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Emerging trends in Banking and Insurance

Banks plays an important role in the economic development of developing countries. Economic
development involves investment in various sectors of the economy. The banks collect savings for
investment in various projects. In normal banking the banks perform agency services for their customers
and helps economic development of the country. The purchase and sales securities, shares, make payments,
receive subscription funds and collect utility bills for the Government department. There for banks save
time and energy of busy peoples. Bank arranges foreign exchange for the business transactions with other
countries. Banking sector are not simply collecting funds but also serve as a guide to the customer about the
investment of their money.
Current banking sector has come up with a lot of initiatives that oriented to providing a better
customer services with the help of new technologies. Banking sector mirrors the larger economy its
linkages to all sectors make it proxy for what is happening in the economy as a whole. Indian banking sector
today has the same sense of excitement and opportunity that is evidence in the Indian Economy. The going
developments in the global markets offer so many opportunities to the banking sector. In the competitive
banking word improvement day by day in customer services is the most useful tool for their better growth.
Bank offers so many changes to access their banking and other services.
Present banking scenario:In 2009-10 there was a slowdown in the balance sheet growth of scheduled commercial banks
(SCBs) with some slippages in their asset quality and profitability. Bank credit posted a lower growth of
16.6 per cent in 2009-10 on a year-on-year basis but showed signs of recovery from October 2009 with the
beginning of economic turnaround. Gross nonperforming assets (NPAs) as a ratio to gross advances for
SCBs, as a whole, increased from 2.25 per cent in 2008 - 09 to 2.39 percent in 2009 10.
Notwithstanding some knock-on effects of the global financial crisis, Indian banks withstood the shock
and remained stable and sound in the post-crisis period. Indian banks now compare favorably with banks in
the region on metrics such as growth, profitability and loan delinquency ratios. In general, banks have had a
track record of innovation, growth and value creation. However this process of banking development
needs to be taken forward to serve the larger need of financial inclusion through expansion of banking
services, given their low penetration as compared to other markets.
During 2010-11, banks were able to improve their profitability and asset quality. Stress test
showed that banking sector remained reasonably resilient to liquidity and interest rate shocks. Yet, there
were emerging concerns about banking sector stability related to disproportionate growth in credit to
sectors such as real estate, infrastructure, NBFCs and retail segment, persistent asset-liability mismatches,
higher provisioning requirement and reliance on short-term borrowings to fund asset growth.
Today role of banking industry is very important as one of the leading and mostly essential service
sector. India is the largest economy in the world having more than 110 crore population. Today in India the
service sector is contributing half of the Indian GDPand the banking is most popular service sector in India.
The significant role of banking industry is essential to speed up the social economic development.
The present banking scenario provides a lot of opportunities. In the past few years we observed
that there was lot of down and up trends in banking sector due to the global finance crisis.To improve major
areas of banking sector Govt. of India. RBI, Ministry of finance has made several notable efforts. Many of
leading banks operating in market have made use of the changed rules and regulations such as CRR, Interest
Rates Special offers to the customers such as to open account in zero balance.
The Indian banking system is set to involve into a totally new level. It will help the banking system
to grow in strength going into future. Due to liberalization banks are operating on reduced spread main
focus is highlighted on consumerism and how to customers linked and remain attached with the bank.
Therefore banks are entered these days in non banking products such insurance in which area there are
tremendous opportunities.
Recent Trends in Banking
1. Automatic Teller Machine (ATM):- Automatic Teller Machine is the most popular devise in India,
which enables the customers to withdraw their money 24 hours a day 7 days a week. It is a devise that
allows customer who has an ATM card to perform routine banking transactions without interacting with a
human teller. In addition to cash withdrawal, ATMs can be used for payment of utility bills, funds transfer
between accounts, deposit of cheques and cash into accounts, balance enquiry etc.

2. Tele Banking:- Tele Banking facilitates the customer to do entire non-cash related banking on
telephone. Under this devise Automatic Voice Recorder is used for simpler queries and transactions. For
complicated queries and transactions, manned phone terminals are used.
3. Electronic Clearing Service (ECS) :- Electronic Clearing Service is a retail payment system that can be
used to make bulk payments/receipts of a similar nature especially where each individual payment is of a
repetitive nature and of relatively smaller amount. This facility is meant for companies and government
departments to make/receive large volumes of payments rather than for funds transfers by individuals.
