What changed
RBI issued a master circular consolidating all existing instructions on NBFC entry into insurance business, credit card issuance (including co-branded), and marketing/distribution of mutual fund products as of June 30, 2010. No new policy changes were introduced; the circular merely compiled previous circulars into a single reference document.
What it means for you
NBFCs now have a single source for compliance on insurance, credit card, and mutual fund distribution activities, reducing ambiguity. For insurance, NBFCs can act as agents without RBI approval if no risk participation, but joint ventures require case-by-case approval with a 50% equity cap. Credit card business (including co-branded) requires prior RBI approval; for non-deposit taking NBFCs, minimum net owned fund of Rs.100 crore is needed. NBFCs may also market mutual fund products with prior approval.
What you must do
- Review your NBFC's eligibility for insurance agency business (fee-based, no risk) and ensure compliance with conditions before starting without RBI approval.
- If planning insurance joint venture or investment, apply to your regional RBI office with statutory auditor-certified documents and adhere to the 50% equity cap.
- For credit card business (including co-branded), confirm net owned fund exceeds Rs.100 crore (for non-deposit taking NBFCs) and obtain prior RBI approval; note that debit/smart/stored value/charge cards are prohibited.
- Ensure no departmental conduct of insurance business; use a subsidiary or joint venture structure only.
- If interested in marketing mutual fund products, apply for prior RBI approval as per eligibility criteria.
Who it affects
All Non-Banking Financial Companies (NBFCs) registered with RBI, NBFCs seeking to enter insurance business as agents or joint venture participants, NBFCs planning to issue credit cards
Can an NBFC start insurance agency business without RBI approval?
Yes, if the NBFC acts as an agent on a fee basis without risk participation and meets the conditions specified in the circular. No prior RBI approval is needed for such agency business.
What is the maximum equity an NBFC can hold in an insurance joint venture?
Normally, the maximum equity contribution is 50% of the paid-up capital of the insurance company. RBI may allow higher equity on a selective basis, pending divestment within a prescribed period.
Are NBFCs allowed to issue debit cards or smart cards?
No. As per the circular, NBFCs are not permitted to issue debit cards, smart cards, stored value cards, or charge cards. Only credit card business (including co-branded) is allowed with prior RBI approval; for non-deposit taking NBFCs, a minimum net owned fund of Rs.100 crore is required.
Can NBFCs market mutual fund products?
Yes, NBFCs may, selectively, market and distribute mutual fund products as agents of mutual funds with prior RBI approval, for an initial period of two years and subject to review.