Can IRDAI’s insurance reforms impact NBFCs? Jefferies warns L&T Finance, Piramal Finance, others are most exposed

Insurance regulator IRDAI’s proposed overhaul of the insurance sector rattled insurance stocks on Thursday, but Jefferies has warned that non banking financial companies (NBFC) like L&T Finance, Piramal Finance and others too may not be completely safe.

The Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper titled ‘Recalibrating Economics of Insurance Distribution’, proposing effort-based caps on the commissions insurers pay to distributors, along with tighter expense-of-management limits for insurers.

This triggered a massive selloff in insurance stocks, with Policybazaar-parent PB Fintech shares plunging 34% and wiping off significant portions of investors’ wealth amid the bloodbath.


While insurance distributors are the direct victims, Jefferies highlighted that NBFCs derive part of their fee income from insurance distribution and should be negatively impacted if IRDAI’s reforms take effect.

Also read | PB Fintech shares crash 34% after IRDAI’s reform plans. What Citi and Jefferies are warning

How reforms in insurance sector can impact NBFCs

The international brokerage noted that the insurance regulator’s consultation paper proposed tighter commission norms and 50-66% commission cuts depending on the insurance products FY28 onwards. IRDAI has sought public opinion on draft norms over the next one month.

Among the major NBFCs, L&T Finance, Piramal Finance and Cholamandalam Investment Finance Company have higher exposure, while Shriram Finance has lower exposure based on FY26 insurance commission and FY27 profit estimates, Jefferies said.

The international brokerage’s graphs indicated that L&T Finance, Piramal Finance, Cholamandalam Investment Finance Company, HDB Financial Services, M&M Financial Services, Home First Finance Company, Bajaj Housing Finance, Poonawalla Fincorp and IIFL Finance reported FY26 insurance income comprised 5-20% to FY27 profit before tax estimates.

Also read | Stocks to buy: Jefferies lists 11 NBFC picks with up to 48% upside potential. Do you own any?

This comes days after Jefferies hosted nine of the companies and found that most reported healthy disbursement growth and resilient asset quality in the July-September quarter so far. Cost of funds (CoF) remains steady but could inch up if the RBI raises rates, while most companies expect net interest margins (NIMs) to remain range-bound in the near term.

Jefferies assigned ‘Buy’ calls to 11 non-banking financial companies (NBFCs), with target prices implying up to 48% upside potential. It also has ‘Hold’ ratings on Mahindra Finance, LIC Housing Finance, Bajaj Housing Finance, SBI Cards, Muthoot Finance, Piramal Finance and IIFL Finance.

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.