4. Electronic Funds Transfer (EFT) :- Electronic Funds Transfer (EFT) is a system whereby anyone who
wants to make payment to another person/company etc. can approach his bank and make cash payment or
give instructions/authorization to transfer funds directly from his own account to the bank account of the
receiver/beneficiary. Complete details such as the receiver's name, bank account number, account type (savings
or current account), bank name, city, branch name etc. should be furnished to the bank at the time
of requesting for such transfers so that the amount reaches the beneficiaries' account correctly and faster.
RBI is the service provider of EFT.
5. Real Time Gross Settlement (RTGS) :- Real Time Gross Settlement system, introduced in India since
March 2004, is a system through which electronics instructions can be given by banks to transfer funds
from their account to the account of another bank. The RTGS system is maintained and operated by the
RBI and provides a means of efficient and faster funds transfer among banks facilitating their financial
operations. As the name suggests, funds transfer between banks takes place on a 'Real Time' basis.
Therefore, money can reach the beneficiary instantaneously and the beneficiary's bank has the
responsibility to credit the beneficiary's account within two hours.
6. Point of Sale Terminal: - Point of Sale Terminal is a computer terminal that is linked online to the
computerized customer information files in a bank and magnetically encoded plastic transaction card that
identifies the customer to the computer. During a transaction, the customer's account is debited and the
retailer's account is credited by the computer for the amount of purchase.
We have highlighted above some of the new emerging trends. Now I highlights the opportunities that
new trends brings in the growth and development of banking sector in our country.
OPPORTUNITIES:1)Internet Banking:- It is clear that online finance will pickup and there will be increasing convergence in
terms of product offerings banking services, share trading, insurance, loans, based on the data warehousing
and data mining technologies. Anytime anywhere banking will become common and will have to upscale,
such up scaling could include banks launching separate internet banking services apart from traditional
banking services.
2)Retail Lending: - Recently banks have adopted customer segmentation which has helped in customizing
their product folios well. Thus retail lending has become a focus area particularly in respect of financing of
consumer durables, housing, automobiles etc., Retail lending has also helped in risks dispersal and in
enhancing the earnings of banks with better recovery rates.
3)Rural area customers: - Contributing to 70% of the total population in India is a largely untapped
market for banking sector. In all urban areas banking services entered but only few big villages have the
banks entered. So that the banks must reach in remaining all villages because majority of Indian still living
in rural areas.
4)Offering various Channels: - Banks can offer so many channels to access their banking and other
services such as ATM, Local branches, Telephone/mobile banking, video banking etc to increase the
banking business.
5)Good Customer Services: - Good customer services are the best brand ambassador for any bank for
growing its business. Every engagement with customer is an opportunity to develop a customer faith in the
bank. While increasing competition customer services has become the backbone for judging the
performance of banks.
6)Indian Customers: - The biggest opportunity for the Indian banking sector today is the Indian
customers. The Indian customers now seek to fulfill his lifestyle aspirations at a younger age with an
optimal combination of equity and debt to finance consumption and asset creation. He represents across
cities, towns and villages i.e. in rural areas. Consumer goods companies are already tapping this potential it
is for the banks to make the most of the opportunity to deliver solutions to this market.

7)Other Opportunities:- there are many other opportunities in future in the field of Indian banking sector
e.g. to enter new business and new markets, To develop new ways of working, To improve efficiency, To
deliver high level of customer services.
Financial Inclusion
The Prime Ministers Jan Dhan Yojana has created accounts for much of the excluded population. Government
has taken the next step of attaching a variety of financial services such as accident and life insurance to these
accounts, and sending Direct Benefits such as scholarships, pensions, and subsidies to these accounts. We also
have to ease access to bank accounts through Business Correspondents, payment banks, and point-of-sales
machines so that they are used frequently. Easy payments, access to cash-in and cash-out facilities, and
widespread availability of safe savings instruments have to be our next objectives in the financial inclusion of
When credit leads the process of financial inclusion, we risk lending to people who have little ability to manage
money and overburdening them. By drawing them into the formal system through savings and payments first,
then insurance, we get them accustomed to managing money before tempting them with credit. This is the
successful method we have followed with Self Help groups, and is what we should do more widely. Importantly,
we need a variety of firms and NGOs to help small businesses with management advice so that they can
Technology will also help reduce transaction costs, facilitating inclusion. We now have an internet portal
(Vidyalakshmi) where students can apply to a variety of banks for education loans. We are exploring a similar
portal for MSMEs, where MSMEs can apply easily to banks and where we can monitor timely responses to the
loan applications.
