Bank and Financial Stocks Fall as IRDAI Proposes Strict Caps on Bancassurance Commissions — September 24, 2026

Indian banking and non-banking financial stocks suffered heavy losses following draft regulatory proposals from the Insurance Regulatory and Development Authority of India (IRDAI) targeting high distributor payouts and bank-led insurance sales.

The regulatory body released a two-part consultation paper examining distribution regulations and Expense of Management (EoM) limits. The regulator raised sharp questions over whether lucrative fees collected by corporate agents, especially commercial banks, reflect genuine operational work or simply monetize privileged access to their captive depositor bases.

The Nifty Financial Services index dropped 2%, while the Nifty Bank index fell over 1.5%. The declines outpaced benchmark indices Nifty 50 and Sensex, which declined around 1% during trade.

Key Stock Movements:

• AU Small Finance Bank fell 4.75% to lead banking losses.
• IndusInd Bank shed 4.69%, closing near ₹914.30.
• IDFC First Bank dropped 3.86% to ₹84.51.
• Axis Bank tumbled 3.49% to ₹1,199.80.
• Non-banking heavyweights Bajaj Finance and Bajaj Finserv declined by over 3% each alongside Cholamandalam Investment.
• Heavyweights HDFC Bank and Kotak Mahindra Bank slid 1.42% and 1.63% respectively, while State Bank of India fell 0.81%.

Details of the Proposed IRDAI Overhaul

The regulator's proposed framework aims to transition the insurance sector away from an aggressive "push" sales model toward an effort-driven and consumer-focused distribution structure:

• Curbs on Credit-Linked Insurance: For banks and non-banking financial companies (NBFCs) selling insurance bundled with credit products, commissions would be restricted to a range of 2% to 5%. The regulator has also proposed an explicit ban on mandatory bundling of insurance policies with loans.
• Life Commission Slashes: Pure-term first-year life insurance commissions for corporate entities like banks and aggregators are proposed to be capped at 25%, down sharply from prevailing industry averages exceeding 50%.
• Health and Motor Reductions: New health insurance commissions would be capped at 15% to 20%, while health renewal payouts would be halved to 5% to 10%. Motor own-damage (OD) commissions would face limits of 5% to 10%.
• Tighter EoM Framework: Life insurers face a glide path reducing overall Expense of Management limits to 15% within two years and 12.5% within five years. General insurers' EoM ceiling would decline from 30% to 20% over a five-year horizon.

Impact on Bank Earnings and Fee Income

Brokerage analyses from HSBC and Macquarie indicated that lenders where insurance distribution forms an outsized portion of operating earnings are the most vulnerable. Data shows insurance fees represent a substantial portion of pre-provision operating profit (PPOP) across several private lenders, including 13.7% for IDFC First Bank, 11.3% for Axis Bank, 11.2% for IndusInd Bank, and 10.2% for AU Small Finance Bank. By comparison, ICICI Bank maintains the lowest exposure among major peers, with insurance distribution accounting for roughly 1.5% of PPOP.

The proposed regulations are open for industry and public feedback until October 25, with final implementation targeted for FY28. If enacted in their current form, the rules are expected to compress non-interest fee pools for corporate agents and lenders across India's financial sector.

Tags: IRDAI Nifty Bank Axis Bank IDFC First Bank Bajaj Finance Nifty Financial Services