Irdai commission curbs spark sharp selloff in insurers, banks and NBFCs

Mumbai: Shares of insurers, insurance distributors, banks and non-banking finance companies sold off sharply on Thursday after the Insurance Regulatory and Development Authority of India (Irdai) proposed lower commission caps and tighter expense norms for the insurance industry. The proposals have raised concerns over the outlook for businesses including banks and finance companies that earn sizeable fees from selling insurance.

PB Fintech, parent of online insurance distributor PolicyBazaar, plunged 36%, its worst single-day decline since its November 2021 debut. Among insurers, Max Financial Services fell 9.8%, HDFC Life Insurance declined 6.1%, and ICICI Prudential Life Insurance fell 4.2%.

Also Read: Irdai proposes big changes to insurance commissions; companies, agents may feel the pinch


Among NBFCs, L&T Finance slipped 9%, Bajaj Finance fell 5.5%, Cholamandalam Investment and Finance declined 5%, and Bajaj Finserv lost 4.1%.

Axis Bank fell 4.7%, IndusInd Bank declined 4.2%, Yes Bank lost 3.4%, Kotak Mahindra Bank fell 1.9%, SBI declined 1.5%, and HDFC Bank fell 1.2%. The Nifty Bank index fell 2%, while the Nifty Financial Services index declined 2.4%.

"The immediate weakness reflects regulatory uncertainty, but broader concerns remain around structurally lower distribution payouts, margin pressure, changing sales economics and potential earnings impact, particularly for distribution-heavy insurance businesses," said Ravi Singh, chief research officer at Master Capital Services.

Irdai's consultation paper on insurance distribution proposes lower Expense of Management (EoM) limits for life and general insurers and segment-level caps on commissions. The proposed framework also seeks changes in bancassurance, NBFC-led distribution, loan-linked insurance and distributor remuneration.

Also Read: IRDAI proposes clawback of commissions in case of mis-selling

"The proposals to lower the expense of management limits and move to segment-specific commissions hit distributors and digital platforms hardest, because their earnings depend directly on commission rates. That is why distribution-led businesses have taken a sharper knock than the insurers themselves," said Rajesh Singla, CEO and fund manager at Alpha AMC.

Banks

Banks more dependent on insurance distribution could face a bigger impact if the proposals are implemented. JM Financial said insurance distribution income across its bank coverage rose from 3.5% of profit before tax in FY23 to 5.1% in FY26.

Among large private banks, Axis Bank derives the most from insurance distribution fees, while ICICI Bank derives the least, JM Financial said. Small finance banks are more dependent on such income relative to their balance sheets, while public sector banks have a comparatively smaller contribution, the brokerage said.

NBFCs

Analysts said NBFCs too are among the top distributors of insurance products.

"NBFCs derive part of their fee income from insurance distribution and should be negatively impacted," said Jefferies in a client note.

Among major NBFCs, L&T Finance, Piramal Finance and Cholamandalam Investment and Finance have higher exposure, while Shriram Finance has lower exposure based on FY26 insurance commission, said the brokerage.