In all such lending, we need to address the issue of collateral. Credit flows easily only when the lender is
persuaded that he will get his money back, so easier access to credit necessitates harsher consequences of
default, including the loss of collateral. Aadhaar has given individual borrowers the possibility of using their
future access to credit as collateral. I do hope the Supreme Court clears up the cloud over its use quickly. But
there are also situations where borrowers have physical collateral they can use to lower their cost of credit and
improve access. We really need to reexamine mandates that banks should lend without collateral to certain
segments. While the intent is laudable, the consequence may simply be that banks fear taking collateral even
when available, and thinking the borrower is too risky, do not lend.
More generally, the best way to facilitate lending to the excluded is to reduce transactions costs, improve
borrower information and frameworks for recovery, and create institutions that have lower costs and easier
access to the borrower than existing ones. For this, we need to improve the structure and working of credit
information bureaus, collateral registries, and debt recovery tribunals. Perhaps the most important source of
collateral value is land. We need better digital mapping and clean records of land ownership across the country
so that land can be used more effectively as collateral. Andhra Pradeshs pattas for tenant farmers is also an
innovation that will help tenants get access to credit.
Emerging trends in Insurance
IntroductionThe insurance industry of India consists of 53 insurance companies of which 24 are in life insurance
business and 29 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the
sole public sector company. Apart from that, among the non-life insurers there are six public sector
insurers. In addition to these, there is sole national re-insurer, namely, General Insurance Corporation
of India (GIC Re). Other stakeholders in Indian Insurance market include agents (individual and
corporate), brokers, surveyors and third party administrators servicing health insurance claims. Out of

29 non-life insurance companies, five private sector insurers are registered to underwrite policies
exclusively in health, personal accident and travel insurance segments. They are Star Health and
Allied Insurance Company Ltd, Apollo Munich Health Insurance Company Ltd, Max Bupa Health
Insurance Company Ltd, Religare Health Insurance Company Ltd and Cigna TTK Health Insurance
Company Ltd. There are two more specialised insurers belonging to public sector, namely, Export
Credit Guarantee Corporation of India for Credit Insurance and Agriculture Insurance Company Ltd for
crop insurance.
Insurance Laws (Amendment) Bill, 2015
Passed by Parliament; Provides for Enhancement of the Foreign Investment
Cap in an Indian Insurance Company from 26% to an Explicitly Composite Limit
of 49% with the Safeguard of Indian Ownership and Control
The Insurance Laws (Amendment) Bill, 2015 was passed by the Lok Sabha on 4th March, 2015 and by the
Rajya Sabha yesterday i.e. on 12th March, 2015.The passage of the Bill thus paved the way for major reform
related amendments in the Insurance Act, 1938, the General Insurance Business (Nationalization) Act, 1972 and
the Insurance Regulatory and Development Authority (IRDA) Act, 1999. The Insurance Laws (Amendment) Act
2015 to be so enacted, will seamlessly replace the Insurance Laws (Amendment) Ordinance, 2014, which came
into force on 26th December 2014. The amendment Act will remove archaic and redundant provisions in the
legislations and incorporates certain provisions to provide Insurance Regulatory and Development Authority of
India (IRDAI) with the flexibility to discharge its functions more effectively and efficiently. It also provides for
enhancement of the foreign investment cap in an Indian Insurance Company from 26% to an explicitly
composite limit of 49% with the safeguard of Indian ownership and control.
2. Capital Availability: In addition to the provisions for enhanced foreign equity, the amended law will enable
capital raising through new and innovative instruments under the regulatory supervision of IRDAI. Greater
availability of capital for the capital intensive insurance sector would lead to greater distribution reach to under /
un-served areas, more innovative product formulations to meet diverse insurance needs of citizens, efficient
service delivery through improved distribution technology and enhanced customer service standards. The Rules
to operationalize the new provisions in the Law related to foreign equity investors have already been notified on
19th Feb 2015 under powers accorded by the ordinance.
The four public sector general insurance companies, presently required as per the General Insurance Business
(Nationalisation) Act, 1972 (GIBNA, 1972) to be 100% government owned, are now allowed to raise capital,
keeping in view the need for expansion of the business in the rural and social sectors, meeting the solvency
margin for this purpose and achieving enhanced competitiveness subject to the Government equity not being
less than 51% at any point of time.
