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BANKING & INSURANCE
TY BMS | 2009
BANKING AND INSURANCE
A PROJECT REPORT ON
“BANKING & INSURANCE”
SUBMITTED BY “________” FOR THE DEGREE OF THE BACHELOR OF MANAGEMENT STUDIES UNDER THE GUIDANCE OF “MISS _____________”
_________ COLLEGE OF COMMERCE AND ECONOMICS _________ ( E ) , MUMBAI – 4000____ ACADEMIC YEAR 2009 - 2010
TY BMS | 2009
BANKING AND INSURANCE
I, ______ OF THE _________ COLLEGE OF COMMERCE AND ECONOMICS, ___________( E ) , HEREBY DECLARE THAT I HAVE COMPLETED THE PROJECT ENTITLED “BANKING & INSURANCE” IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE THIRD YEAR OF THE BACHELOR OF MANAGEMENT STUDIES COURSE FOR THE ACADEMIC YEAR 2009-2010 I FURTHER DECLARE THAT INFORMATION SUBMITTED BY ME IS TRUE AND ORIGINAL TO THE BEST OF MY KNOWLEDGE.
_________ Name of the student
TY BMS | 2009
BANKING AND INSURANCE CERTIFICATE I MISS ______________ HEREBY CERTIFY THAT MS. HAS COMPLETED A PROJECT ON “BANKING & INSURANCE” IN THE ACADEMIC YEAR 2009-2010 UNDER MY GUIDANCE. DATED: Place: Name of the guide Examiner’s Sign &Date PROJECT GUIDE _____________________ College Seal PRINCIPAL TY BMS | 2009 4 . I FURTHER CERTIFY THAT THE INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF MY KNOWLEDGE. __________ (E). ______ STUDYING IN TYBMS AT __________ COLLEGE OF COMMERCE AND ECONOMICS.
) ________________________ OF INSPIRATION. WITHOUT WHICH THIS PROJECT WOULD NOT HAVE BEEN SUCCESSFUL. I WISH TO TAKE THE OPPORTUNITY TO EXPRESS MY DEEP SENCE OF GRATITUDE TO PRINCIPAL ___________________________ and PROF. FINALLY IT IS THE FOREMOST DUTY TO THANK ALL MY RESPONDENTS. THEY HAVE BEEN A CONSTANT SOURCE Name of the student TY BMS | 2009 5 . (Mr.BANKING AND INSURANCE ACKNOWLEDEGEMENT I EXPRESS MY SINCERE THANKS TO MISS ______________FOR HER VALUABLE GUIDANCE IN DOING THIS PROJECT. FOR THEIR INVALUABLE GUIDANCE AND SUPPORT IN THIS ENDEAVOUR. FAMILY & FRIENDS WHO HAVE HELPED ME DIRECTLY OR INDIRECTLY IN COMPLETING MY FIELD WORK.
The sector has made a marked improvement in the liberalization period. The banking sector is a very important sector of the Indian economy. profitability. No Contents Page no SYNOPSIS The economic reforms undertaken in the last 15 years have brought about a considerable improvement in the health of banks and financial institutions in India. TY BMS | 2009 6 .BANKING AND INSURANCE TABLE OF CONTENTS Sr. There has been extraordinary progress in the financial health of the commercial banks with respect to capital adequacy.
Also mortgage insurance will soon be coming into the industry. Liberalization and globalization have created a more challenging environment in the banking sector as well as in the other segments of the financial sector such as mutual funds. etc. Standard Life. insurance. sharpening skills. Commercial banks are coming up with more and more vacancies. to establish 'Customer Intimacy'. insurance sector intensifies and broadens its reach. depository services. As an economy grows over the years. corporate governance. The insurance business is one of the most rapidly growing areas in the financial sector. Tokio Marine. The limit for foreign direct investment in private banks has been increased from 49% to 74%. Non Banking Finance Companies.BANKING AND INSURANCE asset quality and risk management. Right from the branch level to the highest TY BMS | 2009 7 . The IRDA Act 1999 (Insurance Regulatory and Development Authority of India Act) has given new opportunities to private players to enter into the market on the fulfillment of certain prerequisites. Aviva. the limit for foreign institutional investment in private banks is 49%. New players have contributed to the launch of innovative products. post offices. reinforcing technology. Deregulation has opened new doors for banks to increase revenues by entering into investment banking. risk management and. venture capitalists. securitization. etc. AMP and Sun Life among others. his family and his assets to be insured. AIG. India has a large insurance market commensurate with its population. credit cards. services and value-added benefits. and the banking sector now has more new jobs than any other sector. the most important of all. The IRDA is the licensing authority in the sector. Allianz. Now the challenges faced by the sector would be gaining profitability. Major foreign players have entered the country and announced joint ventures in both life and non-life areas. Insurance deals mainly with life and general insurance. the current FDI cap/Equity in the sector stands at 26 percent. Lombard General. capital markets. These include New York Life. Every practical and futuristic individual would want himself. In addition. There is no doubt the challenges ahead will become tougher with more companies competing both in general and life Insurance. maintaining global standards. mortgage.
Both government and private players are currently offering a plenty of jobs in this sector. as it is the fastest growing industry under the financial sector. So. TY BMS | 2009 8 . as you get opportunities to learn about business.BANKING AND INSURANCE level. interact with people and build up clientele. Jobs in this sector can be both rewarding and enjoyable. this is great news for you if you are thinking to go into the banking & insurance streams. there is tremendous range of opportunities available in the sector. The same is the case with insurance.
Central banking is the responsibility of the Reserve Bank of India.1 BANKING IN INDIA Banking in India originated in the last decades of the 18th century. which in 1935 formally took TY BMS | 2009 9 . The oldest bank in existence in India is the State Bank of India. a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country.BANKING AND INSURANCE CHAPTER 1 1.
with the private and foreign banks holding 18. the public sector banks hold over 75 percent of total assets of the banking industry. relegating it to commercial banking functions. That honor belongs to the Bank of Upper India. and which survived until 1913. when it failed. the government nationalized the six next largest in 1980. The Allahabad Bank. According to a report by ICRA Limited. the Reserve Bank was nationalized and given broader powers. which was established in 1863.000 branches and 17. It was not the first though. Indian merchants in Calcutta established the Union Bank in 1839. is the oldest Joint Stock bank in India. established in 1865 and still functioning today.2% and 6. The first banks were The General Bank of India which started in 1786. as did their successors. The oldest bank in existence in India is the State Bank of India. Currently. After India's independence in 1947. and the Bank of Hindustan. For many years the Presidency banks acted as quasi-central banks. TY BMS | 2009 10 . both of which are now defunct. 31 private banks (these do not have government stake. upon India's independence. they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53. This was one of the three presidency banks. The three banks merged in 1921 to form the Imperial Bank of India. but it failed in 1848 as a consequence of the economic crisis of 1848-49. became the State Bank of India. which.27 public sector banks (that is with the Government of India holding a stake).BANKING AND INSURANCE over these responsibilities from the then Imperial Bank of India. India has 88 scheduled commercial banks (SCBs) .5% respectively EARLY HISTORY Banking in India originated in the last decades of the 18th century. with some of its assets and liabilities being transferred to the Alliance Bank of Simla. all three of which were established under charters from the British East India Company.000 ATMs. a rating agency. which originated in the Bank of Calcutta in June 1806. the other two being the Bank of Bombay and the Bank of Madras. which almost immediately became the Bank of Bengal. In 1969 the government nationalized the 14 largest commercial banks.
Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and TY BMS | 2009 11 . followed. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. Around five decades had elapsed since the Indian Mutiny. HSBC established itself in Bengal in 1869. Around the turn of the 20th Century. established in 1881 in Faizabad. concentrated on financing foreign trade. With large exposure to speculative ventures. Subsequently. banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. in the 1860s. promoters opened banks to finance trading in Indian cotton. The depositors lost money and lost interest in keeping deposits with banks. The next was the Punjab National Bank. most of which served particular ethnic and religious communities. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860. and so became a banking center. industrial and other infrastructure had improved. Foreign banks too started to arrive. which has survived to the present and is now one of the largest banks in India. particularly in Calcutta. established in Lahore in 1895. then a French colony. and another in Bombay in 1862. The first entirely Indian joint stock bank was the Oudh Commercial Bank. and the social. mostly owned by Europeans. most of the banks opened in India during that period failed. Calcutta was the most active trading port in India. It failed in 1958. branches in Madras and Pondichery. mainly due to the trade of the British Empire. All these banks operated in different segments of the economy. the Indian economy was passing through a relative period of stability. The exchange banks. Indians had established small banks.BANKING AND INSURANCE When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States.
Canara Bank and Central Bank of India. Bank of Baroda. A number of banks established then have survived to the present such as Bank of India. "In respect of banking it seems we are behind the times. The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. her move was swift and sudden. Thereafter. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". the Indian banking industry had become an important tool to facilitate the development of the Indian economy. and a debate had ensued about the possibility to nationalise the banking industry. Corporation Bank." The paper was received with positive enthusiasm. Four nationalised banks started in this district and also a leading private sector bank.BANKING AND INSURANCE exchange banks. saw the establishment of banks inspired by the Swadeshi movement. it had emerged as a large employer. NATIONALISATION By the 1960s. Indian Bank. the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. Indira Gandhi. At the same time. This segmentation let Lord Curzon to observe. divided by solid wooden bulkheads into separate and cumbersome compartments. and the GOI issued an ordinance TY BMS | 2009 12 ." The period between 1906 and 1911. We are like some old fashioned sailing ship.
and included Global Trust Bank (the first of such new generation banks to be set up). Chidambaram. namely. and it received the presidential approval on 9 August. Later on. With the second dose of nationalization. LIBERALISATION In the early 1990s. the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill." Within two weeks of the issue of the ordinance. The nationalised banks were credited by some. licensing a small number of private banks. The stated reason for the nationalization was to give the government more control of credit delivery. TY BMS | 2009 13 . to have helped the Indian economy withstand the global financial crisis of 2007-2009. Axis Bank(earlier as UTI Bank). described the step as a "masterstroke of political sagacity. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. These came to be known as New Generation tech-savvy banks. in the year 1993. revitalized the banking sector in India. private banks and foreign banks. the then Narsimha Rao government embarked on a policy of liberalization. This move. until the 1990s. government banks. Jayaprakash Narayan. which later amalgamated with Oriental Bank of Commerce. A second dose of nationalization of 6 more commercial banks followed in 1980. the nationalised banks grew at a pace of around 4%. closer to the average growth rate of the Indian economy. which has seen rapid growth with strong contribution from all the three sectors of banks. the government merged New Bank of India with Punjab National Bank. including Home minister P. along with the rapid growth in the economy of India. 1969. ICICI Bank and HDFC Bank. a national leader of India. After this.BANKING AND INSURANCE and nationalised the 14 largest commercial banks with effect from the midnight of July 19. 1969. the GOI controlled around 91% of the banking business of India.
