Banking and financial services stocks experienced severe declines on Thursday, with the NIFTY Bank index falling over 2%, or 1,135.65 points, with 13 out of 14 constituents declining. According to CNBC TV18, the fall in the NIFTY Bank index was among the key factors behind the sharp decline in the benchmark indices on the NSE. HDFC Bank was down nearly 2% at ₹730.15, while Axis Bank was trading over 5% lower at ₹1,179.90 on the NSE. SBI was also down 1.75% to ₹976.70, and IndusInd Bank tumbled 4.38% to ₹917.30 on the NSE. The selling pressure came amid weak global cues and a surge in crude oil prices that had already dampened investor sentiment.
Senior insurance executives met with Ajay Seth, Chairman of the Insurance Regulatory and Development Authority of India (IRDAI), to discuss the proposed distribution reforms and their concerns about the sector. According to a senior insurance executive, the initiative is welcome and is in the right direction, though the industry has sought a more gradual approach to implementation. The industry put forward suggestions around the need for a glide path for reducing commissions and differentiated treatment for insurers of different sizes under the Expenses of Management (EoM) framework. As per another senior industry official, the initiative is definitely in the right direction, but distribution costs and commissions need to be rationalised, with changes recognising the actual cost of distribution and the work undertaken by intermediaries. The official view from the councils might come in the next two or three days, indicating ongoing discussions on the implementation timeline.
The IRDAI consultation paper on distribution reforms proposes a five-year glide path to tighten company-level Expenses of Management (EoM) limits. For life insurers, the regulator has proposed bringing the EoM cap down to 12.5% of Gross Direct Premium Income (GDPI), compared with the existing product-level framework. For general insurers, the proposed EoM cap is 20% of GDPI, compared with the current 30%. The framework would also include mandatory cost audits and public disclosure requirements, along with explicit caps on distributor commissions and rewards. According to CNBC TV18, the draft proposals seek to lower distribution costs, introduce segment and product specific commission limits, improve transparency and curb mis selling. The consultation paper is currently open for feedback, with stakeholders allowed to submit comments until October 25, 2026.
The IRDAI's proposed commission caps represent significant reductions from current industry rates across multiple insurance segments. Term insurance commissions could be capped at 30% for individual distributors and 25% for corporate distributors, compared with as much as 51% currently. For health insurance, the proposed caps are 20% and 15% respectively, against 24% currently. Motor insurance commissions could be capped at 0-15% compared with 26% currently, while savings products could attract commissions of 5-25% against prevailing rates of 14-37%. According to analysts, the proposals could result in commission cuts of nearly one-third to half across new life, health, and motor insurance, with lower caps for banks and brokers than for individual agents. The changes are likely to affect insurance brokers, banks and non-banking financial companies (NBFCs) more than individual agents, potentially weighing on bancassurance-heavy insurers and those reliant on open-architecture distribution models.
The biggest shock comes from the proposed restrictions on credit-linked insurance products, which have historically carried some of the industry's highest payouts. The proposed cap for life insurance packaged with credit is just 2% for single-premium products and 2.5% in the first year for multi-year products, compared with a FY2025 average commission of 22% for credit-life single-premium policies. This matters significantly for NBFCs, as Kotak Institutional Equities estimates that insurance commissions accounted for 3% to 25% of PBT for select NBFCs in FY2026. For PB Fintech, the proposed caps are lower for distribution entities such as corporate agents, banks and multi-insurer platforms than for individual agents, with health insurance commissions capped at 15% for new business and 5% on renewals for distribution entities, compared with 20% and 10% for agents. The industry has sought reconsideration of the proposed norms on group credit life insurance, particularly the restriction on bundling such policies with lending products, arguing that they provide insurance cover to borrowers.
While the proposed changes could significantly impact distributors heavily reliant on commissions, insurers may adapt more easily to the new framework. SBI Life, which has one of the lowest overall commission rates among peers, is described as being better placed for the transition. Health insurers could benefit if lower commissions translate into lower premiums and stronger demand. Kotak Institutional Equities notes that these are still consultation proposals, not final regulations, with the framework released on September 23 and comments invited until October 25. The regulator's ultimate goal is to expand coverage, improve affordability, enhance accessibility, and tackle compulsory bundling and reduce mis-selling, with the benefit of cost efficiency expected to be passed on to customers through better returns on life insurance savings products and improved claim ratios in general insurance. Industry insiders fear the steep reduction in distributor commissions could trigger consolidation among brokers, squeeze bancassurance and corporate agency channels, and weigh on insurance growth in the near term.
