Sale of fast-growing group credit life cover could be hit

The Reserve Bank of India's (RBI) proposal to tighten regulations on the sale of financial products by banks may adversely affect the burgeoning group credit life insurance market, a sector closely linked to retail lending. Currently generating approximately ₹30,000 crore in premiums, this insurance segment has been rapidly expanding alongside the growth of home and retail loans. According to industry experts, the most significant implications of the RBI's draft guidelines will be felt in the sale of group credit life policies, which are often bundled with retail loans. The RBI's new rules prohibit banks from making the purchase of third-party products, such as insurance, a condition for receiving loans, aiming to prevent misleading sales practices. This shift in policy is intended to enhance consumer protection by ensuring that customers are not misled into purchasing add-on products when applying for loans. With India’s life insurance market having generated ₹8.86 lakh crore in premiums last year, the group credit life segment, which provides coverage for outstanding loans in case of a borrower's death, is set for a transformation as banks adjust their distribution strategies in response to the new regulations.