In March 2006. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. with minimal pressure from the government. where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%. till this time. Indian banks are considered to have clean. In terms of quality of assets and capital adequacy.All this led to the retail boom in India. takeovers.BANKING AND INSURANCE The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment. and asset sales. especially retail banking. product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true.Lend at 6%. People not just demanded more from their banks but also received more. the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced TY BMS | 2009 14 . were used to the 4-6-4 method (Borrow at 4%. banking in India is generally fairly mature in terms of supply. Bankers. The new policy shook the Banking sector in India completely.at present it has gone up to 49% with some restrictions. One may also expect M&As. strong and transparent balance sheets relative to other banks in comparable economies in its region.Go home at 4) of functioning. Currently (2007). The Reserve Bank of India is an autonomous body. mortgages and investment services are expected to be strong. With the growth in the Indian economy expected to be strong for quite some timeespecially in its services sector-the demand for banking services.
There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.D. Money was accepted on deposit and given in the form of advances.2 ANCIENT BANKING PRACTICES Banking in India is as old as the hills. In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing. devoted a section of his work to deposits and advances and laid down rules relating to the interest to be paid or charged. As far back as the second or third century A. It flourished even in ancient Vedic times. vehicle and personal loans.BANKING AND INSURANCE norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. TY BMS | 2009 15 . the great Hindu jurist. Manu. 1.
3 BANKING TRANSITION PHASE I The General Bank of India was set up in the year 1786. TY BMS | 2009 16 . ‘shroff’. besides shroffs. He was respected by all sections of people as an important citizen. In principal towns. They were also engaged in the profitable business of money changing. Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. Every town. or ‘chettiar’ who performed a number of banking functions. big or small.BANKING AND INSURANCE During the mogul period. were instrumental in transferring funds from place to place and doing collection business mainly through hundis. These Sheths or Shroffs. The East India Company established Bank of Bengal (1809). Next came Bank of Hindustan and Bengal Bank. 1. had a ‘sheth’ also known as ‘shah’. The hundis were an accepted mode of transfer of money for commercial transactions. besides doing money-lending business. mostly Europeans shareholders. the indigenous bankers played a very important role in lending money and financing of foreign trade and commerce. there was a ‘Nagar Sheth’ or ‘Town Banker’. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks.
Bank of India. Indian Bank. As an aftermath deposit mobilisation was slow. Bank of Baroda. 23 of 1965).BANKING AND INSURANCE In 1865 Allahabad Bank was established and first time exclusively by Indians. 14 major commercial banks in the country was nationalised. This step brought 80% of the banking segment in India under Government ownership. It formed State Bank of india to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. major process of nationalisation was carried out. the Government of India came up with The Banking Companies Act. funds were largely given to traders. There were approximately 1100 banks. Moreover. TY BMS | 2009 17 . Central Bank of India. Punjab National Bank Ltd. It was the effort of the then Prime Minister of India. Reserve Bank of India came in 1935. mostly small. Canara Bank. 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. it nationalised Imperial Bank of India with extensive banking facilities on a large scale specially in rural and semi-urban areas. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. In 1955. Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with seven more banks. To streamline the functioning and activities of commercial banks. was set up in 1894 with headquarters at Lahore. and Bank of Mysore were set up. Indira Gandhi. Reserve Bank of India was vested with extensive powers for the supervision of banking in india as the Central Banking Authority. Mrs. 1969. PHASE II Government took major steps in this Indian Banking Sector Reform after independence. Between 1906 and 1913. Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July. During those days public has lesser confidence in the banks.
TY BMS | 2009 18 . a committee was set up by his name which worked for the liberalisation of banking practices. The country is flooded with foreign banks and their ATM stations. 1971: Creation of credit guarantee corporation. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. Time is given more importance than money. under the chairmanship of M Narasimham. the foreign reserves are high. Banking in the sunshine of Government ownership gave the public implicit faith and immense PHASE III This phase has introduced many more products and facilities in the banking sector in its reforms measure. the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11. 1975: Creation of regional rural banks. 1959: Nationalisation of SBI subsidiaries. The financial system of India has shown a great deal of resilience. Phone banking and net banking is introduced. 1961: Insurance cover extended to deposits. This is all due to a flexible exchange rate regime. The entire system became more convenient and swift. 1980: Nationalisation of seven banks with deposits over 200 crore. Efforts are being put to give a satisfactory service to customers.BANKING AND INSURANCE The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: • • • • • • • • 1949: Enactment of Banking Regulation Act. 1969: Nationalisation of 14 major banks. After the nationalisation of banks. In 1991.000%. confidence about the sustainability of these institutions. 1955: Nationalisation of State Bank of India.
and banks and their customers have limited foreign exchange exposure. Manu. besides shroffs. They were also engaged in the profitable business of money changing.D.BANKING AND INSURANCE the capital account is not yet fully convertible. As far back as the second or third century A. the great Hindu jurist. During the mogul period. big or small. the indigenous bankers played a very important role in lending money and financing of foreign trade and commerce. devoted a section of his work to deposits and advances and laid down rules relating to the interest to be paid or charged. had a ‘sheth’ also known as ‘shah’. 1. there was a ‘Nagar Sheth’ or TY BMS | 2009 19 . ‘shroff’. Every town. He was respected by all sections of people as an important citizen. It flourished even in ancient Vedic times. In principal towns.4 BANKING SECTOR Banking in India is as old as the hills. or ‘chettiar’ who performed a number of banking functions. Money was accepted on deposit and given in the form of advances.
BANKING AND INSURANCE ‘Town Banker’. These Sheths or Shroffs. were instrumental in transferring funds from place to place and doing collection business mainly through hundis. The hundis were unaccepted mode of transfer of money for commercial transactions 1. players who have remained dormant in India like BNP Paribas and America Express are likely to enter. besides doing money-lending business.5 INDUSTRY ANALYSIS Threat of new Entrants With the financial services opening up. These firms with deep pockets will definitely bring in the best practices and bring about massive consolidation and restructuring in the industry. Threat of suppliers A huge threat of suppliers exists with the human capital being wooed by foreign banks. and the flow of foreign capital unrestricted. and the customers being attracted by the ever-increasing portfolio of services being TY BMS | 2009 20 .
and willingness to take on higher risk projects. which must be taken into consideration in designing the most effective financial services marketing mix. and better distribution channels. Therefore the industry is fast becoming service oriented with faster and better technologies. Rivalry among existing firms There is tremendous rivalry amongst the existing firms. which favor takeovers and mergers and flow of foreign capital into the country. but profitable clients. are as follows: PRODUCT TY BMS | 2009 21 .BANKING AND INSURANCE offered. This will lead to the sector offering better and faster services. Some key issues.6 MARKETING MIX The key objectives for financial service providers are: Attracting customers in the first place Retaining customers through high levels of client satisfaction and by providing a portfolio of financial services to meet their changing needs over time. Threat of buyers Buyers like corporates choose multinationals with exposure in foreign markets to raise funds. and this can only increase given the recent policy changes. Therefore in the long run these banks are likely to move towards relationship banking with few. a lookout for lower return on assets. This rivalry has already manifested itself in an increasing number of firms looking to move into universal bankin 1.
for example by altering charges or interest rates to meet those of competitors. such as government directives relating to income tax and investments or constraints on the amounts. This can be in terms of interest rates charged on a mortgage. Current accounts are dominated by banks. Additionally. representing a form of discounting. for example on paying their credit card balances off each month. PRICE This relates to the cost involved to the customer in bank charges or credit card interest rates. to attract long-term savers or large lump-sum investors. Differentiation therefore can be best achieved through the other elements of marketing mix. although the building societies’ share of this market in which they could not compare until recently is growing. however such as the annual credit card fee had a noticeable effect initially. Price also relates to the value of the product to the customer and as such. where reductions in interest for first time buyers or preferential rates for existing customers of other services (for example current account holders) are standard promotional tools in the industry. PROMOTION TY BMS | 2009 22 . which can be invested. Pricing can therefore be used to differentiate the offering and is likely to be used by customers in selecting a service. These prices seem to evoke low levels of customer sensitivity as many customers enjoy ‘free’ banking by maintaining their current accounts in credit. The introduction of new charges. however. many financial services are affected by other restrictions. can be highly sensitive.BANKING AND INSURANCE There is little or no room for innovation in product design due to the ease by which competitors can make similar offerings. and sparked off competitive reaction from lenders prepared to offer cards with no annual charge. The rate of return offered to investors is another element of the price and the different products within the range are frequently priced at differential rates.
Another idea where personal selling is a strong tool is in the area of insurance products and the emergence of ‘bancassurance’. and other promotional means. For transaction services where regular and frequent branch contact is requires this can be important. The importance of personal selling is now widely recognised and many institutions offer home visits by financial advisers. sponsorship. The insurance organisation’s expertise in personal selling and the strong customer loyalty and extensive customer base of the banks make for synergy in business development. face-to-face contact within a branch and may be more likely to use a local branch or building society. PEOPLE TY BMS | 2009 23 .BANKING AND INSURANCE Banks and other major financial institutions such as insurance companies undertake major advertising campaigns continuously. Personal selling can be done over the telephone once the initial inquiry has been made and customer care has been developed to enable a strong personal selling strategy to work. Changes in distribution systems. Some consumers prefer personal. The trend has also been towards developing more below the line promotional activities using highly sophisticated databases to target direct mail campaigns at distinct market segments and using publicity. technology and consumer demands are all key influences in the evolution of the ‘place’ component in the marketing mix. PLACE Place or location has always been regarded as critical in retail financial services where high street positions are maintained by most of the large institutions.the product offered through links between banks and insurers. The main purpose of the advertising is to strengthen awareness of the brand and the company image and to inform the market about the services available. commonly with banks as the controlling partner.
Improvements in the process stem not only from the automation of many transactions and data handlings within the organisations but also from process re-engineering to reduce delays in processing mortgage applications or the installations of automated queuing systems to cut down on waiting time. ‘gold’ credit cards. cheque book and credit card holders. Attractive brochures and policy documents. Other physical evidence plays an important part in financial transactions such as the documentation. Personnel can be used to develop competitive advantage in the marketplace and to build and maintain relationships with customers. children’s’ collectable money boxes are all examples of physical evidence being used In this way. Staff needs to be highly trained not only in customer care but also in how to respond to the rapidly changing market environment. This creates confidence and helps to build the relationship between customer and provider. PHYSICAL EVIDENCE The environment in banks in changing. TY BMS | 2009 24 . It is also widely used to tangibilise the service.BANKING AND INSURANCE Customer care is the forefront of both quality and differentiation in the financial services industry. which must be presented by salespeople to prove that they are authorized to offer investment advice. moving away from austerity and formality to a more friendly approach reflected in more attractive layouts and décor. PROCESS This is the main area where technological advances have led to major change. presented in glossy folders.
