RBI to Review and Submit Views on IRDAIs Sweeping Insurance Distribution Overhaul — October 7, 2026

The Reserve Bank of India (RBI) is assessing the implications of the Insurance Regulatory and Development Authority of India’s (IRDAI) proposed overhaul of insurance distribution and will formally submit its feedback to the insurance watchdog.

Speaking at a post-monetary policy press conference in Mumbai on October 7, 2026, RBI Governor Sanjay Malhotra stated that while the matter primarily falls within IRDAI's supervisory jurisdiction, the central bank is weighing its effect on regulated lenders.

"This is in the realm of the insurance regulator to decide as to what and how they want to do the distribution of insurance products. We will give our comments," Malhotra said. "We have not formed our view on this. We will give our comments to them."

The Regulatory Shakeup Under Review

The consultation paper issued by IRDAI on September 23, 2026, titled Recalibrating Economics of Insurance Distribution, seeks to reset distributor remuneration, lower structural operating costs, and eliminate pervasive mis-selling across distribution networks.

Key measures proposed in the IRDAI paper include:

• Expenses of Management (EoM) Glide Path: Life insurers would be mandated to lower their Expenses of Management to 15% of gross direct premium within two years and down to 12.5% within five years. For general insurers, the targets are proposed to drop to 25% within two years and 20% over five years.
• Product-Wise Commission Caps: Reintroduction of product- and channel-specific commission ceilings ranging between 5% and 20% for first-year premiums.
• Prohibition on Forced Loan Bundling: A ban on financial institutions mandating credit-life or motor insurance as a compulsory pre-condition for disbursing retail or corporate loans. Packages would require transparent disclosure of standalone borrowing costs, explicit customer consent, and separate premium collections.
• Curbing Incentive Structures: Prohibiting volume-linked or contest-based incentives—including gifts, international trips, and performance cash bonuses—for bank and NBFC sales personnel.

Relevance for Banks and NBFCs

The banking and shadow-banking sectors have a heavy financial stake in the outcome of these regulatory shifts. Bancassurance networks serve as the primary engine for private life insurers, generating approximately 45% of total life insurance premiums with average commission payouts of around 10%. In general insurance, bank channels generate about 5% of premiums but account for an average commission yield of 26%.

For private banks and NBFCs, fee income generated via credit-linked distribution and attachment products represents a sizable portion of non-interest revenues. Tighter limits on commissions, coupled with the unbundling of insurance from loan disbursements, could dampen non-interest fee lines and cross-sell penetration rates across lending balance sheets.

Market participants and industry bodies have actively engaged with the consultation paper, which remains open for public and stakeholder feedback until October 25, 2026. The RBI's forthcoming submission will likely play a key role in shaping how the two regulators balance consumer protection against the operational economics of bank-led financial distribution.

Tags: RBI IRDAI Bancassurance Banking Sector Insurance Sector PB Fintech