Exclusive: India’s insurance regulator agrees with t​his unwritten rule from RBI

Insurance Regulatory and Development Authority of India (IRDAI) has finally thrown its hat in the ring with respect to the long standing debate around the Reserve Bank of India (RBI) discouraging banks from holding more than 30 percent in insurers.

While there is no written rule, it has been long understood that the central bank would prefer if banks' ownership in insurance companies stays under 30 percent.

Speaking exclusively to CNBC-TV18, IRDAI Chairman Debasish Panda weighed in on the matter. "RBI is right in its own way to ask banks to bring down their stake in insurance companies to stipulated levels," said Panda.

While the IRDAI Chairman made it clear that the insurance authority does not have a stated view on the matter, for banks, according to him, it is a choice between investing their money in insurance companies or using it to extend credit which is their core business.

*Recently, the RBI allowed Axis Bank to acquire 20 percent stake in Max Life Insurance.

While banks may be constrained in their ownership of insurance companies, Panda feels there is no dearth of investors willing to put money into the insurance sector in India. He also doesn’t see any capital constraint for existing insurance companies or those wanting to set up a new entity.

Responding to a question about the weak response from foreign investors in the insurance sector, Panda said that the new 74 percent cap with minimum conditions on management control will certainly attract lot of interest.