The intensification of competition in the banking industry because of growing private sector participation coupled with growing customer needs has spurred innovation resulting in new products and services.deposit of 48% figures speak volumes of the inherent strength of this industry. one of the supporting precursors to any rapidly growing economy. Nurturing collaborative ventures and paying strong emphasis on Forex services. the private banks are globalizing Indian banking business armed with strategic alliances with foreign collaborators. TY BMS | 2009 25 . the lack of competitiveness vis-a-vis global standards.7 CHANGING SCENARIO The economic reforms initiated in the aftermath of the 1991 crisis have blown winds of change in every segment of the economy. The three sectors of the banking industry namely public. these banks have opened doors to new positive ideas. high NPAs and low levels of motivation had shackled the performance of the banking industry. low technological level in operations. private and foreign are the cornerstones of the changing banking industry. United Kingdom. The entry of the New Private Sector banks into the market changed the face of this industry. The Indian banking sector has a massive geographical reach and the credit. concepts and products. Global Trust Bank is the first Indian Bank to have equity participation from International Finance Corporation and Asian Development Bank. has undergone a period of considerable change since the 1990s. Singapore and HDFC Bank with Nat West Markets. The private sector banks spearhead this "Innovation Revolution". Recently ICICI successfully completed its ADR issue on New York Stock Exchange (NYSE). The banking industry. over staffing. These private banks have set a trend for universal banking. Similar trends are seen in Centurion Bank’s alliance with Keppel Bank.BANKING AND INSURANCE 1. Until recently. For instance.
TY BMS | 2009 26 . HDFC bank. ICICI bank. Branch size has been reduced considerably by using technology thus saving work force. less efficient older banks. ICICI Bank has already launched Database Management (referring to using the database of existing clients to generate more revenues). PSU and old private sector banks. These banks have targeted non-fund based income as major source of revenue. with their level of contingent liabilities being much higher then their other counterparts viz. GTB. it is for the first time that Indian banks (mainly private) are challenging the foreign banks. This has resulted in an overall cost saving. In addition. The major beneficiary of this has been corporate clients who are most sought after now. With emphasis on service and technology. IndusInd. The new private banks have been consistently gaining market shares from the public sector banks. These banks are making heavy use of technology to give good service at par with foreign banks but to a much wider clientele. However with the advent of foreign players’ participation. BOP and UTI Bank have come out with IPOs as per licensing requirement. Their technological edge and product innovation has seen them gaining market share from the slower. the private sector banks’ position stands threatened. The other three private sector banks are expected to come out with their IPOs in next fiscal. The new private banks are on an expansion phase and are now moving into semi-urban areas and satellite towns to fulfill their branch expansion norms. the Any Time Money (ATM) facility helps draw large customers to a branch.BANKING AND INSURANCE The new private sector banks are targeting specific products and client group.
BANKING AND INSURANCE CHAPTER 2 TY BMS | 2009 27 .
TY BMS | 2009 28 . life insurance made great strides in the country. in its pristine form. From then on. Many factors combined together to prompt the then Government to nationalize the life insurance industry in 1956 to form the Life Insurance Corporation of India The years from 1956 to 1999 saw the Life Insurance Corporation of India emerge as a giant financial institution and the lone organization purveying life insurance. The Sanskrit term yogakshema. There were also many other failures. The institution succeeded in penetrating many areas and segments of the population and in garnering public money for public welfare.INTRODUCTION Life insurance. Initially. which means "well-being" is present in the Rig Veda and it is used in the context of some form of insurance in vogue during the Aryan times. Later on. In the Western world.BANKING AND INSURANCE 2. Shakespeare speaks of ‘putters out of five’ in some of his plays – an oblique reference to private financiers who used to gamble on the lives of sea-farers by offering five times the money deposited with them in case of certain contingencies. At the time of Independence and thereafter. There are references in Kautilya’s Arthashastra to some kind of social security system for the welfare of the subjects. life insurance evolved mainly from the maritime industry.1 INSUARNCE . evolved out of a sense of co-operation within the community that was present even at the dawn of history. In its present form. life insurance had its origin in England and made its debut in India in the year 1818. there were more than 200 companies operating in India and not all of them on sound ethical principles. if we ignore the minimal presence of postal life insurance. It was in the early part of the 20th century that some kind of legislation was made to regulate the industry. the Indian joint family system too fulfilled the need for security. Indians were not considered on par with Europeans as far as their insurability was concerned.
Their business depended on current information about the sea routes.marine underwriters . But their journeys across the oceans were fraught with danger and unknown risks. This was the place where they could share business intelligence with other underwriters and captains of trading ships. seventy nine underwriters who did business at Lloyds' got together to form a society that went on to become the most famous of all insurance companies . political condition. weather patterns. pirates.BANKING AND INSURANCE Late seventeenth century was an era of growing international trade. and consumer tastes for exotic products. TY BMS | 2009 29 . New shipping routes were discovered and adventurous sailors brought exotic products from strange and alien lands. They required some kind of protection against the peril lurking in high seas. In order to acquire business information. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries. many marine underwriters began to frequent Edward Lloyd's coffeehouse in London. conditions aboard the ship. The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again. In 1771.Lloyd's of London.who agreed to cover the losses in return for a fixed amount of premium. This gave rise to a new breed of entrepreneurs .
It was after this that 107 insurers amalgamated and grouped into four companies viz.. man has sought some sort of protection from the unpredictable calamities of the nature. 16 foreign and 75 provident firms were been established in India. By 1956 about 154 Indian. After the liberalization the entrance of foreign players has added to the competition in the market. can trace its roots to the Triton Insurance Company Ltd.BANKING AND INSURANCE 2. The insurance came to India from UK.The time when we were not even born. Since then LIC has worked towards spreading life insurance and building a wide network across the length and the breath of the country. Then the central government took over these companies and as a result the LIC was formed. frames a code of conduct for ensuring fair conduct and sound business practices.. the National Insurance Company Ltd. GIC incorporated as a company. TY BMS | 2009 30 . on the other hand.2 BRIEF HISTORY The origin of insurance is very old . In 1972 The General Insurance Business (Nationalization) Act. the New India Assurance Company Ltd. 1972 nationalized the general insurance business in India with effect from 1st January 1973. The basic urge in man to secure himself against any form of risk and uncertainty led to the origin of Insurance. with the establishment of the Oriental Life insurance Corporation in 1818.The Indian life insurance company act 1912 was the first statutory body that started to regulate the life insurance business in India. and the United India Insurance Company Ltd.. the Oriental Insurance Company Ltd. In 1957 General Insurance Council. a wing of the Insurance Association of India. the first general insurance company established in the year 1850 in Calcutta by the British. The General insurance business in India.
In other words. India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. it is hard to believe that any adult person living in towns would not have life insurance done and the concept is picking up even in the rural areas. and liberalization of the life insurance market has so far proved to be a great success. An independent consulting company.BANKING AND INSURANCE 2.In spite of all this TY BMS | 2009 31 . With such a large Indian population and the untapped market area of this population Insurance happens to be a very big opportunity in India.000 crore in 2003-04 to touch about Rs. insurance begins with the life insurance and gradually spreads to the field of general insurance. with about 200 million middle class households.218 billion in 1998 to Rs. insurance sector starts making inroads into the interiors of the system.5%)3. presents a huge untapped potential for players in the insurance industry. Insurance business has a positive correlation with economic development in an economy. Together with banking services.50. Today it stands as a business growing at the rate of 15-20 per cent annually. Every forward-looking person would invariably have his/her life insurance done. As an economy develops over the years. the life insurance market in India is as large as its population. 3. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. 90.000 crore. and invested funds have grown dramatically by about Rs. Even in a country like India. There is no doubt that the liberalized life insurance industry is booming. India. The Monitor Group has estimated that the life insurance market will grow from Rs. the demand for insurance is expected to grow at an attractive rate in India. it adds about 7 per cent to the countries GDP .1003 billion by 2008 (a compounded annual growth of 16. With the per capita income in India expected to grow at over 6% for the next 10 years and with improvement in awareness levels. Most of the times.3 INSURANCE BUSINESS By any yardstick. New Life business is growing at 35 per cent.
Ltd. IFFCO-Tokio General Insurance Co. Ltd. Limited ICICI Lombard General Insurance Co. Reliance General Insurance Co. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. Limited TY BMS | 2009 32 . LIFE INSURERS Public Sector Life Insurance Corporation of India Private Sector Allianz Bajaj Life Insurance Company Limited Birla Sun-Life Insurance Company Limited HDFC Standard Life Insurance Co. Pvt. This is an indicator that growth potential for the insurance sector is immense in India. Limited GENERAL INSURERS Public Sector National Insurance Company Limited New India Assurance Company Limited Oriental Insurance Company Limited United India Insurance Company Limited Private Sector Bajaj Allianz General Insurance Co. Limited MetLife Insurance Company Limited Om Kotak Mahindra Life Insurance Co.BANKING AND INSURANCE growth the statistics of the penetration of the insurance in the country is very poor. Limited ICICI Prudential Life Insurance Co. Nearly 80% of Indian populations are without Life insurance cover and the Health insurance. SBI Life Insurance Company Limited TATA AIG Life Insurance Company Limited AMP Sanmar Assurance Company Limited Dabur CGU Life Insurance Co. Ltd.
Life insurance. health insurance and annuity products. Export Credit Guarantee Corporation HDFC Chubb General Insurance Co.data. Growing consolidation and change in the regulatory framework has led many insurers to add new products to their portfolio. The date of maturity. This presents its own unique challenge to the insurer in leveraging its greatest asset . if it occurs earlier.4 BASICS What Is Insurance? Insurance is a contract that pledges payment of an amount to the person assured (or his nominee) on the happening of the event insured against. Limited Cholamandalam General Insurance Co. or 3. The contract is valid for payment of the insured amount during: 1. The products can be broadly classified into two product lines: 1.BANKING AND INSURANCE Royal Sundaram Alliance Insurance Co. Ltd. Ltd. Specified dates at periodic intervals. Life insurance product line can be further sub-divided into life insurance. or 2. Property and casualty (P&C) 2. The insurance industry is quite diverse in terms of portfolio of products provided by different companies. Unfortunate death. TATA AIG General Insurance Co. TY BMS | 2009 33 . 2. Ltd.
the contract also provides for the payment of premium periodically to the Corporation by the policyholder. Insurance is universally acknowledged to be an institution. headed by former Finance Secretary and RBI Governor R. is concerned with two hazards that stand across the life-path of every person: 1. N.BANKING AND INSURANCE Among other things. That of dying prematurely leaving a dependent family to fend for itself. By and large. in short. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. Malhotra. 2.5 INSURANCE SECTOR REFORMS In 1993. 2. Malhotra Committee. The reforms were aimed at “creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognising that insurance is an TY BMS | 2009 34 . was formed to evaluate the Indian insurance industry and recommend its future direction. substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of death of the breadwinner. That of living till old age without visible means of support. Insurance. Insurance is civilisation's partial solution to the problems caused by death. which eliminates 'risk'.
