Indian banks and small finance banks are seeking additional time to adjust to proposed changes in insurance distribution commissions by the Insurance Regulatory and Development Authority of India (IRDAI). Lenders have raised concerns that changes to commission structures could affect earnings, insurance-selling operations and existing partnerships with insurers.
Banks are submitting feedback individually and through industry bodies, arguing that a transition period would help them revise their business strategies and manage the potential impact on revenue.
Banks Request More Time to Adapt
The Indian Banks’ Association (IBA) and the Association of Small Finance Banks in India (ASFBI) are coordinating industry responses to the proposed reforms. According to the supplied report, the consultation deadline has been extended to October 31, 2026.
Axis Bank Executive Director Subrat Mohanty indicated that lenders could be given six to nine months to prepare for the revised framework. During this period, banks may need to reassess their insurance product mix, sales volumes and alternative sources of fee-based income.
The requested adjustment period reflects the operational changes that may be necessary if the proposed commission framework alters the economics of distributing insurance products through banking channels.
Why Commission Reforms Matter to Banks
Insurance distribution has become an increasingly important source of non-interest income for banks. Under the 2023 Expense of Management (EOM) framework, commission caps were removed, making insurance-related earnings a more significant consideration for lenders.
JM Financial estimates cited in the report indicate that insurance distribution income rose from 3.5% of the banking sector’s profit before tax in FY23 to 5.1% in FY26.
Life insurance accounts for approximately 84% of total insurance income, according to the figures provided. This concentration means changes affecting life insurance distribution could have a substantial influence on banks that rely heavily on commissions.
The concern is not limited to the amount of commission received. Lenders also need to consider the staff, technology, compliance processes and customer-service arrangements required to maintain insurance distribution operations.
Private Banks Have Different Levels of Exposure
The potential effect of the proposed reforms varies considerably across lenders. Estimates attributed to JM Financial show that insurance income represents different proportions of profit before tax among major private banks.
Axis Bank: 12.5% of FY26 profit before tax.
HDFC Bank: 7.3%.
Kotak Mahindra Bank: 5.8%.
ICICI Bank: 0.6%.
The report also identifies higher exposure among several mid-sized lenders. Insurance income is estimated to represent 48.8% of FY26 profit before tax at IDFC First Bank, 30.8% at Bandhan Bank, 28.5% at RBL Bank and 21% at DCB Bank.
These figures suggest that the financial consequences could differ significantly from one institution to another. Banks with a greater reliance on insurance commissions may need more extensive adjustments to their revenue strategies if the final rules materially reduce this income.
Small Finance Banks Could Face Greater Pressure
Small finance banks may be particularly sensitive to commission changes because insurance distribution contributes substantially to earnings at some institutions.
JM Financial estimates that insurance income for small finance banks ranges from 13 to 25 basis points of average assets, compared with one to three basis points for public sector banks.
The report gives the following estimates of insurance income as a share of FY26 profit before tax:
Equitas Small Finance Bank: 70.7%.
Ujjivan Small Finance Bank: 19.2%.
AU Small Finance Bank: 14.3%.
The figures highlight why smaller lenders are seeking clarity on implementation timelines. Where commission income represents a large share of profitability, a rapid change in the framework could require substantial adjustments to business planning.
However, the actual impact will depend on the final rules, the commission structures adopted by insurers and banks, and the ability of lenders to develop alternative revenue sources.
Industry Wants Distribution Costs to Be Considered
Industry representatives argue that the revised framework should account for the expenses involved in distributing and servicing insurance policies. These include staffing, technology infrastructure, compliance, customer support and ongoing policy servicing.
The Finance Industry Development Council has requested a five-year transition period for non-banking financial companies (NBFCs), according to the supplied report.
Ujjivan Small Finance Bank Interim Chief Executive Officer Carol Furtado said the lender remains engaged with insurance partners and industry associations while awaiting the final guidelines.
The industry's position centres on balancing regulatory changes with the practical costs of maintaining distribution networks. A transition period, lenders argue, would give institutions time to revise operations without making abrupt changes to their business models.
What the Proposed Changes Could Mean for the Banking Sector
The proposed IRDAI reforms could influence how banks structure insurance partnerships, manage fee income and plan future distribution activities. The implications may be most significant for institutions that depend heavily on commissions for profitability.
For financial institutions, reviewing revenue concentration, operating expenses and compliance processes is an important part of preparing for regulatory change. Appropriate business advisory services can support organisations in assessing business risks and planning operational or financial adjustments.
The final outcome will depend on the regulatory framework IRDAI adopts and the transition arrangements, if any, granted to affected institutions. Until the final guidelines are issued, the industry's requests should be understood as proposals rather than confirmed implementation terms.