Banking and Insurance

BANKING AND INSURANCE
BANKING & INSURANCE
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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
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DECLARATION
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.
DATED: _________
Name of the student
TY BMS | 2009 3
CERTIFICATE
I MISS ______________ HEREBY CERTIFY THAT MS. ______ STUDYING IN
TYBMS AT __________ COLLEGE OF COMMERCE AND ECONOMICS,
__________ (E), HAS COMPLETED A PROJECT ON “BANKING & INSURANCE”
IN THE ACADEMIC YEAR 2009-2010 UNDER MY GUIDANCE.
I FURTHER CERTIFY THAT THE INFORMATION SUBMITTED IS TRUE AND

ORIGINAL TO THE BEST OF MY KNOWLEDGE.
DATED:
Place:
Name of the guide

Examiner’s Sign &Date PROJECT GUIDE
_____________________
College Seal PRINCIPAL
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ACKNOWLEDEGEMENT
I EXPRESS MY SINCERE THANKS TO MISS ______________FOR HER

VALUABLE GUIDANCE IN DOING THIS PROJECT.
I WISH TO TAKE THE OPPORTUNITY TO EXPRESS MY DEEP SENCE OF

GRATITUDE TO PRINCIPAL ___________________________ and PROF. (Mr.)
________________________ FOR THEIR INVALUABLE GUIDANCE AND
SUPPORT IN THIS ENDEAVOUR. THEY HAVE BEEN A CONSTANT SOURCE
OF INSPIRATION.
FINALLY IT IS THE FOREMOST DUTY TO THANK ALL MY RESPONDENTS,

FAMILY & FRIENDS WHO HAVE HELPED ME DIRECTLY OR INDIRECTLY IN
COMPLETING MY FIELD WORK, WITHOUT WHICH THIS PROJECT WOULD
NOT HAVE BEEN SUCCESSFUL.
Name of the student
TY BMS | 2009 5
TABLE OF CONTENTS
Sr. 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. The banking sector
is a very important sector of the Indian economy. The sector has made a marked
improvement in the liberalization period. There has been extraordinary progress in the
financial health of the commercial banks with respect to capital adequacy, profitability,
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asset quality and risk management. Deregulation has opened new doors for banks to
increase revenues by entering into investment banking, insurance, credit cards, depository
services, mortgage, securitization, etc.
The limit for foreign direct investment in private banks has been increased from 49% to
74%. In addition, the limit for foreign institutional investment in private banks is 49%.
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, Non Banking Finance Companies, post offices, capital markets, venture capitalists,
etc. Now the challenges faced by the sector would be gaining profitability, reinforcing
technology, maintaining global standards, corporate governance, sharpening skills, risk
management and, the most important of all, to establish 'Customer Intimacy'.
The insurance business is one of the most rapidly growing areas in the financial sector.
As an economy grows over the years, insurance sector intensifies and broadens its reach.
Every practical and futuristic individual would want himself, his family and his assets to
be insured. Insurance deals mainly with life and general insurance. India has a large
insurance market commensurate with its population. 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. The
IRDA is the licensing authority in the sector; the current FDI cap/Equity in the sector
stands at 26 percent. There is no doubt the challenges ahead will become tougher with
more companies competing both in general and life Insurance. Also mortgage insurance
will soon be coming into the industry. New players have contributed to the launch of
innovative products, services and value-added benefits. Major foreign players have
entered the country and announced joint ventures in both life and non-life areas. These
include New York Life, Aviva, Tokio Marine, Allianz, Standard Life, Lombard General,
AIG, AMP and Sun Life among others.
Commercial banks are coming up with more and more vacancies, and the banking sector
now has more new jobs than any other sector. Right from the branch level to the highest
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level, there is tremendous range of opportunities available in the sector. Jobs in this sector
can be both rewarding and enjoyable, as you get opportunities to learn about business,
interact with people and build up clientele. The same is the case with insurance, as it is
the fastest growing industry under the financial sector. Both government and private
players are currently offering a plenty of jobs in this sector. So, this is great news for you
if you are thinking to go into the banking & insurance streams.
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CHAPTER 1
1.1 BANKING IN INDIA
Banking in India originated in the last decades of the 18th century. 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. Central
banking is the responsibility of the Reserve Bank of India, which in 1935 formally took
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over these responsibilities from the then Imperial Bank of India, relegating it to
commercial banking functions. After India's independence in 1947, the Reserve Bank
was nationalized and given broader powers. In 1969 the government nationalized the 14
largest commercial banks; the government nationalized the six next largest in 1980.
Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks
(that is with the Government of India holding a stake), 31 private banks (these do not
have government stake; they may be publicly listed and traded on stock exchanges) and
38 foreign banks. They have a combined network of over 53,000 branches and 17,000
ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and foreign
banks holding 18.2% and 6.5% respectively
EARLY HISTORY
Banking in India originated in the last decades of the 18th century. The first banks were
The General Bank of India which started in 1786, and the Bank of Hindustan, both of
which are now defunct. The oldest bank in existence in India is the State Bank of India,
which originated in the Bank of Calcutta in June 1806, which almost immediately
became the Bank of Bengal. This was one of the three presidency banks, the other two
being the Bank of Bombay and the Bank of Madras, all three of which were established
under charters from the British East India Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The three banks merged in
1921 to form the Imperial Bank of India, which, upon India's independence, became the
State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as
a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in
1865 and still functioning today, is the oldest Joint Stock bank in India. It was not the
first though. That honor belongs to the Bank of Upper India, which was established in
1863, and which survived until 1913, when it failed, with some of its assets and liabilities
being transferred to the Alliance Bank of Simla.
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When the American Civil War stopped the supply of cotton to Lancashire from the
Confederate States, promoters opened banks to finance trading in Indian cotton. With
large exposure to speculative ventures, most of the banks opened in India during that
period failed. The depositors lost money and lost interest in keeping deposits with banks.
Subsequently, banking in India remained the exclusive domain of Europeans for next
several decades until the beginning of the 20th century.
Foreign banks too started to arrive, particularly in

Calcutta, in the 1860s. The Comptoire d'Escompte de
Paris opened a branch in Calcutta in 1860, and
another in Bombay in 1862; branches in Madras and
Pondichery, then a French colony, followed. HSBC
established itself in Bengal in 1869. Calcutta was the most active trading port in India,
mainly due to the trade of the British Empire, and so became a banking center.
The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in
1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established
in Lahore in 1895, which has survived to the present and is now one of the largest banks
in India.
Around the turn of the 20th Century, the Indian economy was passing through a relative
period of stability. Around five decades had elapsed since the Indian Mutiny, and the
social, industrial and other infrastructure had improved. Indians had established small
banks, most of which served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange
banks and a number of Indian joint stock banks. All these banks operated in different
segments of the economy. The exchange banks, mostly owned by Europeans,
concentrated on financing foreign trade. Indian joint stock banks were generally under
capitalized and lacked the experience and maturity to compete with the presidency and
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exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it
seems we are behind the times. We are like some old fashioned sailing ship, divided by
solid wooden bulkheads into separate and cumbersome compartments."
The period between 1906 and 1911, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and political
figures to found banks of and for the Indian community. A number of banks established
then have survived to the present such as Bank of India, Corporation Bank, Indian Bank,
Bank of Baroda, Canara Bank and Central Bank of India.
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. Four nationalised banks started in this district
and also a leading private sector bank. Hence undivided Dakshina Kannada district is
known as "Cradle of Indian Banking".
NATIONALISATION
By the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large
employer, and a debate had ensued about the possibility to nationalise the banking
industry. Indira Gandhi, 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 paper was received with positive
enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance
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and nationalised the 14 largest commercial banks with effect from the midnight of July
19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a
"masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the
Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking)
Bill, and it received the presidential approval on 9 August, 1969.
A second dose of nationalization of 6 more commercial banks followed in 1980. The

stated reason for the nationalization was to give the government more control of credit
delivery. With the second dose of nationalization, the GOI controlled around 91% of the
banking business of India. Later on, in the year 1993, the government merged New Bank
of India with Punjab National Bank. It was the only merger between nationalized banks
and resulted in the reduction of the number of nationalised banks from 20 to 19. After
this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the
average growth rate of the Indian economy.
The nationalised banks were credited by some, including Home minister P.

