Banks, NBFCs and insurance stocks could be in for a shake-up as the Insurance Regulatory and Development Authority of India (IRDAI) proposes sweeping changes to insurance distribution.
The proposed rules could put pressure on commission income, distribution margins and new-business growth, with the impact likely to be felt most by financial companies that have built sizeable fee-income streams around insurance.
For banks, the biggest concern is the potential hit to bancassurance income, while NBFCs could face pressure because of their growing reliance on credit-linked insurance. Insurance companies and broker-led platforms could also feel the heat from lower commission caps, tighter expense-management limits and greater transparency requirements.
The proposed changes could therefore create near-term earnings pressure across parts of the financial sector, although the impact will vary significantly by business model and dependence on insurance income. Analysts expect the final commission structure and implementation timeline to determine the eventual impact on individual stocks.
Impact on Banks, NBFCs, Insurance stocks
According to JM Financial said draft specifically highlights the bancassurance channel, noting that multi-tie-up banks earned an average total payout of 33% of life new business premium, compared with 13% for single-tie-up banks.
The brokerage also highlighted the rising importance of NBFCs in insurance distribution. New business premium sourced through NBFCs nearly tripled during FY23-25, while payouts to them reached 42% of premium, with around 93% of the business coming from credit life insurance.
IRDAI has sought feedback until October 25, 2026, and JM Financial said it would await the final guidelines before revising its estimates, if required.
Meanwhile, Vinit Bolinjkar, Head of Research at Ventura, said the consultation paper was near-term negative for insurance stocks, particularly distributors and insurers dependent on high-cost channels. He said proposed commission caps, tighter expense-management limits and greater transparency could pressure new-business growth and margins, while restrictions on loan-linked insurance bundling could affect distribution volumes.
“IRDAI’s consultation paper is near-term negative for insurance stocks, particularly distributors and insurers dependent on high-cost channels. Proposed caps on commissions, tighter expense-management limits and greater transparency could pressure new-business growth and margins.” — Vinit Bolinjkar, Head of Research, Ventura.
Bolinjkar added that banks could see a milder impact, particularly those with significant bancassurance and credit-protection income. Proposed commission limits of 2-5% for lenders, along with restrictions on compulsory insurance bundling with loans, could reduce fee income from single-premium policies.
Stocks most impacted
According to JM Financial’s assessment, Ujjivan, AU Small Finance Bank, IDFC First Bank, Bandhan Bank, DCB Bank and Axis Bank have around 18-25 basis points of FY26 RoA coming from insurance fee income.
Among NBFCs, L&T Finance, Home First Finance, CIFC, Bajaj Finance, Aadhar Housing Finance, Mahindra & Mahindra Financial Services and HDB Financial Services have around 40-80 basis points of FY26 RoA coming from insurance fee income, which could be negatively impacted.
Among large private banks, Axis Bank is the most dependent on insurance income, according to JM Financial. Insurance income accounted for 12.5% of PBT and 18 basis points of average assets in FY26.
Most mid-sized and smaller private banks, except Federal Bank and City Union Bank, have high dependence on insurance income, at 13-21 basis points of assets. PSU banks rely the least on this income, with insurance contributing 1-3% of PBT and 1-3 basis points of assets, and are therefore expected to see the smallest impact.
Small finance banks (SFBs) are the most exposed segment relative to their balance sheets. Insurance income contributes 13-25 basis points of assets and 14-71% of PBT, according to JM Financial.
The pressure extends to NBFCs, particularly group-linked entities such as Bajaj Finance, Aditya Birla Finance, Tata Capital, HDB Financial Services and CIFC. JM Financial said these companies could face additional scrutiny because the paper flags potential conflicts of interest arising from common directors between insurers and their promoter NBFCs.
L&T Finance is the most vulnerable in JM Financial’s coverage. Insurance commission accounted for around 26% of its FY26 PBT and 0.80% of average assets, the highest in the brokerage’s coverage on both measures.
Poonawalla Fincorp, CIFC, HDB Financial Services and Mahindra & Mahindra Financial Services follow. Their income comes mainly from credit-linked and motor insurance, which are targeted by the draft through the bundling ban, caps on staff incentives and lower motor commissions.
Poonawalla Fincorp, where insurance income accounted for 38.4% of PBT in FY25, is also highly exposed. For Mahindra & Mahindra Financial Services, HFFC and Poonawalla Fincorp, the share of insurance income has risen sharply over FY24-26, putting their growing reliance on this income at risk.
Adding to the list, Vinit Bolinjkar said PB Fintech and other broker-led platforms appear most vulnerable because their earnings are directly linked to commissions and take rates. Among banks, Axis Bank and HDFC Bank could face greater exposure, while IndusInd Bank and IDFC First Bank could see a more meaningful earnings impact relative to profits, he added.
Stocks least impacted
Against this backdrop, investors could focus on companies with relatively lower dependence on insurance commissions or stronger distribution economics, according to the analysts.
Vinit Bolinjkar noted, on the insurance side, LIC and SBI Life may be relatively better placed due to their stronger agency networks and lower distribution-cost intensity.
On the other hand, SBI, ICICI Bank and Kotak Mahindra Bank appear comparatively better positioned because of their lower dependence on such commissions. Ventura said the overall impact should remain manageable, but investors would need to monitor the final commission structure and implementation timeline.
“SBI, ICICI Bank and Kotak Mahindra Bank appear comparatively better positioned because of lower dependence on such commissions. The overall impact should remain manageable, but investors must monitor the final commission structure and implementation timeline.” — Vinit Bolinjkar, Head of Research, Ventura
JM Financial also identified Shriram Housing Finance, Aditya Birla Finance, Aavas, CreditAccess Grameen and Bajaj Housing Finance as relatively better placed because insurance accounts for only a small part of their profits.
Bajaj Finance, Tata Capital, PNB Housing Finance and Fedfina fall into the middle category, with JM Financial expecting any impact on these companies to remain manageable.
It added that ICICI Bank is at the other end of the spectrum, with insurance income accounting for just 0.6% of PBT and around 1 basis point of assets, making it the least exposed among the large private banks.
With IRDAI’s consultation process still underway, the final rules will be crucial in determining how much of the proposed changes ultimately flows through to bank, NBFC and insurance earnings.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
