PB Fintech Ltd. led a slide in shares of Indian insurers, distributors and lenders on Thursday, after the insurance regulator proposed caps on commissions and tighter management expenses.
Temasek-backed platform operator PB Fintech sank a record 36%, the biggest slide for any stock since the pandemic. The combined market valuation of 12 insurance providers and distributors, including Axis Bank Ltd. and shadow lender Bajaj Finance Ltd., fell 1.32 trillion rupees ($13.8 billion).
Max Financial Services Ltd. slumped 9.8%, L&T Finance Ltd. slipped 9% and HDFC Life Insurance tumbled 6.2%.
The Insurance Regulatory and Development Authority of India late Wednesday proposed measures that could slash insurance fee income for banks and digital brokers by as much as 90% in high-margin categories, according to analysts. The proposals aim to enforce long-term industry discipline and rationalize distribution cost.
“This proposal pushes the sector in uncharted waters by almost cutting the oxygen (commission) supply,” Avinash Singh, an analyst at Emkay Global Financial Services Ltd., wrote in a note. However, final regulations are likely to be less strict, he said.
The risks are higher for fintech platforms including PB Fintech and Turtlemint Fintech Solutions Ltd. as the proposed 10% cut in new business commission rates translates to 10-12% fall in their earnings, according to Jefferies Financial Group Inc. Turtlemint shares slumped 20%.
A representative for PB Fintech did not immediately respond to a Bloomberg News request for comment. The company said in a conference call that it will prioritize growth and reduce marketing and operational cost, ET Now reported. The industry may adapt by offering salaries to agents, it said.
India is proposing bringing back product-specific commission limits for insurance amid growing public concern over rising premiums and the country’s low insurance penetration. Under the proposals, third-party motor insurance payouts
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would be cut to nearly zero, while fees on first-year individual health policies would be capped at 15%.
“The present distribution architecture has evolved in a manner that rewards premium collection more than consumer value, market expansion or operating eff
iciency,” IRDA said in the consultation paper. The regulator has asked for feedback last date for submission of comments to the regulator is Oct. 25.
The proposals have emerged as an additional headwind for banks, which account for about a third of the NSE Nifty 50 Index. Financials were among the worst performers on the benchmark gauge on Thursday.
Among large private banks Axis Bank and HDFC Bank Ltd. are more exposed than ICICI Bank Ltd. and Kotak Mahindra Bank Ltd., given insurance fee income’s larger contribution to revenue and profit before tax, according to Macquarie Capital Securities India Pvt.
