Insurance Regulatory and Development Authority (Irda) is planning to set up a committee to analyse the risks faced by insurance companies promoted by banks. Irda will approach the Reserve Bank of India (RBI) and is likely to announce the formation of the committee by the end of this month.

A senior Irda official said there are mainly three risks that a bank-backed insurance company faces. These are investment risk, capital risk and cost connecting risk. The terms of reference and the setting up of the committee would be announced after discussions with the banking regulator.

According to the official, bank-backed insurance companies have capital related risks, as the ability to infuse more capital in the insurance venture reduces for various reasons, including increase in non-performing assets (bad loans).

"Banks have been finding it difficult to maintain their capital adequacy ratio and are not adequately capitalised, hence the risk on maintaining the solvency margin for the insurance company becomes an issue,"the official explained.