These safeguards have been introduced to ensure that only the banks who have the financial wherewithal take the plunge into the marketing of insurance products and to discourage non serious players. Moreover, the collapse of two insurance companies in Japan, three in Korea and many in USA has left our regulators extra cautious. The guidelines are more rigorous for the banks planning to assume underwriting risk and are relatively less rigid if the banks only intend to distribute the insurance products. The cross selling of the insurance products by the bank along with their conventional products can be an additional contributor to the fee based activity for them. They already have the access to a huge customer database which can be utilized to sell these products.
Banks are already in the business of lending and while doling out house loans, car loans etc.
So they can always sell their proprietary insurance products or the products of the companies they have tied up with. Additionally the fee based activities do not attract the prudential norms of SLR requirements which release the funds of the banks for chanellising in other fruitful activities. The banks with their branches spread out across the length and breadth of the country can penetrate into the rural areas at a low cost which very well serves the purpose of the insurance companies which are mandatorily required to have a certain percentage of their business flowing from the rural areas. There exists substantial synergies, which can be derived from the insurance operations by the banks because they would not be required to set up a very extensive infrastructure for the distribution of the insurance products. The existing infrastructure of the strong distribution network only can be exploited by the banks for this purpose and they will need to assign one department for the distribution and marketing of the insurance products.