The draft guidelines has propounded that any NBFC registered with RBI having net-owned fund of Rs 5 crore will be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation. Announcing the draft guidelines for the entry ofNBFCs into insurance sector, the central bank has stipulated though the maximum equity contribution of an NBFC in its insurance venture will be capped at 50 per cent, on a selective basis it may permit a higher equity contribution by a promoter up to 74 per cent.

The other eligibility criteria for joint venture participant will be: the capital adequacy ratio of the NBFC engaged in loan and investment activities holding public deposits should be not less than 15 per cent and for other NBFCs at 12 per cent; the level of non-performing assets should be not more than 5 per cent of the total outstanding leased/hire purchase assets and advances taken together; and the NBFC should have net profit for the last three continuous years.

It also said the track record of the performance of the subsidiaries, if any, of the concerned NBFC should be satisfactory. All NBFCs registered with RBI which satisfy the eligibility criteria will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards, said the draft guideline.

The RBI will give permission to NBFCs on case-to-case basis. It should be ensured that risks involved in insurance business do not get transferred to the NBFC and that the NBFC business does not get contaminated by any risks which may arise from insurance business.

In case where a foreign partner contributes 26 per cent of the equity with the approval of Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one NBFC may be allowed to participate in the equity of the insurance joint venture. No NBFC would be allowed to conduct such business departmentally. A subsidiary or company in the same group of an NBFC or of another NBFC engaged in the business of an non-banking financial institution or banking business will not normally be allowed to join the insurance company on risk participation basis, the RBI said.

For NBFCs not eligible as joint venture participants, the RBI rules permit them to make investments up to 10 per cent of their owned funds or Rs 50 crore, whichever is lower.

"Such participation shall be treated as an investment and should be without any contingent liability for the NBFC," the RBI statement said.

The central bank said the capital adequacy ratio of the NBFCs will have to be minimum 12 per cent if they are in the equipment leasing/hire purchase finance activities and 15 per cent in case of a loan or investment company.These companies must have three years of continuous profits and minimum NPA levels of 5 per cent of total outstanding leased/hire purchase assets and advances.

"All NBFCs registered with RBI entering into the insurance business will be required to obtain prior approval of the Reserve Bank. The Reserve Bank will give permission to NBFCs on a case to case basis keeping in view all relevant factors," the RBI said.