Chidambaram, to have helped the Indian economy withstand the global financial crisis of
2007-2009.
LIBERALISATION
In the early 1990s, the then Narsimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be known as
New Generation tech-savvy banks, and included Global Trust Bank (the first of such new
generation banks to be set up), which later amalgamated with Oriental Bank of
Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move,
along with the rapid growth in the economy of India, revitalized the banking sector in
India, which has seen rapid growth with strong contribution from all the three sectors of
banks, namely, government banks, private banks and foreign banks.
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The next stage for the Indian banking has been setup with the proposed relaxation in the
norms for Foreign Direct Investment, where all Foreign Investors in banks may be given
voting rights which could exceed the present cap of 10%,at present it has gone up to 49%
with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this time,
were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning.
The new wave ushered in a modern outlook and tech-savvy methods of working for
traditional banks.All this led to the retail boom in India. People not just demanded more
from their banks but also received more.
Currently (2007), banking in India is generally fairly mature in terms of supply, product
range and reach-even though reach in rural India still remains a challenge for the private
sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks
are considered to have clean, strong and transparent balance sheets relative to other banks
in comparable economies in its region. The Reserve Bank of India is an autonomous
body, with minimal pressure from the government. 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.
With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong. One may also
expect M&As, takeovers, and asset sales.
In March 2006, 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
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norms in 2005 that any stake exceeding 5% in the private sector banks would need to be
vetted by them.
In recent years critics have charged that the non-government owned banks are too
aggressive in their loan recovery efforts in connection with housing, vehicle and personal
loans. There are press reports that the banks' loan recovery efforts have driven defaulting
borrowers to suicide.
1.2 ANCIENT BANKING PRACTICES
Banking in India is as old as the hills. It flourished even in ancient Vedic times. Money
was accepted on deposit and given in the form of advances. As far back as the second or
third century A.D. Manu, the great Hindu jurist, devoted a section of his work to deposits
and advances and laid down rules relating to the interest to be paid or charged.
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During the mogul period, the indigenous bankers played a very important role in lending
money and financing of foreign trade and commerce. They were also engaged in the
profitable business of money changing.
Every town, big or small, had a ‘sheth’ also known as ‘shah’, ‘shroff’, or ‘chettiar’ who
performed a number of banking functions. He was respected by all sections of people as
an important citizen. In principal towns, besides shroffs, there was a ‘Nagar Sheth’ or
‘Town Banker’. These Sheths or Shroffs, besides doing money-lending business, were
instrumental in transferring funds from place to place and doing collection business
mainly through hundis. The hundis were an accepted mode of transfer of money for
commercial transactions.
1.3 BANKING TRANSITION
PHASE I
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan
and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency
Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks, mostly Europeans shareholders.
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In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab
National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and
1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank,
and Bank of Mysore were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also experienced periodic
failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To
streamline the functioning and activities of commercial banks, the Government of India
came up with The Banking Companies Act, 1949 which was later changed to Banking
Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of
India was vested with extensive powers for the supervision of banking in india as the
Central Banking Authority.
During those days public has lesser confidence in the banks. As an aftermath deposit
mobilisation was slow. Abreast of it the savings bank facility provided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.
PHASE II
Government took major steps in this Indian Banking Sector Reform after independence.
In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a
large scale specially in rural and semi-urban areas. 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.
Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th
July, 1969, major process of nationalisation was carried out. It was the effort of the then
Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country
was nationalised.
Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980
with seven more banks. This step brought 80% of the banking segment in India under
Government ownership.
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The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:
• 1949: Enactment of Banking Regulation Act.

• 1955: Nationalisation of State Bank of India.
• 1959: Nationalisation of SBI subsidiaries.
• 1961: Insurance cover extended to deposits.
• 1969: Nationalisation of 14 major banks.
• 1971: Creation of credit guarantee corporation.
• 1975: Creation of regional rural banks.
• 1980: Nationalisation of seven banks with deposits over 200 crore.
After the nationalisation of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the sunshine of Government ownership gave the public implicit faith and
immense confidence about the sustainability of these institutions.
PHASE III
This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of M Narasimham, 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. Efforts are being put
to give a satisfactory service to customers. Phone banking and net banking is introduced.
The entire system became more convenient and swift. Time is given more importance
than money.
The financial system of India has shown a great deal of resilience. It is sheltered from any
crisis triggered by any external macroeconomics shock as other East Asian Countries
suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high,
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the capital account is not yet fully convertible, and banks and their customers have
limited foreign exchange exposure.
1.4 BANKING SECTOR

Banking in India is as old as the hills. It flourished even in ancient Vedic times. Money
was accepted on deposit and given in the form of advances. As far back as the second or
third century A.D. Manu, the great Hindu jurist, devoted a section of his work to deposits
and advances and laid down rules relating to the interest to be paid or charged. During the
mogul period, the indigenous bankers played a very important role in lending money and
financing of foreign trade and commerce. They were also engaged in the profitable
business of money changing.
Every town, big or small, had a ‘sheth’ also known as ‘shah’, ‘shroff’, or ‘chettiar’ who
performed a number of banking functions. He was respected by all sections of people as
an important citizen. In principal towns, besides shroffs, there was a ‘Nagar Sheth’ or
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‘Town Banker’. These Sheths or Shroffs, besides doing money-lending business, 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
1.5 INDUSTRY ANALYSIS
Threat of new Entrants

With the financial services opening up, and the flow of foreign capital unrestricted,
players who have remained dormant in India like BNP Paribas and America Express are
likely to enter. 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 customers being attracted by the ever-increasing portfolio of services being
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offered. Therefore the industry is fast becoming service oriented with faster and better
technologies, and better distribution channels.
Threat of buyers
Buyers like corporates choose multinationals with exposure in foreign markets to raise
funds. Therefore in the long run these banks are likely to move towards relationship
banking with few, but profitable clients.
Rivalry among existing firms