1bn should be allowed to enter the industry No Company should deal in both Life and General Insurance through a single Entity Foreign companies may be allowed to enter the industry in collaboration with the domestic companies Postal Life Insurance should be allowed to operate in the rural market Only one State Level Life Insurance Company should be allowed to operate in Each state Regulatory Body • • • • The Insurance Act should be changed An Insurance Regulatory body should be set up Controller of Insurance (Currently a part from the Finance Ministry) should be made independent Investments TY BMS | 2009 35 .BANKING AND INSURANCE important part of the overall financial system where it was necessary to address the need for similar reforms…” In 1994. the committee submitted the report and some of the key recommendations Included: Structure Government stake in the insurance Companies to be brought down to 50% Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations All the insurance companies should be given greater freedom to operate Competition • • • • • • • Private Companies with a minimum paid up capital of Rs.
100 crores. But at the same time. it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs. The other decisions taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the TY BMS | 2009 36 . The Insurance Regulatory and Development Authority Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. For this purpose. it had proposed setting up an independent regulatory body.BANKING AND INSURANCE • • Mandatory Investments of LIC Life Fund in government securities to be reduced GIC and its subsidiaries are not to hold more than 5% in any company (There from 75% to 50% current holdings to be brought down to this level over a period of time) Customer Service • • • LIC should pay interest on delays in payments beyond 30 days Insurance companies must be encouraged to set up unit linked pension plans Computerisation of operations and updating of technology to be carried out in the insurance industry The committee emphasised that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. Hence. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives.
2. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations.BANKING AND INSURANCE IRDA’s online service for issue and renewal of licenses to agents. 12 life insurance companies and 9 general insurance companies have been registered.6 PLAYERS & MARKET SHARES Insurance Penetration in different countries Reforms were initiated with the passage of Insurance Regulatory and Development Authority (IRDA) Bill in 1999. TY BMS | 2009 37 . The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products. In the private sector 12 life insurance and 6 general insurance companies have been registered. which are expected to be introduced by early next year. So far in the private sector. which has put in place regulations in line with global norms. IRDA was set up as an independent regulatory authority.
The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Though LIC still holds the 75% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. As a result LIC down the years have seen the declining phase in its carrer. The following company has the rest of the market share of the insurance industry. The market share was distributed among the private players.BANKING AND INSURANCE The introduction of private players in the industry has added to the colors in the dull industry. TY BMS | 2009 38 . The new players have improved the service quality of the insurance. LIC market share has decreased from 95% (2002-03) to 81 %( 2005-06).
BANKING AND INSURANCE TY BMS | 2009 39 .
7 WINDS OF CHANGE Reforms have marked the entry of many of the global insurance majors into the Indian market in the form of joint ventures with Indian companies. After the entry of the foreign players the industry is seeing a lot of competition and thus improvement of the customer service in the industry. which has responded to the competition in an admirable fashion by launching new products and improving service standards. Customer Service Consumers remain the most important center of the insurance sector. Allianz. Foreign players are bringing in International best practices in service through use of latest technologies. Prudential. Sun Life Canada and Old Mutual. New York Life. The following are the key winds of change brought about by privatisation. Market Expansion There has been an overall expansion in the market. Standard Life. Some of the key names are AIG. Computerisation of operations and updating of technology has become imperative in the current scenario. The one time monopoly of the LIC and its agents are now going through a through revision and training programmes to catch up with the other private players.BANKING AND INSURANCE 2. The entry of new players has rejuvenated the erstwhile monopoly player LIC. Distribution Channels TY BMS | 2009 40 . This has been possible due to improved awareness levels thanks to the large number of advertising campaigns launched by all the players.
The concept is very well established in the country like India but still the increasing use of other sources is imperative. India has an extensive bank network established over the years.BANKING AND INSURANCE Till date insurance agents still remain the main source through which insurance products are sold. What Insurance companies have to do is to just take advantage of the customers' long-standing trust and relationships with banks. Another advantage is that banks. TY BMS | 2009 41 . help to fulfill rural and social obligations stipulated by the Insurance Regulatory and Development Authority (IRDA) recently. alternative channels of distribution. while the insurance company will also earn profits from the exposure. Therefore they are looking to the diverse areas of distribution channel to have an advantage. This is a mutually beneficial situation as banks can also expand their range of products on offer to customers. New players may find it expensive and time consuming to bring up a distribution network to such standards. LIC has already well established and have an extensive distribution channel and presence. with their network in rural areas. At present the distribution channels that are available in the market are: • • • • • Direct selling Corporate agents Group selling Brokers and cooperative societies Bancassurance Bancasurance Bancassurance is on of the most upcoming channels of distribution. It therefore makes sense to look at wellbalanced.
There is lots of saving and investment plans in the market. health products. the new comers are making losses. In the insurance the awareness TY BMS | 2009 42 . notably the LIC. there are 18 insurance companies in India excluding the PSU’s. Product Innovation There has been a plethora of new and innovative products offered by the new players. not a sprint. are only increasing their spending. which is not considered very appropriate for long-term protection and savings. in India the insurance business can be said to be "a marathon. However this does not deterred the private sector. and cars and to add to it we have insurance.e. With merely two years of the industry being opened. More customers are buying products and services based on their true needs and not just traditional money back policies.g. This is though a new concept but it has gained a lot of importance in the industry at present and has a great future. A research conducted exhibited that the rural consumers are willing to dole out anything between Rs 3. computers. Today.BANKING AND INSURANCE The creation of bancassurance operations has made an important impact on the financial services industry at large. Rural Marketing Rural India seems to have an appetite for mobile phones. though only out of the capital. the expected explosion in job opportunities may not actually happen but for them the catchments area is the opportunities in the rural India. This is because of the nature of the business being long term. The public sector companies. which knows know that the race is a marathon. However it seems that they if not anything.500 and Rs 2. Customers have tremendous choice from a large variety of products from pure term (risk) insurance to unit-linked investment products. with 12 in the life insurance business and the rest in non-life The rural consumer is now exhibiting an increasing propensity for insurance products. In India with the private players having entered into the insurance industry. However.900 as premium each year. there are still some key new products yet to be introduced . Customers are offered unbundled products with a variety of benefits as riders from which they can choose. thanks to the deepening of the market consequent to the awareness created by the new companies. not a sprint". not surprisingly. have gained in strength.
there is dire need to use the data for trend analysis and personalization. Instead of focusing on their different products lines as silos (i. and thus. in that order. property and casualty etc) insurers are looking for ways to offer highly targeted insurance products that are tailored to the individuals customers with the highest propensity to buy them. IT & Insurance In the insurance industry today. There is a evolutionary change in the technology that has revolutionized the entire insurance sector. there is a clear trend away from selling a broad range of products to a large volume of customers in a one –size-fits-all manners. the study adds.e. daughter's marriage. The perceived benefits of buying a life policy range from security of income bulk return in future. With increased competition among insurers. In a study conducted by IMBR the results showed that nearly one third said that they had purchased some kind of insurance with the maximum penetration skewed in favor of life insurance. Today managing the customer intelligently is very critical for the insurer especially in the very competitive environment. customers are getting increasingly sophisticated and tech-savvy. accidents and cattle insurance.. Companies need to apply different set of rules and treatment strategies to different customer segments. service has become a key issue.BANKING AND INSURANCE level for life insurance is the highest in rural India. Moreover. insurers are required to capture customer information in an integrated system. life. People today don’t want to accept the current value propositions. they want personalized interactions and they look for more and more features and add ones and better service The insurance companies today must meet the need of the hour for more and more personalized approach for handling the customer. Insurance industry is a data-rich industry. However. children's education and good return on Savings. but the consumers are also aware about motor. to personalize interactions. The study also pointed out the private companies have huge task to play in creating awareness and credibility among the rural populace. TY BMS | 2009 43 .
The insurers are doing enough to raise the level of risk awareness or are they merely content to compete in the markets organized and established. Currently. These products also may be able to learn from the customer’s previous knowledge database and to use their information when determining the relevance to the customers search request. many organizations are incorporating knowledge database-repositories of content that typically include a search engine and lets the customers locate the all document and information related to their queries of request for services. The private players in the future would have to turn their attention to working in the unorganized and under served markets. Mergers & Acquisitions This is an era of mergers and acquisitions. Customers can hereby use the knowledge database to mange their products or the company information and invoices. there is a need to developing better techniques to give customers a truly personalized experience.BANKING AND INSURANCE With the explosion of Website and greater access to direct product or policy information. The question here is that for over two years. What is likely to happen is that the private players would continue to skim the profitable segments of the already organized business in the urban areas? The time has already come for the government of India to evaluate the performance of private companies visà-vis is their declared objective of opening up the industry. claim records. Private companies including MNC’s are amalgamating the world over to get more competitive edge. To ensure that the customers are receiving personalized information. and histories of the service inquiry. the general insurance industry has been opened up. TY BMS | 2009 44 . eight private companies have operated and has the size of the cake expanded. We here find that this is not true. However sooner or later the private sector players will have to put in place strategies aimed not at winning the existing accounts of the public players but at diversifying markets penetration as a whole. Personalization helps organizations to reach their customers with more impact and to generate new revenue through cross selling and up selling activities.
