Proposed insurance commission caps may hit NBFC earnings from FY28: Report

Proposed restrictions on insurance commissions could put pressure on the earnings of non-banking financial companies (NBFCs) from FY28, particularly lenders that depend heavily on income from selling insurance products, according to a report by Nuvama Institutional Equities.

Proposed restrictions on insurance commissions could put pressure on the earnings of non-banking financial companies (NBFCs) from FY28, particularly lenders that depend heavily on income from selling insurance products, according to a report by Nuvama Institutional Equities. In its October 2026 Banking and Finance sector report, Nuvama said the Insurance Regulatory and Development Authority of India's (IRDAI) proposed changes to insurance distribution rules could reduce fee income and profitability for several NBFCs.

"The consultation paper in its current form represents a clear regulatory overhang for NBFCs with meaningful insurance distribution income," the report said. The IRDAI consultation paper proposes tighter commission caps, lower limits on management expenses and greater restrictions on insurance products sold alongside loans.

These changes could affect NBFCs that earn additional income by distributing insurance policies to borrowers, making insurance commissions an important source of revenue beyond interest earned on loans. Nuvama's analysis showed that insurance distribution income accounted for as much as 25.6 per cent of profit before tax for some lenders in FY26, indicating significant earnings exposure to the proposed restrictions.

The report also highlighted that the impact could vary considerably across lenders depending on their reliance on insurance commissions. For one lender, the report cited management's assessment that the proposed rules, if implemented in their present form, could reduce return on assets by 18–24 basis points in FY28.

However, the brokerage noted that NBFCs could take measures to partly offset the impact, including adjusting lending rates or developing alternative sources of fee income. "The absolute earnings impact will depend on the final commission structure and the extent to which NBFCs can offset lower payouts through higher interest rates or other fee streams," the report said.

The potential regulatory impact comes as NBFCs also face pressure from rising borrowing costs following the Reserve Bank of India's latest repo rate hike. Nuvama said the combined pressure from insurance commission restrictions and higher funding costs could weigh on profitability even as lending growth remains healthy.

The brokerage has also factored potential losses from insurance commissions into its earnings outlook for select lenders. However, the proposed insurance distribution rules are still subject to stakeholder feedback, and the final impact will depend on the regulations eventually implemented. (ANI)