3. Consumer Welfare: Further, the amendments to the laws will enable the interests of consumers to be better
served through provisions like those enabling penalties on intermediaries / insurance companies for misconduct
and disallowing multilevel marketing of insurance products in order to curtail the practice of mis-selling. The
amended Law has several provisions for levying higher penalties ranging from up to Rs.1 Crore to Rs. 25 Crore
for various violations including mis-selling and misrepresentation by agents / insurance companies. With a view
to serve the interest of the policy holders better, the period during which a policy can be repudiated on any
ground, including mis-statement of facts etc., will be confined to three years from the commencement of the
policy and no policy would be called in question on any ground after three years.
The amendments provide for an easier process for payment to the nominee of the policy holder, as the insurer
would be discharged of its legal liabilities once the payment is made to the nominee.
It is now obligatory in the law for insurance companies to underwrite third party motor vehicle insurance as per
IRDAI regulations. Rural and Social sector obligations for insurers are retained in the amended laws.

4. Empowerment of IRDAI: The Act will entrust responsibility of appointing insurance agents to insurers and
provides for IRDAI to regulate their eligibility, qualifications and other aspects. It enables agents to work more
broadly across companies in various business categories; with the safeguard that conflict of interest would not
be allowed by IRDAI through suitable regulations.
IRDAI is empowered to regulate key aspects of Insurance Company operations in areas like solvency,
investments, expenses and commissions and to formulate regulations for payment of commission and control of
management expenses.
It empowers the Authority to regulate the functions, code of conduct, etc., of surveyors and loss assessors. It
also expands the scope of insurance intermediaries to include insurance brokers, re- insurance brokers, insurance
consultants, corporate agents, third party administrators, surveyors and loss assessors and such other entities, as
may be notified by the Authority from time to time.
Further, properties in India can now be insured with a foreign insurer with prior permission of IRDAI; which
was earlier to be done with the approval of the Central Government.
5. Health Insurance: The amendment Act defines 'health insurance business' inclusive of travel and personal
accident cover and discourages non-serious players by retaining capital requirements for health insurers at the
level of Rs. 100 Crore, thereby paving the way for promotion of health insurance as a separate vertical.

6. Promoting Reinsurance Business in India: The amended law enables foreign reinsurers to set up branches
in India and definesre-insurance to mean the insurance of part of one insurers risk by another insurer who
accepts the risk for a mutually acceptable premium, and thereby excludes the possibility of 100% ceding of risk
to a re-insurer, which could lead to companies acting as front companies for other insurers. Further, it enables
Lloyds and its members to operate in India through setting up of branches for the purpose of reinsurance
business or as investors in an Indian Insurance Company within the 49% cap.
7. Strengthening of Industry Councils: The Life Insurance Council and General Insurance Council have now
been made self-regulating bodies by empowering them to frame bye-laws for elections, meetings and levy and
collect fees etc. from its members. Inclusion of representatives of self-help groups and insurance cooperative
societies in insurance councils has also been enabled to broad base the representation on these Councils.
8. Robust Appellate Process: Appeals against the orders of IRDAI are to be preferred to SAT as the amended
Law provides for any insurer or insurance intermediary aggrieved by any order made by IRDAI to prefer an
appeal to the Securities Appellate Tribunal (SAT).
9. Thus, the amendments incorporate enhancements in the Insurance Laws in keeping with the evolving
insurance sector scenario and regulatory practices across the globe. The amendments will enable the Regulator
to create an operational framework for greater innovation, competition and transparency, to meet the insurance
needs of citizens in a more complete and subscriber friendly manner. The amendments are expected to enable
the sector to achieve its full growth potential and contribute towards the overall growth of the economy and job
Market Size
India's life insurance sector is the biggest in the world with about 360 million policies which are
expected to increase at a Compound Annual Growth Rate (CAGR) of 12-15 per cent over the next five
years. The insurance industry plans to hike penetration levels to five per cent by 2020. The countrys
insurance market is expected to quadruple in size over the next 10 years from its current size of US$

60 billion. During this period, the life insurance market is slated to cross US$ 160 billion. The general
insurance business in India is currently at Rs 78,000 crore (US$ 11.7 billion) premium per annum
industry and is growing at a healthy rate of 17 per cent. The Indian insurance market is a huge
business opportunity waiting to be harnessed. India currently accounts for less than 1.5 per cent of
the worlds total insurance premiums and about 2 per cent of the worlds life insurance premiums
despite being the second most populous nation. The country is the fifteenth largest insurance market
in the world in terms of premium volume, and has the potential to grow exponentially in the coming
years. Investments The following are some of the major investments and developments in the Indian
insurance sector. Foreign Direct Investment in the insurance sector stood at US$ 341 million in
March-September, 2015, showing a growth of 152 per cent compared to the same period last year.