There is tremendous rivalry amongst the existing firms, and this can only increase given
the recent policy changes, which favor takeovers and mergers and flow of foreign capital
into the country. This will lead to the sector offering better and faster services, a lookout
for lower return on assets, and willingness to take on higher risk projects. This rivalry has
already manifested itself in an increasing number of firms looking to move into universal
bankin
1.6 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.
Some key issues, which must be taken into consideration in designing the most effective
financial services marketing mix, are as follows:
PRODUCT
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There is little or no room for innovation in product design due to the ease by which
competitors can make similar offerings, for example by altering charges or interest rates
to meet those of competitors. Additionally, many financial services are affected by other
restrictions, such as government directives relating to income tax and investments or
constraints on the amounts, which can be invested. Differentiation therefore can be best
achieved through the other elements of marketing mix. Current accounts are dominated
by banks, although the building societies’ share of this market in which they could not
compare until recently is growing.
PRICE
This relates to the cost involved to the customer in bank charges or credit card interest
rates. These prices seem to evoke low levels of customer sensitivity as many customers
enjoy ‘free’ banking by maintaining their current accounts in credit, for example on
paying their credit card balances off each month. The introduction of new charges,
however such as the annual credit card fee had a noticeable effect initially, however, and
sparked off competitive reaction from lenders prepared to offer cards with no annual
charge.
Price also relates to the value of the product to the customer and as such, can be highly
sensitive. This can be in terms of interest rates charged on a mortgage, 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, representing a form of discounting. 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, to attract long-term savers or large lump-sum investors.
Pricing can therefore be used to differentiate the offering and is likely to be used by
customers in selecting a service.
PROMOTION
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Banks and other major financial institutions such as insurance companies undertake
major advertising campaigns continuously. 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. 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, sponsorship, and other
promotional means. 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.
Another idea where personal selling is a strong tool is in the area of insurance products
and the emergence of ‘bancassurance’- the product offered through links between banks
and insurers, commonly with banks as the controlling partner. 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. The importance
of personal selling is now widely recognised and many institutions offer home visits by
financial advisers.
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. For transaction
services where regular and frequent branch contact is requires this can be important.
Some consumers prefer personal, face-to-face contact within a branch and may be more
likely to use a local branch or building society. Changes in distribution systems,
technology and consumer demands are all key influences in the evolution of the ‘place’
component in the marketing mix.
PEOPLE
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Customer care is the forefront of both quality and differentiation in the financial services
industry. Staff needs to be highly trained not only in customer care but also in how to
respond to the rapidly changing market environment. Personnel can be used to develop
competitive advantage in the marketplace and to build and maintain relationships with
customers.
PROCESS
This is the main area where technological advances have led to major change.
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.
PHYSICAL EVIDENCE
The environment in banks in changing, moving away from austerity and formality to a
more friendly approach reflected in more attractive layouts and décor. Other physical
evidence plays an important part in financial transactions such as the documentation,
which must be presented by salespeople to prove that they are authorized to offer
investment advice. This creates confidence and helps to build the relationship between
customer and provider. It is also widely used to tangibilise the service. Attractive
brochures and policy documents, presented in glossy folders, cheque book and credit card
holders, ‘gold’ credit cards, children’s’ collectable money boxes are all examples of
physical evidence being used In this way.
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1.7 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 banking industry, one of the supporting
precursors to any rapidly growing economy, has undergone a period of considerable
change since the 1990s. The three sectors of the banking industry namely public, private
and foreign are the cornerstones of the changing banking industry.
The Indian banking sector has a massive geographical reach and the credit- deposit of
48% figures speak volumes of the inherent strength of this industry. Until recently, the
lack of competitiveness vis-a-vis global standards, low technological level in operations,
over staffing, high NPAs and low levels of motivation had shackled the performance of
the banking industry.
The entry of the New Private Sector banks into the market changed the face of this
industry. 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; these banks have opened doors to new positive ideas, concepts
and products. These private banks have set a trend for universal banking. For instance,
Global Trust Bank is the first Indian Bank to have equity participation from International
Finance Corporation and Asian Development Bank. Similar trends are seen in Centurion
Bank’s alliance with Keppel Bank, Singapore and HDFC Bank with Nat West Markets,
United Kingdom. Recently ICICI successfully completed its ADR issue on New York
Stock Exchange (NYSE).
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. The private sector banks spearhead this
"Innovation Revolution".
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The new private sector banks are targeting specific products and client group. However
with the advent of foreign players’ participation, the private sector banks’ position stands
threatened.
With emphasis on service and technology, it is for the first time that Indian banks (mainly
private) are challenging the foreign banks. These banks are making heavy use of
technology to give good service at par with foreign banks but to a much wider clientele.
Branch size has been reduced considerably by using technology thus saving work force.
This has resulted in an overall cost saving. In addition, the Any Time Money (ATM)
facility helps draw large customers to a branch. ICICI Bank has already launched
Database Management (referring to using the database of existing clients to generate
more revenues).
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. ICICI bank,
HDFC bank, GTB, IndusInd, BOP and UTI Bank have come out with IPOs as per
licensing requirement. The other three private sector banks are expected to come
out with their IPOs in next fiscal. Their technological edge and product innovation
has seen them gaining market share from the slower, less efficient older 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. PSU and old private sector banks. The new private banks have been
consistently gaining market shares from the public sector banks. The major
beneficiary of this has been corporate clients who are most sought after now.
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CHAPTER 2
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2.1 INSUARNCE - INTRODUCTION

Life insurance, in its pristine form, evolved out of a sense of co-operation within the
community that was present even at the dawn of history. The Sanskrit term yogakshema,
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. There are references in Kautilya’s
Arthashastra to some kind of social security system for the welfare of the subjects. Later
on, the Indian joint family system too fulfilled the need for security.
In the Western world, life insurance evolved mainly from the maritime industry.
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.
In its present form, life insurance had its origin in England and made its debut in India in
the year 1818. Initially, Indians were not considered on par with Europeans as far as their
insurability was concerned. There were also many other failures. It was in the early part
of the 20th century that some kind of legislation was made to regulate the industry. From
then on, life insurance made great strides in the country.
At the time of Independence and thereafter, there were more than 200 companies
operating in India and not all of them on sound ethical principles. 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, if we ignore
the minimal presence of postal life insurance. The institution succeeded in penetrating
many areas and segments of the population and in garnering public money for public
welfare.
TY BMS | 2009 28
Late seventeenth century was an era of growing international trade. New shipping routes
were discovered and adventurous sailors brought exotic products from strange and alien
lands. But their journeys across the oceans were fraught with danger and unknown risks.
They required some kind of protection against the peril lurking in high seas. This gave
rise to a new breed of entrepreneurs - marine underwriters - who agreed to cover the
losses in return for a fixed amount of premium. Their business depended on current
information about the sea routes, pirates, political condition, weather patterns, conditions
aboard the ship, and consumer tastes for exotic products. In order to acquire business
information, many marine underwriters began to frequent Edward Lloyd's coffeehouse in
London. This was the place where they could share business intelligence with other
underwriters and captains of trading ships. In 1771, 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 - Lloyd's of London.
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. Tracing the
developments in the Indian insurance sector reveals the 360-degree turn witnessed over a
period of almost two centuries.
TY BMS | 2009 29
2.2 BRIEF HISTORY
The origin of insurance is very old .The time when we were not even born; man has
sought some sort of protection from the unpredictable calamities of the nature. The basic
urge in man to secure himself against any form of risk and uncertainty led to the origin of
Insurance.
The insurance came to India from UK; 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. By 1956 about
154 Indian, 16 foreign and 75 provident firms were been established in India. Then the
central government took over these companies and as a result the LIC was formed. Since
then LIC has worked towards spreading life insurance and building a wide network
across the length and the breath of the country. After the liberalization the entrance of
foreign players has added to the competition in the market.
The General insurance business in India, on the other hand, can trace its roots to the
Triton Insurance Company Ltd., the first general insurance company established in the
year 1850 in Calcutta by the British. In 1957 General Insurance Council, a wing of the
Insurance Association of India, frames a code of conduct for ensuring fair conduct and
sound business practices. In 1972 The General Insurance Business (Nationalization) Act,
1972 nationalized the general insurance business in India with effect from 1st January
1973. It was after this that 107 insurers amalgamated and grouped into four companies
viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC
incorporated as a company.
TY BMS | 2009 30
2.3 INSURANCE BUSINESS

