Saanvi Arora and Aaditya Vardhan Singh Rathore are 3rd year BBA LLB students at Indian Institute of Management, Rohtak
Introduction
On 11 February 2026, the Reserve Bank of India (‘RBI’) proposed a significant change to the Undertaking of Financial Services Directions, 2025 (‘UFS Directions’) that govern Non-Banking Financial Companies (‘NBFCs’) through the issuance of the Draft Amendment Directions (‘Draft Amendments’).
The proposal in a watershed moment, seeking to allow NBFCs to also undertake insurance distribution through the insurance broking model. Previously, the corporate agency model was the only recognised legitimate method for NBFC participation in the insurance ecosystem. The change forms part of a broader policy push to deepen insurance penetration. It also aligns with the wider agenda of financial inclusion and the Insurance Regulatory and Development Authority of India’s (‘IRDAI’) vision of achieving “Insurance for All by 2047.”
At first glance, the proposal appears to represent a straightforward liberalisation of distribution channels. NBFCs already function as major intermediaries in India’s credit ecosystem. This would further enable them to distribute insurance products, potentially leading to expand access to financial protection products across underserved markets. Yet, the proposal raises a structural regulatory concern. By permitting NBFCs to operate under the broking model without addressing the requirements imposed by insurance regulation, the draft directions place NBFCs in direct and unresolved conflict with the IRDAI’s architecture.
The Existing Landscape: What NBFCs Could and Could Not Do
The Corporate Agency Route
Before the draft amendments, the role of Banks and NBFCs in insurance distribution was channelled through corporate agency framework governed by IRDAI (Registrations of Corporate Agents) Regulations 2015 (‘RCP Directions’). Corporate agents are the entities allowed to solicit and service insurance business for any of the specified category of life, general or health.
Regulation 3 of the RCP Directions permits any eligible corporate entity including Banks and NBFCs to apply for registration as corporate agents and distribute insurance products. In practice, Banks and NBFCs generally operate as ‘Composite Corporate Agents’ as defined under Section 2(j) of the RCP directions which allows them to distribute multiple categories (or any combination or all of them) of insurance products. As corporate agents, they are authorised to solicit, procure and service insurance business on behalf of insurers with whom they have agency agreements.
Regulation 4 further distinguishes between entities for whom insurance distribution is an ancillary activity and those whose principal business is insurance intermediation. Banks and NBFCs fall within the former category and thereby insurance distribution operates as an ancillary activity within their broader financial services operations.
The Broking Route
Insurance brokers, on the other hand, are governed by the IRDAI (Insurance Brokers) Regulations, 2018 (‘IB Regulations’). The framework explicitly states in regulation 13(1), that a registered broker under these regulations must exclusively deal in the business of insurance brokering. Apart from exclusivity, the IB regulations mandate capital requirements based upon the category of broker under Regulation 19 and governance requirements including nomenclature, risk management services, etc. under chapter III of the IB regulations. Owing to the NBFCs fundamental engagement in broader financial activities, the pre – draft amendment framework accurately put the NBFCs in a coherent position by only allowing them to engage in insurance agency business and excluding them from the insurance broking business.
The Proposed Change and Its Framing
The draft amendments to the UFS Directions propose several significant changes to the existing framework; however, the amendment to Regulation 32 has attracted significant attention. It aims to broaden the scope of the work that can be undertaken by NBFCs related to insurance distribution by allowing for the opting of a broking model apart from the existing corporate agency structure.
Regulation 32, clause 1 of the present UFS Directions, consistent with the intent of restricting the activities of NBFCs, referred specifically to composite corporate agents whereas the draft Clause 1 deletes the said phrase attempting to remove the prescribed boundaries. This proposed regulatory change, if implemented, creates operational friction between the regulations of RBI and IRDAI.
The Anatomical Conflict
The regulatory conflict that arises between IRDAI and RBI occurs due to the inconsistencies present in the very structure of India’s insurance broking regime. On closer examination, three doctrinal incompatibilities emerge.
Firstly, Regulation 13(1) of the IB Regulations creates an exclusivity requirement that poses a great challenge for NBFCs. The provision requires that a registered insurance broker should exclusively carry out the business of insurance broking. The regulatory intent behind this requirement is very clear, it is designed to preserve the broker’s independence and ensure that the intermediary’s duty lies towards serving the insured instead of the financial institutions which are prone to prioritising their commercial interests. An NBFC, however, is an entity engaged in financial activities other than insurance broking. Its principal business can range from anywhere between credit facilitation to investment etc. Hence, it is very difficult for an NBFC to satisfy the exclusivity requirement in its existing corporate form.