The insurance market thus becomes a gambling place. Had the public sector companies made into a single entity. But the public sector alone is forced to underwrite the loss making motor third party liability (TPL) insurance. The merged entity will enjoy higher underwriting and risk retention capacity. The purpose of having four companies all subsidiaries of General Insurance Corporation of India (GIC)– National Insurance Company. New India Assurance Company. setting right the asset –liability mismatch and reduction in cost. healthy solvency margins. And The United India Insurance Company. The result what we see is the undercutting of premium to retain or wrest business and quoting an uneconomical rate of premium. While this allows one of the Public Sectors Company to win a business form another in this manner. The others suffer a loss and the resultant effect is a cannibalization with a fall in the average premium of the public sector itself. All over the world’s mergers and acquisitions in the risk-underwriting sector is common. It is to be sated that size does matter in insurance business. it is felt that the time for merger has come and to enjoy the benefits if the size. increase in reinsurance premium.BANKING AND INSURANCE However it is high time for the government to realize that importance of merging the public sector general insurance companies into single entity. perhaps the total premium of the four public sector companies in the year 2004-05 would have gone up but 25 percent. at the time of nationalization was to have competition among themselves – in service and products at the same price. The cumulative loss under this portfolio is TY BMS | 2009 45 . reduction in reinsurance outflow. Now with real competition coming in with most of the global insurance players setting footprints here. The resent scenario calls for a better performance from part of each of the public sector insurance companies against each other. or in other words a competition to be the best. The benefits if the four insurance companies merge will be enormous. The service provided by them was also equally good or bad depending on the experience of the customers. The public insurance companies insured a loss of Rs 1943 crore on this portfolio on just one year (04-05). Oriental Insurance Company. This at many times brings advantage to the private players who grab the business because of the unethical competition among the public players.
TY BMS | 2009 46 . THREAT PREVAILS. Distribution Channels To make distribution channels a success the companies have to be very alert and skillful to now how to use these channels in a proper way. The loss of profitable business in view of undeserved competition among the public sector companies is hampering the subsidization of social insurance including the motor TPL. Bancasurance Insurance companies should see bancassurance as a tool for increasing their market penetration in India.BANKING AND INSURANCE astronomical. ALL THOSE HAS BEEN DESCRIBED BELOW: Market Expansion The scope for expansion is still unlimited as virtually all the players are concentrating on large cities and towns . STILL THE LOOPHOLES REMAINS. Those who understand rural India better will be in demand. high quality product and delivery at doorsteps. The companies that can reach those expectations will only survive. ALL THOSE ABOVE WERE CHANGES MADE DUE TO MARKET PRESSURES. Everybody is a winner here. OPPORTUNITY EXSISTS. Customer Service Though lot is being done for the increased customer service and adding technology to it but there is a long way to go and various customer surveys indicate that the standards are still below customer expectation levels. there will be opportunities in the rural sector. BUT. It is also good for the one who sees bancassurance in terms of reduced price. Rural Marketing As insurance companies go more and more rural in search of business.except by LIC to an extent there was no significant attempt to tap the rural markets. ENTRY OF FOREIGN PLAYERS AND MANY MORE ASPECTS.
Else it would render public sector companies weak and destroy them. This will go up to 15 per cent in five years. For a progress it would require merger of strong public sector companies. IT & Insurance The insurance sector remains a very competitive market and those companies that are able to best utilize their data and provide their customer with the most personalized options will have the distinct competitive advantage. Similarly. 5 per cent of the total policies written should come from the rural sector. for the non-life sector. Mergers & Acquisitions It is thus clear that it is good for the public sector companies to merge immediately when they are still strong. All these moves will make the investment the rural area a big start. two per cent of the total gross premium income should come from the rural sector going up to 5 per cent in five years.BANKING AND INSURANCE Regulatory and Development Authority (IRDA) have set stiff rural targets for insurance companies. This does not bid well for the public sector. For the life sector. The insurers that come up to the top will be those who leverage the appropriate technology solutions effectively in order to foster customer loyalty attract new customers and improve operational efficiency by providing common information across their lines of business. “It Is Thus Clear That The Fittest Will Survive” TY BMS | 2009 47 . in the first year. nor for the insuring public and not for the economic development either. according to the regulation. lest a merger becomes inevitable later after the independent public sector companies fail one after another.
BANKING AND INSURANCE CHAPTER 3 TY BMS | 2009 48 .
1 ICICI PRUDENTIAL Market For over 50 years. and life insurance has emerged as the dominant contributor to this growth.3% in 2002/03. their cumulative share has crossed 13% (Source: IRDA). The percentage of premium income to GDP which was just 2. Today. TY BMS | 2009 49 .3% in 2000/01 rose to 3. Clearly insurance is on a growth path.BANKING AND INSURANCE 3. life insurance in India was defined and driven by only one company – the Life Insurance Corporation of India (LIC). With the Insurance Regulatory and Development Authority (IRDA) Bill 1999 paving the way for entry of private companies into both life and general sectors there was bound to be new-found excitement – and new success stories. far exceeding expectations. just three years since their entry.
was at an abysmal 22% of the insurable population. ICICI Prudential closed the financial year ended March 31. ICICI Prudential’s success has been meteoric. 7. New business premium income shows a 106% growth at Rs. It was also conferred the ‘Outlook Money – Best Life Insurer’ award for the second year running. it has one of the largest distribution networks amongst private life insurers in India.9 billion. Achievements Beginning operations in December 2000. for instance. with branches in 54 cities. The company is also proud to have won Silver at EFFIES 2003 for its ‘Retire from work. making it a clear leader in the segment.5 billion. becoming the number one private life insurer within months of launch. Life insurance penetration. in the year 2003/04 it was adjudged Most Trusted Private Life Insurer (Economic Times ‘Most Trusted Brand Survey’ by ACNielsen ORGMARG). 4. 2004 with a total received premium income of Rs. However. not life’ campaign. Notably. 160 billion. TY BMS | 2009 50 .20 billion. They were faced with attitudinal barriers towards the category and the perception that insurance was only a tax-saving tool. The company’s retail market share amongst private companies stood at 36%. 9. up 135% from last years total premium income of Rs. The challenge for private insurance players was to change the established category driver and get customers to evaluate life insurance as an investment-cumprotection tool. private players have had to rise to many challenges.000 with a total sum assured in excess of Rs. It wasn’t surprising then that its potential lay frozen and unexploited. The total number of policies issued stands at more than 780. Today. ICICI Prudential was also short-listed to the final round for its ‘Sindoor’ campaign in EFFIES 2002.BANKING AND INSURANCE The industry presented a huge opportunity. To add to its achievements. driven mainly by the company’s range of unique unit-linked policies and pension plans. Insurance per se had lost it basic rationale: protection.
ICICI Prudential was the first life insurer to invest in multiple channels and offer the customer choice and access. 2002. symbolised trust and was easily recognised and understood.200 million on a sum assured of over Rs. ‘the calling card of the company’. 1.000 polices translating into a premium income of approximately Rs. The company was granted a Certificate of Registration by the IRDA on November 24. saw the brand awareness scores almost at par with its 40 year old competitor. The company's penetration of the retirement market was driven by the focussed approach towards creating awareness through a sustained campaign: ‘Retire from work.BANKING AND INSURANCE ICICI Prudential’s success is rooted in its philosophy to always offer the customer a choice. the campaign rewarded ICICI Prudential with an increased share of 23% of the total pensions market and 78% amongst private players. not life’. History ICICI Prudential Life Insurance Company Limited is a 74:26 joint venture between ICICI Bank and Prudential plc. thus reducing dependency on any one channel. The company brings together the local market expertise and financial strength of ICICI Bank and Prudential’s international life insurance experience. a little over a year since its launch. Within six months. ICICI Prudential also made great strides in the retirement solutions and pensions market. the need was to build a brand that was relatable to. the company had issued 100. When the company began its operations. ICICI Prudential seemed to have the wherewithal for a large-scale business. From its early days. It launched a corporate campaign using the theme of ‘Sindoor’ to epitomise protection. togetherness and all that is Indian. This has been the driving force behind its multi-channel distribution strategy. The success of the campaign. By March 31. 23 billion. endearing itself to the masses. In fact. banks. direct marketing and corporate agents. The theme of protection was also extended to subsequent product and TY BMS | 2009 51 . which includes advisors. trust. 2000 and eighteen days later. UK. issued its first policy on December 12.
bringing the total paid-up equity capital to Rs. Child plans. It swiftly revised and added to its initial range of products. In February 2004. Advisors can offer a complete range of products . the company has twelve ‘Bancassurance’ partners – the largest in the country. Product ICICI Prudential’s ultimate promise is financial security. It has thus built a flexible portfolio of products that can be customised to cater to varying needs of people at each life stage. 500 million. to offer customers the most flexible life insurance policies in the country.750 million. 12 billion. pioneering market-linked products and pension plans.BANKING AND INSURANCE category specific campaigns – from child plans to retirement solutions – which highlight how the company will be with its customers at every step of life. With the authorised capital of the company standing at Rs. ICICI Prudential continues to have the highest capital base amongst all life insurers in the country. Market-linked plans. and thus ensure protection in every step of life. The company’s philosophy has been to help customers understand their financial needs and work closely with them to customise a product that would meet this need. even the best brand would not last long. Apart from ramping up and thoroughly training its advisors. A strong brand certainly boosts sales. 6. the company has unflinchingly focussed on being a mass-market player. From day one. but without customerfriendly. Protection TY BMS | 2009 52 . creating a distribution network and deploying resources that would further its goal. The challenge ICICI Prudential now faces is to retain its top-notch position and continue to deliver the finest life insurance and pension solutions to its ever-growing customer base. its ninth capital hike. developing products.Savings plans. innovative products. ICICI Prudential’s product range has been developed on the understanding that different people have their own sets of needs at various stages of their lives. ICICI Prudential increased its capital base by Rs.
white goods. the communications task was to build credibility. turnaround times and customer satisfaction levels. Recent Developments In keeping with its belief that a happy customer is the best endorsement. TY BMS | 2009 53 . ICICI Prudential has embraced the ‘Six Sigma’ approach to quality. India's first rewards programme for Life Advisors. create the differentiator for brand ICICI Prudential. At the time of launching operations. Investment plans and group plans – and tailor a flexible solution to meet the customers’ changing needs at every stage of life. it allows ICICI Prudential Advisors to redeem points for items ranging from kitchenware to gold. The aim was to encourage people to view insurance not as a compulsory tax saving instrument. It has demonstrated how an industry where the customer was nothing more than a policy number has changed to one where ‘customer preference’ rules the roost. and even international holidays. pioneering the concept of ‘riders’ and soon after introduce comprehensive market-linked and retirement plans. secure life and in the process. so as to give the customer the confidence that it was ‘a company that could be trusted to invest funds with’. Brand-building in a complex category like life insurance is an uphill and multi-faceted task. an exercise that begins and ends with the customer – from capturing his voice to measuring and responding to his experiences. This initiative is currently helping the company improve processes. Another novel introduction is the ICICI Prudential Lifestyle Rewards Club. In fact. Retirement plans.BANKING AND INSURANCE plans. but as a means to lead a worry-free. ICICI Prudential was the first to un-bundle product benefits. Promotion ICICI Prudential is a case study in how advertising and marketing can play a vital role in re-shaping an industry.
and won a Silver Effie for its efforts. The campaign aims at strengthening the brand by memorably bringing out the ‘commitment for life’ element.BANKING AND INSURANCE The brand proposition for all the campaigns was reflected in the line: ‘Suraksha: Zindagi ke har kadam par’. The advertising idea was encapsulated in the symbol of protection — the ‘Sindoor’. Very recently. not life’ campaign succeeded in bringing retirement planning into the consideration set of a younger target audience. using marriage and the seven vows or ‘Saat Pheras’ as a metaphor for commitment. and showcased products from different segments. At the same time the theme of protection was carried forward with ICICI Prudential’s ‘Safe Puja’ contest where Puja Pandals contested to be the ‘Safest’ Puja Pandal. The refreshingly different ‘Retire from work. the company launched a new corporate campaign – an extension of the ‘Sindoor’ communication – which aims at reassuring customers that the company is committed to staying with them through all the ups and downs in life. This beautifully tied in the concept of protection with the popular local event of Durga Puja. TY BMS | 2009 54 . The campaign featured a significant competitive advantage. This campaign contributed extensively to raising brand awareness and creating a distinctive identity for the company. the sound financial backing and credentials of ICICI and Prudential. the company recently tied up with the Forbes Six Sigma rated Dabbawalla organisation in Mumbai for a direct marketing exercise. The media campaign was complemented by seminars to spread awareness about the need for retirement planning. As part of ICICI Prudential’s continuous efforts to reach out to customers in new and innovative ways.