By any yardstick, India, with about 200 million middle class households, presents a huge
untapped potential for players in the insurance industry. Saturation of markets in many
developed economies has made the Indian market even more attractive for global
insurance majors.
With the per capita income in India expected to grow at over 6% for the next 10 years
and with improvement in awareness levels, the demand for insurance is expected to grow
at an attractive rate in India. An independent consulting company, The Monitor Group
has estimated that the life insurance market will grow from Rs.218 billion in 1998 to
Rs.1003 billion by 2008 (a compounded annual growth of 16.5%)3.
Insurance business has a positive correlation with economic development in an economy.

As an economy develops over the years, insurance sector starts making inroads into the
interiors of the system. Most of the times, insurance begins with the life insurance and
gradually spreads to the field of general insurance. Every forward-looking person would
invariably have his/her life insurance done. Even in a country like India, 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. In other words, the life insurance market in
India is as large as its population.
There is no doubt that the liberalized life insurance industry is booming; and
liberalization of the life insurance market has so far proved to be a great success. New
Life business is growing at 35 per cent, and invested funds have grown dramatically by
about Rs. 90,000 crore in 2003-04 to touch about Rs. 3,50,000 crore.
India with about 200 million middle class household shows a huge untapped potential for
players in the insurance industry. With such a large Indian population and the untapped
market area of this population Insurance happens to be a very big opportunity in India.
Today it stands as a business growing at the rate of 15-20 per cent annually. Together
with banking services, it adds about 7 per cent to the countries GDP .In spite of all this
TY BMS | 2009 31
growth the statistics of the penetration of the insurance in the country is very poor. Nearly
80% of Indian populations are without Life insurance cover and the Health insurance.
This is an indicator that growth potential for the insurance sector is immense in India.
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. Limited
ICICI Prudential Life Insurance Co. Limited
ING Vysya Life Insurance Company Limited
Max New York Life Insurance Co. Limited
MetLife Insurance Company Limited
Om Kotak Mahindra Life Insurance Co. Ltd.
SBI Life Insurance Company Limited
TATA AIG Life Insurance Company Limited
AMP Sanmar Assurance Company Limited
Dabur CGU Life Insurance Co. Pvt. 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
ICICI Lombard General Insurance Co. Ltd.
IFFCO-Tokio General Insurance Co. Ltd.
Reliance General Insurance Co. Limited
TY BMS | 2009 32
Royal Sundaram Alliance Insurance Co. Ltd.

TATA AIG General Insurance Co. Limited
Cholamandalam General Insurance Co. Ltd.
Export Credit Guarantee Corporation
HDFC Chubb General Insurance Co. Ltd.
The insurance industry is quite diverse in terms of portfolio of products provided by

different companies. The products can be broadly classified into two product lines:
1. Property and casualty (P&C)

2. Life insurance.
Life insurance product line can be further sub-divided into life insurance, health
insurance and annuity products. Growing consolidation and change in the regulatory
framework has led many insurers to add new products to their portfolio. This presents its
own unique challenge to the insurer in leveraging its greatest asset - data.
2.4 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.
The contract is valid for payment of the insured amount during:
1. The date of maturity, or

2. Specified dates at periodic intervals, or
3. Unfortunate death, if it occurs earlier.
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Among other things, the contract also provides for the payment of premium periodically
to the Corporation by the policyholder. Insurance is universally acknowledged to be an
institution, which eliminates 'risk', substituting certainty for uncertainty and comes to the
timely aid of the family in the unfortunate event of death of the breadwinner.
By and large, Insurance is civilisation's partial solution to the problems caused by death.
Insurance, in short, is concerned with two hazards that stand across the life-path of every
person:
1. That of dying prematurely leaving a dependent family to fend for itself.

2. That of living till old age without visible means of support.
2.5 INSURANCE SECTOR REFORMS
In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.
N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its
future direction.
The Malhotra committee was set up with the objective of complementing the reforms
initiated in the financial sector. 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
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.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
• Mandatory Investments of LIC Life Fund in government securities to be reduced

from 75% to 50%
• GIC and its subsidiaries are not to hold more than 5% in any company (There
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. But at the
same time, 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.
Hence, it was decided to allow competition in a limited way by stipulating the minimum
capital requirement of Rs.100 crores. 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. For this purpose, it had
proposed setting up an independent regulatory body.
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. 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 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
IRDA’s online service for issue and renewal of licenses to agents. 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, which
are expected to be introduced by early next year.
Since being set up as an independent statutory body the IRDA has put in a framework of
globally compatible regulations. In the private sector 12 life insurance and 6 general
insurance companies have been registered.
Insurance Penetration in different countries

