Banks Earn Over ₹20,000 Crore From Insurance Sales in FY26: The Rewards and Risks of Bancassurance

Written by Finnovate

Content Team

Insurance distribution has become a substantial source of fee income for Indian banks.

Leading public and private sector banks earned more than ₹20,000 crore in brokerage and commissions by distributing life, health and general insurance products during FY26. HDFC Bank, ICICI Bank, Axis Bank, State Bank of India and Kotak Mahindra Bank together accounted for approximately ₹18,565 crore of this income.

The numbers explain why banks are increasingly interested in insurance. They already have branches, digital platforms, customer information and established relationships. Selling an additional financial product to an existing customer is usually less expensive than acquiring a completely new customer.

However, the growth of bancassurance also raises important questions. Are customers being offered products that genuinely match their needs? Can sales incentives influence the advice they receive? And as fee income becomes more attractive, can banks maintain sufficient focus on deposits, lending and balance-sheet management?

How much did major banks earn from insurance distribution?

Reported insurance-distribution income among five large banks was as follows:

HDFC Bank’s total included approximately ₹5,688 crore from life insurance and ₹1,239 crore from health and general insurance distribution. SBI earned around ₹2,795 crore, largely through products offered by affiliated insurers such as SBI Life and SBI General Insurance.

These earnings are commissions and fees. The bank does not generally carry the underlying insurance risk.

What is bancassurance?

Bancassurance is an arrangement under which a bank distributes insurance products through its branches, relationship managers, websites or mobile applications.

The roles remain separate:

• The insurance company designs and underwrites the policy.
• The bank acts as a distributor or corporate agent.
• The customer pays the premium and receives coverage from the insurer.
• The bank earns a commission or distribution fee.

This distinction matters. A bank may promote an insurance product, but the insurer is responsible for underwriting the policy, maintaining reserves and settling eligible claims.

Several major banks also have ownership or promoter relationships with insurers. HDFC Bank is associated with HDFC Life and HDFC ERGO, SBI with SBI Life and SBI General, and ICICI Bank with ICICI Prudential Life and ICICI Lombard.

These should be described as affiliated or group-linked insurers. “Group insurance” is a different term referring to policies that cover a defined group, such as employees, borrowers or members of an association.

Why bancassurance works so well for banks

Insurance distribution offers banks several commercial advantages.

First, it generates fee income without requiring the bank to create another loan or add credit risk to its balance sheet. This helps diversify revenue beyond the interest earned on lending.

Second, banks already know important details about their customers, including income patterns, liabilities, dependants, account balances and loan relationships. When used responsibly and with consent, this information can help identify protection gaps.

Third, customers often trust their bank and may find it convenient to purchase insurance from the same branch or application they already use.

For insurers, the bank provides immediate access to a large customer base and an established distribution network. Building an equivalent network of insurance agents, offices and digital acquisition channels can be expensive.

The model therefore creates a genuine economic benefit for both institutions. The concern begins when distribution incentives influence which product is recommended.

Insurers can become dependent on bank distribution

A large bank can deliver significant volumes of new business to an affiliated insurer. This creates scale, but it can also create concentration risk.

HDFC Life’s Q1 FY26 presentation showed that bancassurance contributed 60% of individual annualised premium equivalent, or APE. APE is commonly used to measure new life-insurance business. Once group business was included, the bank channel represented a smaller 23% of total distribution.

SBI Life received more than 60% of its business through banks, with a substantial portion coming from its parent, State Bank of India. The insurer has consequently been working to strengthen its agency and digital channels.

A bank-led distribution model creates several risks for an insurer:

• A change in the bank’s sales strategy can affect new business.
• Open-architecture rules can increase competition inside branches.
• The bank may begin promoting another insurer’s product.
• Regulatory restrictions on incentives can reduce sales productivity.
• Reputational problems involving the bank can affect the insurer.

Bancassurance is therefore valuable, but an insurer may still need agents, brokers, digital channels and non-bank partnerships to reduce dependence on one distributor.

Challenge 1: How can insurance mis-selling be prevented?

Mis-selling occurs when a financial product is sold in a way that is unsuitable, misleading or inconsistent with the customer’s informed choice.

In insurance, this can include:

• Presenting a policy as compulsory for receiving a loan
• Describing market-linked returns as guaranteed
• Hiding charges, exclusions or surrender conditions
• Selling a long-duration policy to someone who may not sustain the premiums
• Promoting a savings policy when the customer primarily needs life cover
• Obtaining consent through pre-selected digital boxes
• Encouraging repeated policy replacement mainly to generate new commissions

Mis-selling is not limited to banks. It can happen through agents, brokers, online platforms and other distributors. Bancassurance creates a particular concern because customers may assume that a recommendation from their bank is neutral.

The risk increases when employees face aggressive targets or receive incentives linked mainly to sales volumes.

Term insurance versus savings-oriented policies

A pure term plan generally provides high life cover for a comparatively low premium. It is most relevant when the objective is to protect dependants against the loss of the policyholder’s income.

Endowment plans, money-back policies and ULIPs combine insurance with savings or investment features. These products are not automatically unsuitable, but they have different costs, benefits, lock-ins and return characteristics.