It worked wonderfully with Mumbai’s office-goers and one that translated into substantial business for the company. The average age of its employees is 29 years. The core value is protecting your loved ones. Things you didn't know about ICICI Prudential 1. 5. ICICI Prudential is the only Indian life insurance company to have an equity base of more than Rs. less than 5% have prior experience in the life insurance industry. is taking into the marketplace. while Prudence epitomises wise conduct. 4. Of the company’s 2. It is a powerful proposition. throughout life’s ups and downs. those that the company hopes to project: lifelong protection and value for money. TY BMS | 2009 55 . Brand Values Market research reveals that the values people associate with ICICI Prudential are. ICICI Prudential is the only life insurance company to implement a Six Sigma quality programme. The I-man signifies the dynamic individual with drive and conviction. The logo is the combination of ICICI Bank’s I-man and Prudential’s lady prudence. 5 billion. the company attached a creative of a bitten apple to Mumbai’s ubiquitous lunchboxes. 2. indeed. Every three minutes ICICI Prudential protects one more Indian life. 6.000 plus employees. one.BANKING AND INSURANCE In a unique effort to create awareness about a tax-saving product. 3. which ICICI Prudential.
corporations. Over 40% of all credit cards in India are issued by Citibank. Citibank has the largest volume of foreign exchange transactions for any foreign bank in India. Citibank has played an even more unique role in introducing world class practices and technological infrastructure. the entire credit card industry is synonymous with Citibank. This achievement is reflected in diverse indicators of cutting edge banking operations. While maintaining the premium standards of its products and services. In India. Banking with Citibank is a status symbol in any part of the world. corporate and investment segments. Citibank has also achieved a very impressive market share in other segments of banking including the retail.To many Indians. which pioneered this financial segment in India. providing them with a wide range of financial products and services. institutions and governments – across continents and countries. with an 8% market share of total foreign exchange transactions TY BMS | 2009 56 .BANKING AND INSURANCE 3. It serves nearly 120 million customers – individuals.2 CITI BANK MARKET Citibank is the world's pre-eminent global financial services company.
it was the first financial institution to invest heavily in electronic infrastructure that enabled its customers to use facilities like Automated Teller Machines (ATMs) and the internet. This institution became a fountainhead of services for mercantile capital very early and witnessed rapid growth throughout the nineteenth century. It has also pioneered many world class practices in India. As the leading custodian. It was also the first to introduce focussed lending programmes for retail customers. It also established an accruing reputation for innovative creation of high-utility financial services. The bank's name was changed to Citibank in 1976. HISTORY The direct predecessor of Citibank was the City Bank of New York. ACHIEVEMENTS Citibank is recognised as one of the most proficient and premier financial service providers in the country. By the very early years of the twentieth century. 12 billion worth of custody assets under management. Citibank has over Rs. it was the largest international bank in the world with 100 branches in 23 countries outside the US. founded in 1812.Thus. Citibank was the first such institution to start issuing credit cards in the country. the bank had expanded into Asia through acquisition of the International Banking Group that operated in many commercial centres of the continent including Bombay and Calcutta. the credit card franchisee. seamless and tailored service to all customers. In 1894. By 1930. in keeping with contemporary and emerging requirements. Citibank's worldwide expansion TY BMS | 2009 57 . it became the largest bank in the US. In 1981 it purchased the license of Diners Club International. Every other bank in India has tried to copy one element or the other from Citibank's success in continuous provision of a sophisticated.BANKING AND INSURANCE conducted by all the banks and other financial institutions in India. The brand has a country wide presence in India through 26 offices and branches across nineteen cities. Again.
As far as retail banking for individual customers is concerned. Citibank set the ball rolling by launching credit cards in India.BANKING AND INSURANCE gained even greater momentum in October 1998 when it merged with Travelers Group Inc. Citibank established its first office in India in 1902. However. along with a host of flexible options to help optimise savings. TY BMS | 2009 58 . Shoppers Stop. flexibility and professional experience has enabled it to offer a broad spectrum of world class products and services in India. It has gone on to become a highly successful 'universal' bank. These co-branded cards bring several additional benefits at partner establishments for Citibank customers. as we know it now. dedication. Over the years. PRODUCT Citibank's long tradition of innovation. is a suite of services and products aimed at high net worth customers that helps them to optimise their savings and investments. the status of Citibank Credit Cards has attracted 'co-branding' with several other eminent establishments in India such as the Taj Hotels. Citibank has also created the Women's Account and Citibank Junior Account which offer specially tailored features for these groups. Offering the requirement of a low minimum balance. started operating in 1985 by way of intermediary services for non-resident Indians (NRIs) to invest in government securities. Citibank Saving Accounts offer a complete solution to the personal banking needs of customers. One of the biggest successes in this genre has been Online Banking that was created to allow individuals all the services of a savings account. CitiGold Wealth Management. Citibank India. Within this genre. Indian Oil and MTV. without ever having to physically visit any Citibank branch. this service has really swelled the numbers of Citibank customers. Other investment services offered by the brand include highly acclaimed NRI Services and investment and asset management for individuals. This has changed forever the way Indians use their money. setting industry-wide standards for products and services based on the professionalism. Citibank Smart Loans exist for every variety of personal needs and have given a huge fillip to the acquisition of cars and homes by middle class Indians. Jet Airways. Today Citibank has branches in 102 countries across the globe. commitment and experience of its employees.
the bank offers a range of services from cash management. For larger companies. securities. corporate finance. and other institutions is equally impressive. In each of these segments. foreign exchange to industry and trade advisory services. traders. A recent example of this trait was provided in February 2004. The Citibank Business Account offers unmatched convenience in money management to manufacturers. corporate. Citibank regularly races ahead of its competitors in this regard. the innovative and reliable quality of Citibank services and products is invariably the benchmark for the whole financial industry. RECENT DEVELOPMENTS Citibank continues to build upon its track record of financial services and products that address all possible requirements of a customer. when Citibank became the first financial institution in the country to offer individual customers the facility of multi-currency deposits TY BMS | 2009 59 .BANKING AND INSURANCE The offering for business. exporters and self-employed entrepreneurs.
with over 100. The brand's engagement in these sub-sectors is exemplified in the stellar achievements†of†the Mumbai-based Society for the Promotion of Area Resources Centres (SPARC). This figure is growing at the rate of over 20% every year. Citibank believes that its role as a major player in the country's financial system also involves the task of financially enabling local communities. TY BMS | 2009 60 . the Working Women's Forum (WWF) in Chennai. will be a strong element of the bank's business in days to come. As part of this responsibility. An ever.†Citibank has also kept expanding the range of services and products that are available through 'tele-banking'.BANKING AND INSURANCE through the Citibank† Foreign Currency Deposit Scheme – just a couple of weeks after a change in banking laws made this possible.000 customers logging onto Citibank's internet servers each day currently. the Ahmedabad-based Friends of Women's World Banking (FWWB). it has created the CitiBusiness suite of services and products that are specifically geared towards the requirement of small and emerging businesses. along with the retail market. Saahasee in New Delhi. No other 'universal' bank in India has sought to develop this target group as a niche highvalue business segment. The group's internet banking operations are growing rapidly. Thus. Sasha in Kolkata. ongoing development at Citibank is the continuous up-gradation of its technological infrastructure that is deployed to provide superior banking to customers. Modern electronic banking was brought to India by Citibank and its services and facilities in this regard keep expanding and improving continually. Citibank has partnered with several NGOs in 'micro-finance' and 'micro-enterprise' development. Citibank believes that small businesses. A very successful example of this is the 'Loan on Phone' option for customers who wish to borrow against their credit cards. Citibank is also crystallising and fulfilling the need of new sectors for world-class financial services. and Share MicroFin in Hyderabad.
Banking with Citibank is always a pleasurable experience for all its clients. over time. including India. This enables Citibank to offer state-of-the-art financial services and products. technology and service. Alongside efficiency and proficiency. This practice has enabled Citibank. Citibank has paid particular attention to creating facilities. A special element of this identity is the†use of the ‘blue wave’ colour scheme of its retail branch exteriors and furnishings. services and products in retail banking. setting standards for the industry across continents and countries. if required. BRAND VALUES The brand equity of Citibank derives from the fact that it is the premier financial company in the world whose global expertise and competence is honed with a unique understanding of local economies. particularly for the individual customer. Its promotions highlight this business approach with refined creativity that conveys the message that Citibank helps you to convert dreams into reality. TY BMS | 2009 61 . A derivation of this core theme highlights the fact that Citibank offers 'Banking on the move' to people on the move in the new age.†In India. to establish a visible and recognisable 'ground-presence' throughout Asia. Citibank has also created an iconic identity for itself by standard arrangements for its retail branches.BANKING AND INSURANCE PROMOTION Citibank is associated with elegant advertising that showcases the brand's capabilities to satisfy diverse customer requirements through its unparalleled financial portfolio. in recent years. industries and cultures. It diligently practices the belief that the customer is pre-eminent. This enables Citibank to always understand customer requirements and provide customised solutions. A continuation of the same theme is the promotion based on the tagline that Citibank offers ‘Banking that sets you free’. efficiency. Clients associate the bank with the highest level of professionalism. Citibank takes great pride in a customer-centric approach.