Insurance firm AIA Group Ltd has decided to increase its stake in Tata AIA Life Insurance Co Ltd, a
joint venture owned by Tata Sons Ltd and AIA Group from 26 per cent to 49 per cent. Canada-based
Sun Life Financial Inc plans to increase its stake from 26 per cent to 49 per cent in Birla Sun Life
Insurance Co Ltd, a joint venture with Aditya Birla Nuvo Ltd, through buying of shares worth Rs 1,664
crore (US$ 249 million). Nippon Life Insurance, Japan's second largest life insurance company, has
signed definitive agreements to invest Rs 2,265 crore (US$ 348 million) in order to increase its stake
in Reliance Life Insurance from 26 per cent to 49 per cent. The Central Government is planning to
launch an all-in-one insurance scheme for farmers called the Unified Package Insurance Scheme
(Bhartiya Krishi Bima Yojana). The proposed scheme will have various features like crop insurance,
health cover, personal accident insurance, live stock insurance, insurance cover for agriculture
implements like tractors and pump sets, student safety insurance and life insurance. Government
launched a special enrolment drive, Suraksha Bandhan Drive comprising of sale of gift cheques and
launch of deposit schemes in bank branches, to facilitate enrolment under Pradhan Mantri Suraksha
Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY). To increase the
subscriber base and ensure wider reach, the Central Government has eased several norms for its
flagship insurance scheme Atal Pension Yojana (APY),in terms of more options for periodical
contributions, voluntary and premature exits and simplified penalty for payment delays. Bennett
Coleman and Co. Ltd (BCCL), the media conglomerate with multiple publications in several languages
across India, is set to buy Religare Enterprises Ltds entire 44 per cent stake in life insurance joint
venture Aegon Religare Life Insurance Co. Ltd. The foreign partner Aegon is set to increase its stake
in the joint venture from 26 per cent to 49 per cent, following governments reform measure allowing
the increase in stake holding by foreign companies in the insurance sector. GIC Re and 11 other nonlife insurers have jointly formed the India Nuclear Insurance Pool with a capacity of Rs 1,500 crore
(US$ 226 million) and will provide the risk transfer mechanism to the operators and suppliers under
the CLND Act. State Bank of India has announced that BNP Paribas Cardif is keen to increase its
stake in SBI Life Insurance from 26 per cent to 36 per cent. Once the foreign joint venture partner
increases its stake to 36 per cent, SBIs stake in SBI Life will get diluted to 64 per cent. Bangladesh
has granted permission to the Life Insurance Corporation of India (LIC) to run its business, making it
the second foreign insurance company to operate in the country. Reliance Life Insurance Company
(RLIC) today said it will add 20,000 agents across India in this financial year as part of its expansion
plans. It will increase their agency force by 20 per cent which now stands at 100,000.
Government Initiatives
The Government of India has taken a number of initiatives to boost the insurance industry. Some of
them are as follows: The Insurance Regulatory and Development Authority (IRDA) of India has formed
two committees to explore and suggest ways to promote e-commerce in the sector in order to
increase insurance penetration and bring financial inclusion. IRDA has formulated a draft regulation,
IRDAI (Obligations of Insures to Rural and Social Sectors) Regulations, 2015, in pursuance of the
amendments brought about under section 32 B of the Insurance Laws (Amendment) Act, 2015. These
regulations impose obligations on insurers towards providing insurance cover to the rural and
economically weaker sections of the population. The Government of India has launched two

insurance schemes as announced in Union Budget 2015-16. The first is Pradhan Mantri Suraksha
Bima Yojana (PMSBY), which is a Personal Accident Insurance Scheme. The second is Pradhan
Mantri Jeevan Jyoti Bima Yojana (PMJJBY), which is the governments Life Insurance Scheme. Both
the schemes offer basic insurance at minimal rates and can be easily availed of through various
government agencies and private sector outlets. The Uttar Pradesh government has launched a first
of its kind banking and insurance services helpline for farmers where individuals can lodge their
complaints on a toll free number. The select committee of the Rajya Sabha gave its approval to
increase stake of foreign investors to 49 per cent equity investment in insurance companies.
Government of India has launched an insurance pool to the tune of Rs 1,500 crore (US$ 226 million)
which is mandatory under the Civil Liability for Nuclear Damage Act (CLND) in a bid to offset financial
burden of foreign nuclear suppliers.