The correct question is not whether one category is universally good or bad. It is whether the policy matches the customer’s protection requirement, affordability and time horizon.

For a product-level comparison, readers can refer to Finnovate’s guide to term insurance, endowment plans and ULIPs.

What RBI’s new mis-selling rules change

The Reserve Bank of India finalised stricter rules governing how banks and other regulated lenders advertise and sell financial products. The rules will take effect from January 1, 2027.

The framework:

• Broadens the definition of mis-selling
• Requires clear and recorded customer consent
• Prohibits compulsory bundling of paid products
• Bans deceptive digital interfaces or “dark patterns”
• Requires upfront disclosure of risks, charges and exit conditions
• Requires periodic audits of digital sales interfaces
• Provides for cancellation and refund when mis-selling is established

The rules materially improve the customer-protection framework. The next challenge will be implementation across branches, digital channels, outsourced sales teams and individual relationship managers.

IRDAI is also examining changes to insurance commissions. One proposal under consideration would spread commission payments over the life of a policy instead of paying a large portion upfront. The objective is to reduce incentives for unsuitable sales and repeated policy replacement.

Challenge 2: Can fee-income growth distract banks from core banking?

Traditional banking is built around two central activities:

1. Mobilising stable deposits
2. Deploying those funds through responsible lending

Insurance and mutual-fund distribution can complement these activities, but they should not replace them.

Concerns have grown because bank credit has been expanding faster than deposits. When deposit growth is insufficient, banks may rely more heavily on certificates of deposit and other wholesale funding instruments.

Certificates of deposit are legitimate short-term funding tools. The risk arises when a bank becomes excessively dependent on short-term borrowing to support longer-duration loans. This can increase refinancing requirements and expose the bank to changes in wholesale funding costs.

Recent policy measures reduced three-month certificate-of-deposit rates by as much as 60 basis points during June 2026, temporarily easing the cost of short-term funding.

However, insurance selling cannot be identified as the direct cause of slower deposit growth. Deposit mobilisation is influenced by interest rates, competition from mutual funds, changes in household savings, loan demand and bank pricing.

The more appropriate governance question is:

Are sales targets for third-party products receiving greater management attention than stable deposits, lending quality and customer service?

Fee income is valuable, but banks must ensure that it does not distort branch priorities.

What customers should check before buying insurance from a bank

A bank branch can be a convenient place to buy insurance, but customers should evaluate the policy independently.

Before signing, ask:

1. Is this policy compulsory?

Insurance should not be presented as mandatory for a loan unless legally or contractually required.

2. What is the main purpose?

Identify whether the product offers protection, savings, investment, health coverage or a combination.

3. What is guaranteed?

Separate guaranteed benefits from illustrations and market-linked projections.

4. How long must premiums be paid?

Check whether the premium commitment fits future cash flow.

5. What happens if payments stop?

Understand lapse, paid-up, revival and surrender rules.

6. What are the charges and exclusions?

Review mortality charges, investment charges, waiting periods and claim exclusions.

7. Are alternatives available?

Ask whether the bank distributes comparable policies from more than one insurer.

8. Would a simpler term plan meet the need?

When the main objective is family protection, compare the proposed policy with pure term cover.

Bancassurance works when suitability comes before sales

Insurance distribution has become a highly profitable fee business for Indian banks. It also gives insurers access to customers at a scale that would be difficult to build independently.

The model itself is not the problem.

The risk emerges when the commercial relationship between the bank and insurer begins to influence customer suitability, disclosure or consent. A second concern arises when the pursuit of commission income diverts organisational attention from deposits, lending and balance-sheet discipline.

Bancassurance can expand insurance access and generate legitimate revenue. Its long-term credibility, however, will depend on a simple principle:

The policy recommended to a customer should be based on the customer’s need, not merely on the commission available to the distributor.

FAQs

1. How much did Indian banks earn from insurance distribution in FY26?

Leading banks earned more than ₹20,000 crore in insurance-related brokerage and commissions. Five major banks together earned approximately ₹18,565 crore.

2. Do banks underwrite the insurance policies they sell?

Generally, no. The insurance company underwrites the policy and carries the insurance risk. The bank acts as a distributor and earns a commission.

3. Is buying insurance from a bank unsafe?

Not necessarily. A bank can be a convenient and legitimate distribution channel. Customers should still compare products, examine suitability and understand charges, exclusions and exit conditions.

4. Can a bank make insurance compulsory for a loan?

Banks cannot ordinarily force customers to purchase an additional paid product merely as a condition for accessing a banking service. RBI’s new rules explicitly restrict compulsory bundling.

5. Why are regulators concerned about bancassurance?

The main concerns include mis-selling, incentive-driven recommendations, insurer dependence on bank channels and the possibility that aggressive cross-selling may distract banks from core activities.

6. What is the difference between bancassurance and group insurance?

Bancassurance refers to a bank distributing insurance products. Group insurance refers to a policy covering a defined group of people, such as employees or borrowers.

Disclaimer: This article is for general information and educational purposes only. It does not constitute insurance, investment or financial advice. Policy benefits, costs, exclusions and suitability differ across products and customers.