BANKING AND INSURANCE Things you didn't know about Citibank 1. In 2004. immediately after the appropriate change in Indian financial laws was announced by the government. Citibank became the first retail bank to offer multi-currency deposits to its individual customers. Citibank's retail network has expanded greatly as a result of its acquisition of†Associates International Holdings. 2.000 consumerfinance outlets across East Asia and the subcontinent under the brand's umbrella. TY BMS | 2009 62 . 3. Citibank became the first foreign bank in India to sign a computerisation agreement with its trade union members. By 1998. which has brought more than 1. as well as the largest portfolio of consumer loans. Citibank was the most profitable consumer bank in India with the largest volume of business with overseas Indians. In 1985.† 4.
However. which eliminates 'risk' by substituting certainty for uncertainty and coming to the timely aid of a family plunged into crisis. The acronym ‘LIC’ has come to symbolise not only insurance in all its forms but also a national entity that invests in projects to improve the living standards of its citizens.BANKING AND INSURANCE 3. deregulation of the Indian insurance market and the subsequent entry of new private foreign and domestic TY BMS | 2009 63 . an organisation that provides the protection of life insurance and the guarantee of financial support to millions of families across the country. Until some years ago. the corporation enjoyed a monopoly status in the life insurance sector.3 LIC MARKET Life insurance is universally acknowledged as an institution. In India. the words life and insurance are synonymous with Life Insurance Corporation of India (LIC).
The segment was nationalised through an ordinance on January 1st.BANKING AND INSURANCE players have not dented its huge stronghold.96 billion. 96. it has tapped the rural segments and reached out to the socially and economically backward classes by providing them adequate financial cover against death at a reasonable cost. According to a study conducted by Dun & Bradstreet. In particular. ACHIEVEMENTS How has the organisation succeeded in reaching an unassailable position that it occupies today among the financial institutions in the country? The answers are to be found in the steady growth of its business over the years. Its claim settlement operations are amongst the best. HISTORY In the early 1950s.898. Its total income is the second highest in the country. The total income of the corporation during the period was Rs. As LIC approaches its 50th year of growth. During the fiscal year 2002/03. LIC sold as many as 24. 1. an international rating agency.com.796. internationally. its dedication to adopting customer-centric initiatives. LIC was given the best IT user award in the insurance sector for the year 2002 by the National Association of Software Companies (Nasscom) and Indiatimes. there were 154 Indian and sixteen non-Indian companies that offered life insurance.89 billion. its sound investments in infrastructure development and public welfare projects. LIC continues to climb the growth spiral. 1956 TY BMS | 2009 64 . As one of the largest PC users. 2.38 billion and the value of its assets as on 31st March 2003 was Rs. its prudent approach in safeguarding and maximising returns to its customers.83 billion and generated a first premium income of Rs. LIC has also taken pragmatic measures to spread the concept of life insurance across the lower income strata. the corporation had the highest net worth and the largest asset base among the top 500 Indian companies for the year 2003. and above all.5 million policies for a total sum assured of Rs. 809. it has become one of the largest life insurers in the world in terms of the number of policies issued every year.
BANKING AND INSURANCE
and the Life Insurance Corporation was established on September 1st, 1956. In the past four decades of growth, continuity and change, the corporation has not lost sight of its social and economic objectives. Not only has it maximised mobilisation of household savings by making insurance-linked savings adequately attractive, LIC has never undermined its obligation to its policy holders, whose money it holds in trust.
PRODUCT The Corporation offers a wide variety of life insurance and pension schemes to suit different needs. Its portfolio basket also includes endowment assurance and money back plans for those who prefers the security of life insurance as well as a lump sum return after a specified interval to meet planned financial obligations.
LIC has combinations of different plans that offer multiple benefits. It has a unit-linked plan to serve the needs of those who want to link their returns to the capital market, two health insurance plans, four pension plans and a broad range of children’s plans. Most of these plans come bundled with options such as Double Accident Benefit, the Disability Benefit, the Term Rider and critical illness riders to offer greater flexibility to the customer. All life insurance plans have substantial tax benefits, too.
The Life Insurance Corporation also offers group insurance, group pension, group gratuity and social security schemes, which provide policies and other benefits at a much lower cost than individual schemes. The Janashree Bima Yojana is a scheme that provides insurance protection to those below and marginally above the poverty line. Half of the premium is subsidised by the Social Security Fund (SSF) of the Government of India. SSF is maintained by LIC. The remaining half is contributed by nodal agencies.
RECENT DEVELOPMENTS Being in a line of business that is extremely customer-centric, LIC gives the area of customer relations top priority. To provide accurate, fast and on-the-spot service to
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customers, post-sales servicing has been made an automated process. More than 1,800 branches are interconnected electronically through a Metro/Wide Area Network. Most service functions in all the 2,048 branch offices are fully computerised.
There is a ‘Green Channel’ for quick issue of policies and a ‘Single Window’ system to provide all types of services at one point. LIC offers the facility to pay premiums through the internet by tying up with selected banks and service providers in identified cities. This
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facility is to be extended to other cities and towns shortly. LIC has also tied up with a nationalised bank to provide its policyholders the option of making renewals and premium payments at the banks’ ATMs in the country. The organisation’s website offers detailed information on its products, services, competitors, links to subsidiaries and online premium payment services. Besides, information kiosks have been set up at 150 select locations to give policy status reports and details about insurance plans and servicing aspects. The corporation has also set up an interactive voice response system in 59 urban centres. This system enables a customer to get complete information on his policies by just dialling a telephone number. The information can also be obtained through fax.
These apart, LIC’s Info Centres, in operation in twelve major cities, give information to policyholders on the phone. Realising that customer relationship is not just about information management, LIC has also put in place an efficient grievance redressal system to address the problems of its customers. To deal with complaints, the organisation has set up a grievance redressal cell at every level – branch, divisional, zonal and central. There is a customer relations manager at the divisional level and a customer relations executive at each branch to help and direct customers through the ways and procedures of the Corporation. In addition, there is a Claims Review Committee at every zonal office and central office to offer an opportunity to claimants to represent them in cases where liability was repudiated by LIC. To ensure transparency and fairness to an aggrieved party, these committees have on board retired judges of High Courts and District Courts.
PROMOTION Since its birth more than four decades ago, LIC has diligently moved towards the goal of becoming an Indian financial conglomerate of national and international significance. Nevertheless, the basic premise of service to its customers and providing economic resources to the nation has remained unchanged over the course of time. The organisation logo of a lamp covered by two hands that protect and circumscribed by the Sanskrit
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the medium is the message. Small wonder then that the Life Insurance Corporation of India has been rated as one of the most trusted brands in India by The Economic Times. As on 31st March 2003. the corporation had 141.243.05 billion.’ This along with the vision of ‘becoming a transnationally competitive financial conglomerate of significance to societies besides being the pride of India’ has made LIC a financial institution that enjoys the foremost trust of its clientele.544. BRAND VALUES LIC’s positioning in the insurance market is demonstrated by its mission statement that states that the organisation aims to ‘explore and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns. For an organisation like the LIC. LIC has adopted a fresh marketing pitch to showcase LIC as a brand.80 billion. 2. Since 2000.13 billion. it relies on its massive army of agents and development officers who inconspicuously market the corporation everyday as they sell its numerous policies and instruments to existing and potential customers. 1. Rather than high decibel advertising power. and by rendering resources for economic development. Things you didn't know about Life Insurance Corporation 1. Deregulation of the insurance market and entry of private competitors has seen a marked change in its brand policy. The total number of lives covered under group schemes was 25. 9. 2.2 million for a sum assured of Rs. TY BMS | 2009 68 . A slew of new advertisements on television and print are demonstrative of the fact that the Corporation has chosen to make its target audience more aware of the brand and its offerings.1 million individual policies in force for a total sum assured of Rs.730.BANKING AND INSURANCE quotation Yogakshemam Vahaamhyaham (your welfare is our responsibility) has been the driving spirit behind the organisational philosophy and ethics. The Life Fund of LIC stood at Rs.
perhaps the largest marketing force of its kind in the world. an outstanding achievement in the insurance world.BANKING AND INSURANCE 3. Fiji and Mauritius and joint venture companies in Nepal. This leaves unpaid claims at just 0.115.170. TY BMS | 2009 69 .163. LIC settled 9.89 billion in electricity projects and Rs.61 billion in 2002/03 at three claims every two seconds.7 billion in housing projects. Rs.131.69 million claims for Rs. LIC serves over 150 million policy holders. It has branch offices in the U. 31..7 billion in water supply and sewerage schemes.79 billion in road transport schemes. 7. Rs. 5. Sri Lanka and Bahrain.23%. 4. The corporation has invested over Rs.K.10 million each during 2002/03. 1160 individuals were covered for sums exceeding Rs. LIC has over one million agents. 6.
039 people.2). SBI stands tall with an untarnished image. which ranks also amongst the world's top banks in assets and branch network.4 SBI MARKET Over 90 million people have put their faith in State Bank of India (SBI).197. India's premier commercial bank. 19 No. The total market size of the 293 scheduled commercial banks in India as on December 26. SBI literally straddles the banking sector in India and is often regarded as a proxy for the Indian economy because of its dominance of the industry. In an industry that has been deeply disturbed by credibility-affecting events. 14. A giant with a nimble foot. 2003 for deposits was Rs.039 branches and employs 207. it has an enviable network of 9.72 billion (Source: RBI's Weekly Statistical Supplement Vol.BANKING AND INSURANCE 3.805. 7.88 billion and for advances Rs. SBI has carved for itself the TY BMS | 2009 70 . It is an undisputed industry leader whose actions are closely watched by many within and without.
ACHIEVEMENTS In 1994. 264 billion (then.2). In October 1996. 1. 19 No. 9% come from domestic deposits in interest-free current accounts.BANKING AND INSURANCE largest share: Rs. Since the liberalisation of the Indian economy began in the early 1990s. about 30% in low interest-bearing savings accounts and the balance 61% in time deposits. TY BMS | 2009 71 . more than twice the targeted amount.22%) in advances (Source: RBI's Weekly Statistical Supplement Vol.47 billion (19. the first by any Indian commercial bank. 17. 203 billion (then.5 billion) through the India Millennium Deposit programme launched in October 2000. SBI followed this with Rs. it launched the Resurgent India Bonds Scheme to tap the deposit potential of Non-Resident Indians and Overseas Corporate Bodies. US$ 5. raising Rs. Holistically. to raise long-term resources to increase India's foreign exchange reserves and meet the needs of infrastructure projects. It mobilised Rs. Although there are competing financial products.725. US$ 4.72 billion (then. SBI became the first public sector bank in India to access the domestic capital market. 2. the market for financial products and services has been growing at a considerable pace. The relationship SBI enjoys with the Union Government. State Governments and the public sector entities gives it a comparative advantage in attracting deposits.01 billion (17. Nearly three-fourths of the Bank's deposits come from its retail customers.23 billion). SBI's marketing skills have also been tested beyond the shores. bank deposits remain the principal form of savings for the vast majority of Indians. SBI successfully floated Global Depository Receipts. The 'World Equity' journal adjudged it as the 'Asian Equity Issue of the Year'. This was an outstanding achievement since it came in the wake of India's nuclear test. In August 1998.19%) in deposits and Rs.344. US$ 369 million).