2.6 PLAYERS & MARKET SHARES
Reforms were initiated with the passage of Insurance Regulatory and Development
Authority (IRDA) Bill in 1999. IRDA was set up as an independent regulatory authority,
which has put in place regulations in line with global norms. So far in the private sector,
12 life insurance companies and 9 general insurance companies have been registered.
TY BMS | 2009 37
The introduction of private players in the industry has added to the colors in the dull
industry. The initiatives taken by the private players are very competitive and have given
immense competition to the on time monopoly of the market LIC. 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. The new players have improved the service quality of the
insurance. As a result LIC down the years have seen the declining phase in its carrer. The
market share was distributed among the private players. 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. LIC market share has decreased from
95% (2002-03) to 81 %( 2005-06). The following company has the rest of the market
share of the insurance industry.
TY BMS | 2009 38
TY BMS | 2009 39
2.7 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. Some of the key names are
AIG, New York Life, Allianz, Prudential, Standard Life, Sun Life Canada and Old
Mutual.
The entry of new players has rejuvenated the erstwhile monopoly player LIC, which has
responded to the competition in an admirable fashion by launching new products and
improving service standards.
The following are the key winds of change brought about by privatisation.
Market Expansion
There has been an overall expansion in the market. This has been possible due to
improved awareness levels thanks to the large number of advertising campaigns launched
by all the players.
Customer Service
Consumers remain the most important center of the insurance sector. 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. Computerisation of operations and updating of
technology has become imperative in the current scenario. Foreign players are bringing in
International best practices in service through use of latest technologies. 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.
Distribution Channels
TY BMS | 2009 40
Till date insurance agents still remain the main source through which insurance products
are sold. The concept is very well established in the country like India but still the
increasing use of other sources is imperative. It therefore makes sense to look at well-
balanced, alternative channels of distribution.
LIC has already well established and have an extensive distribution channel and
presence. New players may find it expensive and time consuming to bring up a
distribution network to such standards. Therefore they are looking to the diverse areas of
distribution channel to have an advantage. 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. India has an
extensive bank network established over the years. What Insurance companies have to do
is to just take advantage of the customers' long-standing trust and relationships with
banks. This is a mutually beneficial situation as banks can also expand their range of
products on offer to customers, while the insurance company will also earn profits from
the exposure. Another advantage is that banks, with their network in rural areas, help to
fulfill rural and social obligations stipulated by the Insurance Regulatory and
Development Authority (IRDA) recently.
TY BMS | 2009 41
The creation of bancassurance operations has made an important impact on the financial
services industry at large. This is though a new concept but it has gained a lot of
importance in the industry at present and has a great future.
Product Innovation
There has been a plethora of new and innovative products offered by the new players.
Customers have tremendous choice from a large variety of products from pure term (risk)
insurance to unit-linked investment products. Customers are offered unbundled products
with a variety of benefits as riders from which they can choose. More customers are
buying products and services based on their true needs and not just traditional money
back policies, which is not considered very appropriate for long-term protection and
savings. There is lots of saving and investment plans in the market. However, there are
still some key new products yet to be introduced - e.g. health products.
Rural Marketing
Rural India seems to have an appetite for mobile phones, computers, and cars and to add
to it we have insurance. In India with the private players having entered into the
insurance industry, the expected explosion in job opportunities may not actually happen
but for them the catchments area is the opportunities in the rural India. in India the
insurance business can be said to be "a marathon, not a sprint". This is because of the
nature of the business being long term. With merely two years of the industry being
opened, not surprisingly, the new comers are making losses. The public sector
companies, notably the LIC, have gained in strength, thanks to the deepening of the
market consequent to the awareness created by the new companies. However this does
not deterred the private sector, which knows know that the race is a marathon, not a
sprint. However it seems that they if not anything, are only increasing their spending,
though only out of the capital. Today, there are 18 insurance companies in India
excluding the PSU’s, 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. A
research conducted exhibited that the rural consumers are willing to dole out anything
between Rs 3,500 and Rs 2,900 as premium each year. In the insurance the awareness
TY BMS | 2009 42
level for life insurance is the highest in rural India, but the consumers are also aware
about motor, accidents and cattle insurance.
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. The study also pointed out the private companies have huge task to play in
creating awareness and credibility among the rural populace. The perceived benefits of
buying a life policy range from security of income bulk return in future, daughter's
marriage, children's education and good return on Savings, in that order, the study adds.
IT & Insurance
In the insurance industry today, 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. Instead of
focusing on their different products lines as silos (i.e., life, 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. There is a
evolutionary change in the technology that has revolutionized the entire insurance sector.
Insurance industry is a data-rich industry, and thus, there is dire need to use the data for
trend analysis and personalization.
With increased competition among insurers, service has become a key issue. Moreover,
customers are getting increasingly sophisticated and tech-savvy. 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.
Today managing the customer intelligently is very critical for the insurer especially in the
very competitive environment. Companies need to apply different set of rules and
treatment strategies to different customer segments. However, to personalize interactions,
insurers are required to capture customer information in an integrated system.
TY BMS | 2009 43
With the explosion of Website and greater access to direct product or policy information,
there is a need to developing better techniques to give customers a truly personalized
experience. Personalization helps organizations to reach their customers with more
impact and to generate new revenue through cross selling and up selling activities. To
ensure that the customers are receiving personalized information, 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. Customers can hereby use the knowledge database to
mange their products or the company information and invoices, claim records, and
histories of the service inquiry. 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.
Mergers & Acquisitions

This is an era of mergers and acquisitions. Private companies including MNC’s are
amalgamating the world over to get more competitive edge. Currently, the general
insurance industry has been opened up. The question here is that for over two years, eight
private companies have operated and has the size of the cake expanded. We here find that
this is not true. 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. 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. The private players in the future would have to turn their attention
to working in the unorganized and under served markets.
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 vis-
à-vis is their declared objective of opening up the industry.
TY BMS | 2009 44
However it is high time for the government to realize that importance of merging the
public sector general insurance companies into single entity. 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 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. This at
many times brings advantage to the private players who grab the business because of the
unethical competition among the public players.
The purpose of having four companies all subsidiaries of General Insurance Corporation
of India (GIC)– National Insurance Company, New India Assurance Company, Oriental
Insurance Company, And The United India Insurance Company; at the time of
nationalization was to have competition among themselves – in service and products at
the same price. The service provided by them was also equally good or bad depending on
the experience of the customers.
Now with real competition coming in with most of the global insurance players setting
footprints here, it is felt that the time for merger has come and to enjoy the benefits if the
size. It is to be sated that size does matter in insurance business. All over the world’s
mergers and acquisitions in the risk-underwriting sector is common. The benefits if the
four insurance companies merge will be enormous. The merged entity will enjoy higher
underwriting and risk retention capacity; increase in reinsurance premium, reduction in
reinsurance outflow, healthy solvency margins, setting right the asset –liability mismatch
and reduction in cost. The insurance market thus becomes a gambling place. Had the
public sector companies made into a single entity, perhaps the total premium of the four
public sector companies in the year 2004-05 would have gone up but 25 percent. But the
public sector alone is forced to underwrite the loss making motor third party liability
(TPL) insurance. The public insurance companies insured a loss of Rs 1943 crore on this
portfolio on just one year (04-05). The cumulative loss under this portfolio is
TY BMS | 2009 45
astronomical. 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.
ALL THOSE ABOVE WERE CHANGES MADE DUE TO MARKET
PRESSURES, ENTRY OF FOREIGN PLAYERS AND MANY MORE ASPECTS.
BUT, STILL THE LOOPHOLES REMAINS, OPPORTUNITY EXSISTS,
THREAT PREVAILS. 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 - except by LIC to an extent there was no significant attempt to tap
the rural markets.
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. The companies that can reach those expectations
will only survive.
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.
Bancasurance
Insurance companies should see bancassurance as a tool for increasing their market
penetration in India. It is also good for the one who sees bancassurance in terms of
reduced price, high quality product and delivery at doorsteps. Everybody is a winner
here.
Rural Marketing
As insurance companies go more and more rural in search of business, there will be
opportunities in the rural sector. Those who understand rural India better will be in
demand.
TY BMS | 2009 46
Regulatory and Development Authority (IRDA) have set stiff rural targets for insurance
companies. For the life sector, in the first year, 5 per cent of the total policies written
should come from the rural sector. This will go up to 15 per cent in five years. Similarly,
for the non-life sector, two per cent of the total gross premium income should come from
the rural sector going up to 5 per cent in five years, according to the regulation. All these
moves will make the investment the rural area a big start.
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. 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.
Mergers & Acquisitions

