Insurance commissions have become a substantial source of non-interest income for many Indian banks, with their contribution to pre-tax profits showing significant variation across lenders. This reliance is now under scrutiny as the Insurance Regulatory and Development Authority of India (IRDAI) proposes a sweeping overhaul of insurance distribution economics.
Key Findings on Bank Dependence
Data compiled by CA Kanan Bahl, founder of Fingrowth Media, highlights the extent to which some banks depend on insurance commissions for their profit before tax (PBT) in FY26. IndusInd Bank recorded the highest ratio at 75.6%, followed by Bandhan Bank at 30.8%. Other notable figures include DCB Bank at 21%, Yes Bank at 19.3%, and Axis Bank at 12.5%.
Among other private lenders, City Union Bank stood at 8.3%, while HDFC Bank and Federal Bank each reported 7.3%. Kotak Mahindra Bank showed a 5.8% ratio, with the average for private banks being 6.8%.
Public sector banks generally exhibited lower dependence. SBI's ratio was 2.6%, slightly above the PSU average of 2.3%. Canara Bank, Punjab National Bank, and Bank of Baroda reported ratios of 2.2%, 1.6%, and 1.4% respectively, with ICICI Bank at 0.6%.
It is important to note that the unusually high ratios for IndusInd Bank and Bandhan Bank in FY26 were partly influenced by exceptional losses that impacted their profits that year. In FY25, their ratios were still significant, at around 35.1% for IndusInd Bank and 10.3% for Bandhan Bank.
Bandhan Bank's Commission Earnings
Bandhan Bank's FY26 disclosures illustrate the scale of income from insurance distribution. The bank generated ₹987.71 crore from retail life insurance business through its network, earning ₹406.12 crore in fee income. This translates to an average fee income of approximately 41.12% of the insurance business generated. Additionally, the bank earned ₹23.50 crore in fee income from ₹158.68 crore generated through general insurance business.
Bahl also highlighted the significant gap between first-year and renewal commissions, noting that renewal commissions on traditional products typically range from 2% to 10% from the second year onwards, considerably lower than initial payouts.
IRDAI's Proposed Reforms
The IRDAI's consultation paper, titled “Recalibrating Economics of Insurance Distribution,” outlines a major restructuring of the sector. The regulator proposes product- and channel-specific commission caps, taking into account factors like the type of insurance, distribution channel, product complexity, and servicing requirements.
- For life insurance policies with terms of 10 years or more, first-year commissions are proposed to be capped at 25% for agents and 20% for distribution entities.
- Renewal commissions for these policies would initially be capped at 5%.
The IRDAI also highlighted the wide discrepancies in current payouts, where average first-year commissions for individual life insurance range from 14% to 51%, with maximum commissions reaching 33% to 81%.
Alongside commission caps, the regulator has proposed tighter Expense of Management limits. These measures are aimed at reducing insurance costs for policyholders, broadening risk pools, and ultimately improving returns for consumers. Stakeholders have until October 25, 2026, to submit their comments on the consultation paper.