SynopsisIRDAI’s proposed insurance distribution reforms could extend beyond insurers and distributors, potentially pressuring NBFC fee income. Jefferies flagged L&T Finance, Piramal Finance and others as exposed to insurance commissions, with proposed cuts potentially affecting profitability.

comJefferies warned IRDAI’s proposed commission cuts could pressure NBFC insurance-linked income, with L&T Finance, Piramal Finance and others carrying higher exposure/AI ImageInsurance regulator IRDAI’s proposed overhaul of the insurance sector rattled insurance stocks on Thursday, but Jefferies has warned that non banking financial companies (NBFC) like L&T Finance, Piramal Finance and others too may not be completely safe. The Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper titled ‘Recalibrating Economics of Insurance Distribution’, proposing effort-based caps on the commissions insurers pay to distributors, along with tighter expense-of-management limits for insurers.

This triggered a massive selloff in insurance stocks, with Policybazaar-parent PB Fintech shares plunging 34% and wiping off significant portions of investors’ wealth amid the bloodbath. While insurance distributors are the direct victims, Jefferies highlighted that NBFCs derive part of their fee income from insurance distribution and should be negatively impacted if IRDAI’s reforms take effect..

What Citi and Jefferies are warningHow reforms in insurance sector can impact NBFCsThe international brokerage noted that the insurance regulator’s consultation paper proposed tighter commission norms and 50-66% commission cuts depending on the insurance products FY28 onwards. IRDAI has sought public opinion on draft norms over the next one month.

Among the major NBFCs, L&T Finance, Piramal Finance and Cholamandalam Investment Finance Company have higher exposure, while Shriram Finance has lower exposure based on FY26 insurance commission and FY27 profit estimates, Jefferies said. The international brokerage’s graphs indicated that L&T Finance, Piramal Finance, Cholamandalam Investment Finance Company, HDB Financial Services, M&M Financial Services, Home First Finance Company, Bajaj Housing Finance, Poonawalla Fincorp and IIFL Finance reported FY26 insurance income comprised 5-20% to FY27 profit before tax estimates..

Do you own any? This comes days after Jefferies hosted nine of the companies and found that most reported healthy disbursement growth and resilient asset quality in the July-September quarter so far.