It is thus clear that it is good for the public sector companies to merge immediately when
they are still strong, lest a merger becomes inevitable later after the independent public
sector companies fail one after another. This does not bid well for the public sector, nor
for the insuring public and not for the economic development either. For a progress it
would require merger of strong public sector companies. Else it would render public
sector companies weak and destroy them.
“It Is Thus Clear That The Fittest Will Survive”
TY BMS | 2009 47
CHAPTER 3
TY BMS | 2009 48
3.1 ICICI PRUDENTIAL
Market
For over 50 years, 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. Today, just three years since their entry, their cumulative share has
crossed 13% (Source: IRDA), far exceeding expectations.
Clearly insurance is on a growth path. The percentage of premium income to GDP which
was just 2.3% in 2000/01 rose to 3.3% in 2002/03; and life insurance has emerged as the
dominant contributor to this growth.
TY BMS | 2009 49
The industry presented a huge opportunity. Life insurance penetration, for instance, was
at an abysmal 22% of the insurable population. However, private players have had to rise
to many challenges. They were faced with attitudinal barriers towards the category and
the perception that insurance was only a tax-saving tool. Insurance per se had lost it basic
rationale: protection. It wasn’t surprising then that its potential lay frozen and
unexploited. The challenge for private insurance players was to change the established
category driver and get customers to evaluate life insurance as an investment-cum-
protection tool.
Achievements
Beginning operations in December 2000, ICICI Prudential’s success has been meteoric,
becoming the number one private life insurer within months of launch. Today, it has one
of the largest distribution networks amongst private life insurers in India, with branches
in 54 cities. The total number of policies issued stands at more than 780,000 with a total
sum assured in excess of Rs. 160 billion.
ICICI Prudential closed the financial year ended March 31, 2004 with a total received
premium income of Rs. 9.9 billion, up 135% from last years total premium income of Rs.
4.20 billion. New business premium income shows a 106% growth at Rs. 7.5 billion,
driven mainly by the company’s range of unique unit-linked policies and pension plans.
The company’s retail market share amongst private companies stood at 36%, making it a
clear leader in the segment.
To add to its achievements, in the year 2003/04 it was adjudged Most Trusted Private
Life Insurer (Economic Times ‘Most Trusted Brand Survey’ by ACNielsen ORG-
MARG). It was also conferred the ‘Outlook Money – Best Life Insurer’ award for the
second year running. The company is also proud to have won Silver at EFFIES 2003 for
its ‘Retire from work, not life’ campaign. Notably, ICICI Prudential was also short-listed
to the final round for its ‘Sindoor’ campaign in EFFIES 2002.
TY BMS | 2009 50
ICICI Prudential’s success is rooted in its philosophy to always offer the customer a
choice. This has been the driving force behind its multi-channel distribution strategy,
which includes advisors, banks, direct marketing and corporate agents. In fact, ICICI
Prudential was the first life insurer to invest in multiple channels and offer the customer
choice and access; thus reducing dependency on any one channel.
ICICI Prudential also made great strides in the retirement solutions and pensions market.
The company's penetration of the retirement market was driven by the focussed approach
towards creating awareness through a sustained campaign: ‘Retire from work, not life’.
Within six months, the campaign rewarded ICICI Prudential with an increased share of
23% of the total pensions market and 78% amongst private players.
History
ICICI Prudential Life Insurance Company Limited is a 74:26 joint venture between ICICI
Bank and Prudential plc, UK. The company brings together the local market expertise
and financial strength of ICICI Bank and Prudential’s international life insurance
experience. The company was granted a Certificate of Registration by the IRDA on
November 24, 2000 and eighteen days later, issued its first policy on December 12.
From its early days, ICICI Prudential seemed to have the wherewithal for a large-scale
business. By March 31, 2002, a little over a year since its launch, the company had issued
100,000 polices translating into a premium income of approximately Rs. 1,200 million on
a sum assured of over Rs. 23 billion.
When the company began its operations, the need was to build a brand that was relatable
to, symbolised trust and was easily recognised and understood. It launched a corporate
campaign
using the theme of ‘Sindoor’ to epitomise protection, trust, togetherness and all that is
Indian; endearing itself to the masses. The success of the campaign, ‘the calling card of
the company’, saw the brand awareness scores almost at par with its 40 year old
competitor. The theme of protection was also extended to subsequent product and
TY BMS | 2009 51
category specific campaigns – from child plans to retirement solutions – which highlight
how the company will be with its customers at every step of life.
From day one, the company has unflinchingly focussed on being a mass-market player,
developing products, creating a distribution network and deploying resources that would
further its goal. Apart from ramping up and thoroughly training its advisors, the company
has twelve ‘Bancassurance’ partners – the largest in the country. It swiftly revised and
added to its initial range of products, pioneering market-linked products and pension
plans, to offer customers the most flexible life insurance policies in the country.
In February 2004, ICICI Prudential increased its capital base by Rs. 500 million, its ninth
capital hike, bringing the total paid-up equity capital to Rs. 6,750 million. With the
authorised capital of the company standing at Rs. 12 billion, ICICI Prudential continues
to have the highest capital base amongst all life insurers in the country. 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.
Product
ICICI Prudential’s ultimate promise is financial security. A
strong brand certainly boosts sales, but without customer-
friendly, innovative products, even the best brand would not
last long. 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. It has
thus built a flexible portfolio of products that can be
customised to cater to varying needs of people at each life
stage, 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. Advisors can offer a
complete range of products - Savings plans, Child plans, Market-linked plans, Protection
TY BMS | 2009 52
plans, Retirement plans, Investment plans and group plans – and tailor a flexible solution
to meet the customers’ changing needs at every stage of life. In fact, ICICI Prudential
was the first to un-bundle product benefits, pioneering the concept of ‘riders’ and soon
after introduce comprehensive market-linked and retirement plans.
Recent Developments
In keeping with its belief that a happy customer is the best endorsement, ICICI Prudential
has embraced the ‘Six Sigma’ approach to quality, 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, turnaround times and
customer satisfaction levels.
Another novel introduction is the ICICI Prudential Lifestyle Rewards Club, India's first
rewards programme for Life Advisors; it allows ICICI Prudential Advisors to redeem
points for items ranging from kitchenware to gold, white goods, and even international
holidays.
Promotion
ICICI Prudential is a case study in how advertising and marketing can play a vital role in
re-shaping an industry. 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.
Brand-building in a complex category like life insurance is an uphill and multi-faceted

