Insurance companies to focus on the priority sector

After banks, insurance companies also may be required to voluntarily provide a certain per cent of insurance to the priority sector -- rural poor and other social sectors.

The Minister of State for Finance, speaking at a seminar has asked Insurance companies to come forward for setting targets for this priority sector and they should start with health insurance. The Insurance Regulatory and Development Authority (IRDA) Chairman, also favoured such a mechanism and would soon ask insurance companies to provide insurance to the priority sector on the basis of their years of operation and market share. Even though the scheme would not be mandatory, the companies not providing priority sector insurance coverage might be penalised.

Presently Indian banks have to extend 40 per cent of their total net credit to the priority sector. Financing of Small Scale Industry, Small business, Agricultural Activities and Export activities fall under this category. This is also called directed credit in Indian Banking system. Part of the cost of this concession is borne by RBI by means of refinancing such loans at concessional rate.

Indian government want to ensure that a certain portion of insurance cover goes to the rural and other social sectors to achieve insurance inclusiveness. Objective is also to render health insurance affordable to the poorer sections of the society