Allowing NBFCs to perform brokering functions without clear structural separation would place them in immediate non-compliance with the governing insurance regulation. The prior corporate agency model has ensured that such a problem does not arise. Corporate agents represent insurers rather than policyholders and the regulatory framework governing them does not impose a comparable exclusivity requirement. NBFCs have therefore always been able to operate as corporate agents without tension. Banks, by comparison, comply with the exclusivity requirement through institutional separation. Insurance broking activities are conducted through a separate subsidiary, joint venture or designated department usually which is capable of satisfying the exclusivity obligation in its own right. The draft amendment not imposing any equivalent requirement has left the core incompatibility unresolved.
Secondly, The IB Regulations also require formal nomenclature. Registered brokers must include “Insurance Broker”, “Insurance Brokers” or “Insurance Broking” within its legal name. Imposing such a requirement on NBFCs that operate primarily as lending or other institutions would necessitate a substantial alteration of their identity. However, any subsequent alteration would attract RBI scrutiny who is primarily responsible for governing NBFCs. The manner of dealing with such conflicts has not been outlined in the draft amendments.
Thirdly, the broking framework demands the appointment of a principal officer occupying an executive position such as a CEO, managing director or an individual appointed exclusively for the performance of the broking functions. In principle, the idea is that the governance structure should reflect the exclusivity of the business. However, in an NBFC the senior management usually oversees diverse operations. Characterising the CEO or Managing Director as performing insurance broking functions exclusively would be difficult. The exclusivity thus reappears at the governance level and reinforces the problems of compatibility.
The Sabka Bima Sabki Raksha (Amendment) Act, 2025: A Missed Opportunity
The Sabka Bima Sabki Raksha (Amendment) Act, 2025 (‘SBSR Amendment Act’) aimed to bring a significant shift in the insurance industry and has been well received by the industry experts. Along with benefits such as reduced administrative burden and alignment with the Digital Data Protection Act, 2023 (‘DPDP’) provisions, the amendments also expand the intermediary definition, however, it left NBFCs’ role in insurance broking unaddressed.
The present draft amendments would align with the IDRAI regulations if the said act removed the clause concerned, i.e. 13(1) of the IR Regulations, as well, thus ruling out the necessity of ‘exclusivity’ to operate in Insurance brokerage business. In the case of The State of Uttar Pradesh and Others vs Babu Ram Upadhya, the Supreme Court established that subordinate legislation derives its force from the parent statute and cannot become inoperative by implication owing to the limits of delegated legislation. Accordingly, the silence regarding Regulation 13(1) of the IR Regulations cannot be construed as dispensing with the exclusivity requirement. Henceforth, the exclusivity requirement stands strong before the proposed RBI amendment.
Jurisdictional Conflict: Can the RBI allow what IRDAI prohibits
The jurisdictional tussle between RBI and IRDAI requires careful consideration. RBI draws its powers to regulate NBFC activities from Chapter III-B of the RBI Act, 1934. The IRDAI obtains its power over insurance intermediaries from the IRDAI Act, 1999 and the Insurance Act 1938. When an NBFC seeks to act as an insurance broker specifically, the question of regulator supremacy arises. A direction issued by RBI authorising an activity cannot override IRDAI regulation that prohibits the same activity in the same form.
A compliance paradox arises from such stances which are both concurrent yet opposing. The permission stands effectively redundant because an NBFC entity cannot act on RBI’s permission. Acting on such permission would lead to simultaneously being in breach of IB Regulation 13(1).
In case of such conflict, The Financial Stability and Development Council (‘FSDC’) and its Sub-Committee on inter-regulatory coordination can come into the picture for resolution. A joint RBI-IRDAI clarification or an IRDAI carve out is the minimum required before final directions can rightfully and coherently authorise the activity.
The Way Forward and Conclusion
In order to remedy the dilemma following measures may be opted for. One solution would be for the final directions to require NBFCs that wish to enter into insurance broking to do so through a separate structure whether it may be a subsidiary or a department. This would be a replication of the banking model and would lead to the satisfaction of the regulation 13(1) requirements. Simultaneously, IRDAI can also amend the 2018 Regulations to carve out provisions specifically for NBFC subsidiaries or departments making them eligible broker entities. Additionally, requisite adjustments to the name and Principal Officer requirements can also be specified. The RBI should refrain from finalising the broking route for NBFCs through the present directions while the inter-regulatory coordination still pending. The structurally compatible corporate agency route is well-regulated and should remain the operative route until resolution of the jurisdictional conflict.
The liberalisation intent behind the Draft Amendments is well-founded and carries significant potential to enable NBFCs to provide more comprehensive services. However, the framework through which it seeks implementation is still structurally incomplete. Treating corporate agency and insurance broking as interchangeable modes of distribution without addressing the incompatibilities within the IRDAI’s broking framework is bound to create shockwaves that cause the proverbial regulatory earthquake. The issue is therefore not the desirability of NBFC participation in insurance broking but the absence of coherence required to facilitate it. It is important for the regulators to be in alignment instead of isolated liberalisation by a single authority. Accordingly, RBI’s proposed amendments require greater coordination before they can coherently achieve the objectives they seek to advance.
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