task. At the time of launching operations, the communications task was to build
credibility, so as to give the customer the confidence that it was ‘a company that could be
trusted to invest funds with’. The aim was to encourage people to view insurance not as a
compulsory tax saving instrument, but as a means to lead a worry-free, secure life and in
the process, create the differentiator for brand ICICI Prudential.
TY BMS | 2009 53
The brand proposition for all the campaigns was reflected in the line: ‘Suraksha: Zindagi
ke har kadam par’. The campaign featured a significant competitive advantage, the sound
financial backing and credentials of ICICI and Prudential, and showcased products from
different segments. The advertising idea was encapsulated in the symbol of protection —
the ‘Sindoor’. This campaign contributed extensively to raising brand awareness and
creating a distinctive identity for the company.
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. This
beautifully tied in the concept of protection with the popular local event of Durga Puja.
The refreshingly different ‘Retire from work, not life’ campaign succeeded in bringing
retirement planning into the consideration set of a younger target audience, and won a
Silver Effie for its efforts. The media campaign was complemented by seminars to spread
awareness about the need for retirement planning.
Very recently, 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,
using marriage and the seven vows or ‘Saat Pheras’
as a metaphor for commitment. The campaign aims
at strengthening the brand by memorably bringing
out the ‘commitment for life’ element. As part of
ICICI Prudential’s continuous efforts to reach out
to customers in new and innovative ways, the
company recently tied up with the Forbes Six
Sigma rated Dabbawalla organisation in Mumbai
for a direct marketing exercise.
TY BMS | 2009 54
In a unique effort to create awareness about a tax-saving product, the company attached a
creative of a bitten apple to Mumbai’s ubiquitous lunchboxes. It worked wonderfully
with Mumbai’s office-goers and one that translated into substantial business for the
company.
Brand Values
Market research reveals that the values people associate with ICICI Prudential are,
indeed, those that the company hopes to project: lifelong protection and value for money.
The core value is protecting your loved ones, throughout life’s ups and downs. It is a
powerful proposition; one, which ICICI Prudential, is taking into the marketplace.
Things you didn't know about ICICI Prudential
1. The logo is the combination of ICICI Bank’s I-man and Prudential’s lady
prudence. The I-man signifies the dynamic individual with drive and conviction,
while Prudence epitomises wise conduct.
2. Every three minutes ICICI Prudential protects one more Indian life.
3. ICICI Prudential is the only Indian life insurance company to have an equity base
of more than Rs. 5 billion.
4. ICICI Prudential is the only life insurance company to implement a Six Sigma
quality programme.
5. Of the company’s 2,000 plus employees, less than 5% have prior experience in
the life insurance industry.
6. The average age of its employees is 29 years.
TY BMS | 2009 55
3.2 CITI BANK
MARKET
Citibank is the world's pre-eminent global

financial services company. It serves nearly 120
million customers – individuals, corporations,
institutions and governments – across continents
and countries; providing them with a wide range
of financial products and services. Banking with
Citibank is a status symbol in any part of the
world.
In India, Citibank has played an even more unique role in introducing world class
practices and technological infrastructure.To many Indians, the entire credit card industry
is synonymous with Citibank, which pioneered this financial segment in India. Over 40%
of all credit cards in India are issued by Citibank. While maintaining the premium
standards of its products and services, Citibank has also achieved a very impressive
market share in other segments of banking including the retail, corporate and investment
segments. This achievement is reflected in diverse indicators of cutting edge banking
operations. Citibank has the largest volume of foreign exchange transactions for any
foreign bank in India, with an 8% market share of total foreign exchange transactions
TY BMS | 2009 56
conducted by all the banks and other financial institutions in India. As the leading
custodian, Citibank has over Rs. 12 billion worth of custody assets under management.
ACHIEVEMENTS
Citibank is recognised as one of the most proficient and premier financial service
providers in the country. Every other bank in India has tried to copy one element or the
other from Citibank's success in continuous provision of a sophisticated, seamless and
tailored service to all customers. It has also pioneered many world class practices in
India.Thus, Citibank was the first such institution to start issuing credit cards in the
country. It was also the first to introduce focussed lending programmes for retail
customers. Again, 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.
The brand has a country wide presence in India through 26 offices and branches across
nineteen cities.
HISTORY
The direct predecessor of Citibank was the City Bank of New York, founded in 1812.
This institution became a fountainhead of services for mercantile capital very early and
witnessed rapid growth throughout the nineteenth century. It also established an accruing
reputation for innovative creation of high-utility financial services, in keeping with
contemporary and emerging requirements. In 1894, it became the largest bank in the US.
By the very early years of the twentieth century, 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. By 1930, it was the largest international
bank in the world with 100 branches in 23 countries outside the US.
The bank's name was changed to Citibank in 1976. In 1981 it purchased the license of
Diners Club International, the credit card franchisee. Citibank's worldwide expansion
TY BMS | 2009 57
gained even greater momentum in October 1998 when it merged with Travelers Group
Inc. Today Citibank has branches in 102 countries across the globe.
Citibank established its first office in India in 1902. However, Citibank India, as we
know it now, started operating in 1985 by way of intermediary services for non-resident
Indians (NRIs) to invest in government securities. It has gone on to become a highly
successful 'universal' bank, setting industry-wide standards for products and services
based on the professionalism, dedication, commitment and experience of its employees.
PRODUCT
Citibank's long tradition of innovation, flexibility and professional experience has

enabled it to offer a broad spectrum of world class products and services in India. As far
as retail banking for individual customers is concerned, Citibank set the ball rolling by
launching credit cards in India. This has changed forever the way Indians use their
money. Over the years, the status of Citibank Credit Cards has attracted 'co-branding'
with several other eminent establishments in India such as the Taj Hotels, Shoppers Stop,
Jet Airways, Indian Oil and MTV. These co-branded cards bring several additional
benefits at partner establishments for Citibank customers. 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. Citibank Saving Accounts offer a complete solution to
the personal banking needs of customers, along with a host of flexible options to help
optimise savings. Within this genre, Citibank has also created the Women's Account and
Citibank Junior Account which offer specially tailored features for these groups. 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, without ever having to physically visit
any Citibank branch. Offering the requirement of a low minimum balance, 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. CitiGold Wealth Management, is a suite of services and
products aimed at high net worth customers that helps them to optimise their savings and
investments.
TY BMS | 2009 58
The offering for business, corporate, and other institutions is equally impressive. The
Citibank Business Account offers unmatched convenience in money management to
manufacturers, traders, exporters and self-employed entrepreneurs. For larger companies,
the bank offers a range of services from cash management, corporate finance, securities,
foreign exchange to industry and trade advisory services. In each of these segments, 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.
Citibank regularly races ahead of its competitors in this regard. A recent example of this
trait was provided in February 2004, when Citibank became the first financial institution
in the country to offer individual customers the facility of multi-currency deposits
TY BMS | 2009 59
through the Citibank† Foreign Currency Deposit Scheme – just a couple of weeks after a
change in banking laws made this possible.
An ever, 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. The group's internet
banking operations are growing rapidly; with over 100,000 customers logging onto
Citibank's internet servers each day currently. This figure is growing at the rate of over
20% every year.†Citibank has also kept expanding the range of services and products that
are available through 'tele-banking'. 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. Thus, it has created the CitiBusiness suite of services and products that
are specifically geared towards the requirement of small and emerging businesses. No
other 'universal' bank in India has sought to develop this target group as a niche high-
value business segment. Citibank believes that small businesses, along with the retail
market, will be a strong element of the bank's business in days to come.
Citibank believes that its role as a major player in the country's financial system also
involves the task of financially enabling local communities. As part of this responsibility,
Citibank has partnered with several NGOs in 'micro-finance' and 'micro-enterprise'
development. 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), the Ahmedabad-based Friends of Women's World Banking (FWWB),
the Working Women's Forum (WWF) in Chennai, Saahasee in New Delhi, Sasha in
Kolkata, and Share MicroFin in Hyderabad.
TY BMS | 2009 60
PROMOTION
Citibank is associated with elegant advertising that showcases the brand's capabilities to
satisfy diverse customer requirements through its unparalleled financial portfolio.†In
India, in recent years, Citibank has paid particular attention to creating facilities, services
and products in retail banking; 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. 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. A continuation of the same theme is the promotion based on the tagline that
Citibank offers ‘Banking that sets you free’.
Citibank has also created an iconic identity for itself by standard arrangements for its
retail branches. A special element of this identity is the†use of the ‘blue wave’ colour
scheme of its retail branch exteriors and furnishings. This practice has enabled Citibank,
over time, to establish a visible and recognisable 'ground-presence' throughout Asia,
including India.
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, industries and cultures. This enables Citibank to offer
state-of-the-art financial services and products, setting standards for the industry across
continents and countries. Clients associate the bank with the highest level of
professionalism, efficiency, technology and service.
Alongside efficiency and proficiency, Citibank takes great pride in a customer-centric

