JM Financial flags Irdai insurance reforms; L&T Finance, Axis Bank, Bajaj Finance among stocks in focus

JM Financial has flagged potential implications for select banks and non-banking financial companies (NBFCs) from the Insurance Regulatory and Development Authority of India's (Irdai's) proposed distribution reforms.

The insurance regulator's consultation paper proposes lower Expenses of Management (EOM) caps for life and general insurers, along with segment-level commission caps that were eliminated from FY24. The draft also includes specific observations on the bancassurance channel.

According to JM Financial, multi-tie-up banks earned an average total payout of 33 per cent of life new business premium, compared with 13 per cent for single tie-up banks.

The consultation paper also highlights the growing role of NBFCs in insurance distribution, with new business premium sourced through the channel nearly tripling between FY23 and FY25.

Payouts to NBFCs reached 42 per cent of premium, with around 93 per cent of the business coming from credit life insurance, JM Financial said.

Among banks, JM Financial's assessment of disclosures shows that Ujjivan Small Finance Bank Ltd, AU Small Finance Bank Ltd, IDFC First Bank Ltd, Bandhan Bank Ltd, DCB Bank Ltd and Axis Bank Ltd have a relatively higher contribution from insurance fee income.

The brokerage estimates that insurance fee income accounted for around 18-25 basis points (bps) of FY26 return on assets (RoA) for these lenders.

In the NBFC segment, L&T Finance Ltd, Home First Finance Company India Ltd, Cholamandalam Investment and Finance Company Ltd, Bajaj Finance Ltd, Aadhar Housing Finance Ltd, Mahindra & Mahindra Financial Services Ltd and HDB Financial Services Ltd has a higher contribution coming from insurance fee income, JM Financial said.

The brokerage estimates that insurance fee income contributed around 40-80 bps to FY26 RoA for these NBFCs. JM Financial said the income may be negatively impacted by the proposed changes.

Irdai has invited stakeholders to submit feedback on the consultation paper by October 25, 2026. JM Financial said it would await the final guidelines before revising its estimates, if required.

Shares of all the companies mentioned above were trading lower in Thursday's trade, with L&T Finance falling as much as 9.99 per cent to hit a day's low of Rs 279.65.