agents could alter the economics of different distribution channels.
Insurance distributors face direct impact
Insurance distributors were also affected by the proposed changes. PB Fintech and Turtlemint Fintech Solutions faced sharper pressure because their revenues are more directly linked to insurance distribution commissions.
Jefferies said the consultation paper proposes commission reductions of around one-half to one-third across health, term and motor insurance. It estimated that a 10% reduction in new-business commission rates could result in a 10-12% decline in earnings for the affected distributors.
Stocks under pressure
At the time cited in the report, HDFC Bank was down nearly 2% at ₹730.15, while Axis Bank declined more than 5% to ₹1,179.90. SBI fell 1.75% to ₹976.70, while IndusInd Bank dropped 4.38% to ₹917.30 on the NSE.
The proposed IRDAI changes remain subject to the regulatory consultation process, with their eventual impact depending on the final framework and implementation.