36 billion on a total income of Rs. an independent international agency carrying out studies on vehicles and vehicle financing ranked SBI as 'Highest in Consumer Finance Satisfaction' in 2001. also TY BMS | 2009 72 . In the Business Today-KPMG survey. The State Bank of India has never been short of accolades bestowed upon it. a weekly magazine. a financial magazine awarded SBI the 'Dream House' award 2003 for the best housing finance company. Hyderabad. SBI stands 98th among the top 1. July 2003). In the same year it received 'The Most Respected Company' award in banking and financial services sector by Business World. Moody's have rated SBI's local currency deposits A3. it received a special award for Excellence in Banking Technology from the Indian Institute for Development & Research in Banking Technology. 380 billion.000 international banks and twelfth among 200 Asian Banks (Source: The Banker Magazine. On the basis of Tier I capital as defined by the Basel Committee.BANKING AND INSURANCE SBI is the first lender-of-choice for a chunk of the Indian corporate sector. with 80% of the top corporate sector having strong relationships with it. It is also the premier lender to the agricultural sector that serves as a livelihood for a vast majority of Indians. Its net profit for the financial year ended March 2004 was Rs. both public and private. SBI won the Largest Bank award. Outlook Money. J D Power. There is no borrowing need that SBI cannot fulfill. SBI has had the distinction of recording uninterrupted profits since its inception. In 2001. It ranks number one in the Forbes listing of Indian companies and 267 in Forbes International 500 list.
with focus on corporate and project finance. The National Banking Group deals with midcorporates. HISTORY In pre-independent India. The TY BMS | 2009 73 . when the Indian Parliament passed the State Bank of India Act. SBI has grown because it has an ear to the ground and responds to the needs of every emerging market. In two years. three Presidency Banks were amalgamated in 1921 to form the Imperial Bank of India. Research-driven. This also functioned as the central bank till 1935 when it was replaced by the new Reserve Bank of India. National Banking Group. These seven associate banks today form an important part of the State Bank Group.BANKING AND INSURANCE in 2003. The Corporate Banking Group. International Banking Group and Associates & Subsidiaries. small scale industries and agriculture and personal banking customers. the State Bank of India acquired eight banks. It restructured its business in 1995 into four strategic business units: Corporate Banking Group. 1959 and 1960. SBI has been nominated to the Hall of Fame Award 2003/04 instituted by Outlook Money in recognition of its years of dedicated banking service to the nation. two of which were later merged into one bank. caters to large corporate customers including State-owned enterprises. State Bank of India came into being as a successor to the Imperial Bank of India on July 1st 1955.
To promote entrepreneurs..BANKING AND INSURANCE Bank has special delivery platforms in the form of Corporate Accounts Group and Industrial Finance branches to cater to top corporations and mid-corporates respectively. finance to small industries and businesses and a range of personal loans for housing. vehicle purchase. personal banking is an obviously important area. irrigation. The Equity Link Scheme was a related scheme where even initial equity funding was provided. It has computerised its entire network of 9.039 branches – a commendable feat considering that the location of many of the Bank's branches is in difficult terrain with inadequate infrastructure. Given increasing incomes and changing lifestyles. Mauritius and Indo-Nigerian Merchant Bank Ltd. and two overseas joint-venture subsidiaries: Nepal SBI Bank and Bank of Bhutan. an Entrepreneurial Development Scheme was introduced in 1967 for technically qualified people for setting up small scale industries. supported by entrepreneurship training. Project Uptech is an TY BMS | 2009 74 . Stree Shakti Scheme launched on Women's Day in 1988 provided a package of incentives to women entrepreneurs. catering to high net worth individuals. loan syndication facilities and treasury management and leasing. SBI offers advisory services. education and general purpose. PRODUCT Besides providing project loans and infrastructure finance. It also has two wholly-owned subsidiaries: SBI (Canada) and SBI (California). purchase of farm equipment et al. SBI has 96 Personal Banking Branches. In a renewed focus on the retail segment encompassing agriculture. SBI offers products such as loans for raising crops. An increasing number of its corporate customers access international funds through its international branch network of 51 offices in 28 countries and 542 correspondent banks. Lagos. small scale industries and small business and personal segment. two subsidiaries: SBI International Ltd.. spanning all time zones.
the fullness of man's being and his growing consciousness. It has recently introduced customised products like Arthias Plus to finance commission agent intermediaries in agriculture. doctors. lawyers. police and army personnel have been introduced.BANKING AND INSURANCE innovative programme. With over 3814 Automated Teller Machines (ATMs) the Bank Group has put in place a country-wide network with an unparalleled reach. employee salary payment for corporate internet banking customers and payment of fees to colleges and universities through ATMs at some centres. It also represents SBI's extension of banking needs to ‘unbanked’ areas of the entire country. PROMOTION SBI’s present logo was introduced in October 1971. Its circular shape has ancient associations with unity. energy conservation. Channel Financing for downstream small scale units. brass. RECENT DEVELOPMENTS With all of its 9. Dairy Plus for dairy farmers and Paryatan Plus for development of the tourism infrastructure. It has also entered into tie-up arrangements with leading Public Sector Undertakings to provide retail loans to their employees. etc. Over 2. launched in 1988 for technological upgradation and modernisation of location and industry-specific clusters of small and medium enterprises. apple orchards. grape farming. Loan packages tailor-made for teachers. recharging mobile phone cards through ATMs. Among its innovative value add-ons are e-rail purchase of rail tickets online.619 offices covering 300 centres provide customers ‘Anytime Anywhere Banking’. SBI proposes to position many of its branches as 'Super Shoppes' for distributing a whole range of financial products.039 branches computerised. e-pay for payment of utility bills. The programme now covers the sectors of rice milling. more than 7.466 branches now offer Single Window delivery. bio-energy. The small circle in the centre connotes that despite its size it is the small man who holds TY BMS | 2009 75 .
500. Hyderabad.200 million released to them as credit. 3. It holds promise for the small account holder as well as for giant corporations. It positioned itself during the 1990s with the theme ‘The Nation Banks on us’.all the way’. An ATM at the Leh Branch in Ladakh is at an altitude of 12. SBI has four apex training institutions: State Bank Staff College. 58. TY BMS | 2009 76 . which has given way to ‘With you . the IX Asian Games held in New Delhi in 1982.5 million Kisan Credit Cards have been issued to farmers and Rs. State Bank Institute of Rural Development. reflecting its basket of financial products to suit all needs.BANKING AND INSURANCE centre stage for the bank. SBI recently launched the world’s first floating ATM located on a barge on the backwaters of Kerala. the 32nd National Games in 2002 and the 1st Afro-Asian Games 2003 both held at Hyderabad. 6. SBI uses video conferencing facilities connecting 24 of its offices.076 Self Help Groups with finance of Rs. 5. Gurgaon.245 million and provides unique opportunities for micro enterprises as well as underprivileged women. 6. SBI has associated itself with sports events such as the 5th World Cup Hockey Tournament held in Mumbai in 1981. Its financial muscle provides comfort to investors and hope to a resurgent India. Over 2. 2. SBI promotes 177. State Bank Academy. 4. BRAND VALUES The State Bank of India stands tall amidst the banking fraternity. Things you didn't know about State Bank of India 1. Hyderabad and State Bank Institute of Information and Communication Management and 47 training centres across the country with a concurrent training capacity of 2.000 feet above sea level.
BANKING AND INSURANCE CHAPTER 4 TY BMS | 2009 77 .
essential if we desire to progress towards a worry-free future. Foreign banks have not only brought in new concept from the west but are also responsible for improving quality standards in the banking sector. more and more sectors are becoming more and more competitive. therefore. TY BMS | 2009 78 . It has become a backbone of any countries growing economy. Banking and insurance over the years in India has seen lots of ups and down. With the influx of foreign bank most of the Indian banks have felt the need of change for the betterment of services to the customers.1 CONCLUSION Banking and insurance has become one of the most important tools for the success of any country. A well-regulated life insurance industry which moves with the times by offering its customers tailor-made products to satisfy their financial needs is. Today due to liberalization of the economy. Even then most of the nationalized bank are still following the age old traditions and are having low satisfaction rates amongst its customer which results in mergers of different banks or most of the banks making heavy loses at the expense of the government.BANKING AND INSURANCE 4. Banking and insurance has today become a mainstay of any market economy since it offers plenty of scope for garnering large sums of money for long periods of time.
E. Selected Annual Reports of Companies. N. S.. Macmillan India Ltd. 10. Nigam. Government of India. M.htm 19. 5. New Delhi.BANKING AND INSURANCE 4. Harper and Row Publishers.com/news/crime/20070918/2025/icici-personal-loancustomer-commits-suicide-after-alleged-harassment-recov 18. Chand & Co. 11. The importance of public banking 17. Ltd. K.. New Delhi. Jeff Madure.naukrihub. http://www.2 BIBLIOGRAPHY 1. Government of India. Pearson Publication. B. New Delhi.com/2008/06/30/stories/2008063057470300.. Sultan Chand & Co. Mishra. Life Insurance Corporation Act. Ltd. The Marine Insurance Act. 1956.. York 8. W. 4. Relevant Bare Acts on Insurance & Banking Services. Banking Law & Practice. P. Read. 14. http://www. Seth. 1963. 12.indiatime. Marketing of Banking Services.com/india/banking-insurance/overview/ 15. Sultan Chand & Sons. PSU banks' policies saved India from financial blushes: Chidambaram 16. 3. Lal. http://www. http://www. Varshney. Banking Theory Law and Practice.. 6. 2.hindu.com/2007/11/07/icicis-third-eye/ TY BMS | 2009 79 . Personal Finance.. 13. Insurance Principles and Practice. New Delhi. Sundhram. Commercial Bank Management. New Delhi. Banking Law and Practice.N. M. Konark. P. New Delhi. New 7.parinda. M. 9..