Insurance Bill 2025: How New Commission Caps Could Affect Major Indian Banks

Shares of large private banks like HDFC Bank, ICICI Bank, and Axis Bank are under the spotlight this Tuesday. The proposed Insurance Bill 2025 is expected to introduce a new limit (cap) on insurance commissions, which could change how much banks earn from selling insurance products.

This move will specifically affect banks that rely on “bancassurance”—the practice of selling insurance through bank branches.

New Regulatory Powers for IRDAI

Sources told NDTV Profit that the Insurance Bill 2025 will give the Insurance Regulatory and Development Authority of India (IRDAI) more power. The regulator will be able to:

• Set strict limits on commissions and rewards paid to agents or banks.
• Tighten oversight on payouts and financial disclosures.
• Decide exactly how much an intermediary can earn from a policy.

The Largest Earners from Insurance

In the last financial year, HDFC Bank, ICICI Bank, and Axis Bank earned the most in absolute terms from insurance commissions.

• HDFC Bank: Earned ₹6,308 crore, which is about 7% of its profit before tax.
• Axis Bank: Earned ₹3,174 crore. This accounts for 9% of its profit before tax, making it more sensitive to these new rules.
• ICICI Bank: Reported ₹447 crore in commission income, roughly 0.7% of its profit before tax.

Impact on Mid-Sized and Small Finance Banks

While big banks earn higher total amounts, many mid-sized and small finance banks (SFBs) depend much more heavily on this income to stay profitable.

• Equitas SFB: Insurance fees made up a massive 47.2% of its profit before tax.
• IndusInd Bank: Earned ₹1,268 crore, representing 35.1% of its profit before tax.
• RBL Bank: Insurance income accounted for nearly 34% of its profits.
• DCB Bank: Commissions made up over 20% of its profit before tax.

Other banks like AU Small Finance Bank (13.2%) and Bandhan Bank (10.3%) also have significant exposure. Meanwhile, lenders like Kotak Mahindra Bank and Federal Bank have more moderate exposure, between 3% and 7%.

Public Sector Banks Stay Resilient

Public sector banks (PSBs) appear to be safer from these changes. For example:

• SBI: Earned ₹2,763 crore, but this was only 2.9% of its total profit.
• Bank of Baroda and PNB: Only get about 1–2% of their profits from insurance commissions.

What This Means for the Future

If the Insurance Bill 2025 sets a low ceiling on commissions, banks that rely heavily on selling insurance may see their fee income growth slow down.

For large private banks, the impact is likely manageable because they have many different ways to make money. However, for smaller banks and SFBs, the impact on earnings could be much stronger unless they find ways to grow their loan business or other fee-based services.

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