Bandhan Bank sees ₹200 crore hit to third-party income from Irdai’s proposed distribution overhaul
MUMBAI: Bandhan Bank expects a hit of about ₹200 crore a year to income from selling insurance and other third-party products if the insurance regulator’s proposed changes to distribution economics take effect in their current form. Managing director and chief executive Partha Pratim Sengupta said the lender expects to recover most of the shortfall over time by shifting its focus to other products and markets.
“It is a setback at the industry level, and it will affect the entire industry as a whole. Our bank is also not insulated,” Sengupta said at a media call on Wednesday after the bank announced its earnings for the July-September quarter of fiscal year 2027 (Q2FY27). Third-party income could fall by around ₹200 crore on an annual basis, he said, adding that “we will be able to recover” as the bank shifts its focus to other areas.
The proposed changes by the Insurance Regulatory and Development Authority of India (Irdai) threaten a source of fee income for banks, which distribute insurance policies and other financial products. For Bandhan Bank, the estimated hit underscores the challenge of replacing that revenue if the regulator tightens the rules governing how insurers pay intermediaries.
The estimated hit is equivalent to about 7% of the bank’s other income of ₹2,734 crore in FY26. Bandhan Bank earned ₹156 crore from distributing third-party products in the July-September quarter, including ₹6-7 crore from mutual funds, with most of the remainder coming from insurance, Sengupta said.
Bandhan Bank reported a net profit of ₹622 crore for the September quarter, compared with ₹112 crore a year earlier, largely because of lower provisions. Other income, which includes fees from third-party distribution, rose 29% year-on-year to ₹705 crore.
In September, Irdai released a consultation paper titled Recalibrating Economics of Insurance Distribution, proposing changes to how insurers compensate banks and other intermediaries for selling policies. The proposals would reinstate hard caps on distribution fees, include perks and incentives within those limits, and tighten insurers’ overall spending caps. Together, the changes could reduce the amount insurers pay Bandhan Bank for the same volume of sales, lowering the lender’s income.
Sengupta said the bank would face the estimated impact only if the rules are implemented in their current form. He expects Irdai to moderate the proposals following industry objections. “It has been represented by many banks and also many insurance companies, so overall we are expecting some moderation,” he said.
Bandhan Bank submitted its feedback directly to Irdai rather than through the Indian Banks’ Association. Sengupta argued that commissions should not be assessed solely as a percentage of premiums, but should also reflect the effort required to sell a policy. “Insurance is a tough product to sell,” he said.
He also told the regulator that implementing the proposed changes would require sizeable technology investments, particularly to guard against mis-selling.
To offset the potential loss, Bandhan Bank plans to expand insurance sales in tier 3 and tier 4 towns, where commission rates are higher and its presence is stronger than that of many other banks. It also wants to sell more mutual funds, which generate recurring trail income, and is working with insurers to develop group and individual products. Sengupta said the strategy was still being worked out.
The bank’s insurance business is largely retail-focused and concentrated in semi-urban and rural markets. “These are consent based. We do not undertake any credit-linked insurance,” Sengupta said.
Separately, Bandhan Bank has raised only about $25 million through foreign currency non-resident (FCNR) deposits, including around $12 million through the leverage route, Sengupta said. The bank has yet to use the Reserve Bank of India’s facility for raising foreign-currency borrowings with swap support.
“It is under examination. We have not done any transaction till now,” he said.
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