approach. It diligently practices the belief that the customer is pre-eminent. This enables
Citibank to always understand customer requirements and provide customised solutions,
if required. Banking with Citibank is always a pleasurable experience for all its clients.
TY BMS | 2009 61
Things you didn't know about Citibank
1. In 1985, Citibank became the first foreign bank in India to sign a computerisation
agreement with its trade union members.
2. By 1998, Citibank was the most profitable consumer bank in India with the largest
volume of business with overseas Indians, as well as the largest portfolio of consumer
loans.
3. Citibank's retail network has expanded greatly as a result of its acquisition

of†Associates International Holdings, which has brought more than 1,000 consumer-
finance outlets across East Asia and the subcontinent under the brand's umbrella.†
4. In 2004, Citibank became the first retail bank to offer multi-currency deposits to its
individual customers, immediately after the appropriate change in Indian financial
laws was announced by the government.
TY BMS | 2009 62
3.3 LIC
MARKET
Life insurance is universally acknowledged as an

institution, which eliminates 'risk' by substituting
certainty for uncertainty and coming to the timely aid of a
family plunged into crisis.
In India, the words life and insurance are synonymous

with Life Insurance Corporation of India (LIC), an
organisation that provides the protection of life insurance and the guarantee of financial
support to millions of families across the country. 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.
Until some years ago, the

corporation enjoyed a
monopoly status in the life
insurance sector. However,
deregulation of the Indian
insurance market and the
subsequent entry of new
private foreign and domestic
TY BMS | 2009 63
players have not dented its huge stronghold. LIC continues to climb the growth spiral.
During the fiscal year 2002/03, LIC sold as many as 24.5 million policies for a total sum
assured of Rs. 1,796.83 billion and generated a first premium income of Rs. 96.89 billion.
The total income of the corporation during the period was Rs. 809.38 billion and the
value of its assets as on 31st March 2003 was Rs. 2,898.96 billion.
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 prudent approach in safeguarding and
maximising returns to its customers; its sound investments in infrastructure development
and public welfare projects; and above all, its dedication to adopting customer-centric
initiatives. LIC has also taken pragmatic measures to spread the concept of life insurance
across the lower income strata. In particular, 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.
As LIC approaches its 50th year of growth, it has become one of the largest life insurers
in the world in terms of the number of policies issued every year. Its claim settlement
operations are amongst the best, internationally. According to a study conducted by Dun
& Bradstreet, an international rating agency, the corporation had the highest net worth
and the largest asset base among the top 500 Indian companies for the year 2003.
Its total income is the second highest in the country. As one of the largest PC users, 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.com.
HISTORY
In the early 1950s, there were 154 Indian and sixteen non-Indian companies that offered
life insurance. The segment was nationalised through an ordinance on January 1st, 1956
TY BMS | 2009 64
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
TY BMS | 2009 65
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
TY BMS | 2009 66
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
TY BMS | 2009 67
quotation Yogakshemam Vahaamhyaham (your welfare is our responsibility) has been

the driving spirit behind the organisational philosophy and ethics.
For an organisation like the LIC, the medium is the message. Rather than high decibel
advertising power, 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. Deregulation of the insurance market and
entry of private competitors has seen a marked change in its brand policy. Since 2000,
LIC has adopted a fresh marketing pitch to showcase LIC as a brand. 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.
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, and by rendering resources for economic development.’ 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. 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.
Things you didn't know about Life Insurance Corporation
1. As on 31st March 2003, the corporation had 141.1 million individual policies in force
for a total sum assured of Rs. 9,544.80 billion. The total number of lives covered
under group schemes was 25.2 million for a sum assured of Rs. 1,243.13 billion.
2. The Life Fund of LIC stood at Rs. 2,730.05 billion.
TY BMS | 2009 68
3. LIC has over one million agents, perhaps the largest marketing force of its kind in the
world.
4. The corporation has invested over Rs.131.7 billion in housing projects, Rs. 31.7
billion in water supply and sewerage schemes, Rs.163.89 billion in electricity projects
and Rs.115.79 billion in road transport schemes.
5. LIC settled 9.69 million claims for Rs.170.61 billion in 2002/03 at three claims every
two seconds. This leaves unpaid claims at just 0.23%, an outstanding achievement in
the insurance world.
6. 1160 individuals were covered for sums exceeding Rs.10 million each during
2002/03. LIC serves over 150 million policy holders.
7. It has branch offices in the U.K., Fiji and Mauritius and joint venture companies in
Nepal, Sri Lanka and Bahrain.
TY BMS | 2009 69
3.4 SBI
MARKET
Over 90 million people have put their faith in State Bank of India (SBI), India's premier
commercial bank, which ranks also amongst the
world's top banks in assets and branch network. In
an industry that has been deeply disturbed by
credibility-affecting events, SBI stands tall with
an untarnished image. It is an undisputed industry
leader whose actions are closely watched by many
within and without.
A giant with a nimble foot, it has an enviable

network of 9,039 branches and employs 207,039
people. 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.
The total market size of the 293 scheduled commercial banks in India as on December
26, 2003 for deposits was Rs. 14,197.88 billion and for advances Rs. 7,805.72 billion
(Source: RBI's Weekly Statistical Supplement Vol. 19 No.2). SBI has carved for itself the
TY BMS | 2009 70
largest share: Rs. 2,725.47 billion (19.19%) in deposits and Rs. 1,344.01 billion (17.22%)
in advances (Source: RBI's Weekly Statistical Supplement Vol. 19 No.2).
Since the liberalisation of the Indian economy began in the early 1990s, the market for
financial products and services has been growing at a considerable pace. Although there
are competing financial products, bank deposits remain the principal form of savings for
the vast majority of Indians. Nearly three-fourths of the Bank's deposits come from its
retail customers. Holistically, 9% come from domestic deposits in interest-free current
accounts, about 30% in low interest-bearing savings accounts and the balance 61% in
time deposits. The relationship SBI enjoys with the Union Government, State
Governments and the public sector entities gives it a comparative advantage in attracting
deposits.
ACHIEVEMENTS
In 1994, SBI became the first public sector bank in India to access the domestic capital
market. SBI's marketing skills have also been tested beyond the shores. In October 1996,
SBI successfully floated Global Depository Receipts, the first by any Indian commercial
bank, raising Rs. 17.72 billion (then, US$ 369 million). The 'World Equity' journal
adjudged it as the 'Asian Equity Issue of the Year'. In August 1998, it launched the
Resurgent India Bonds Scheme to tap the deposit potential of Non-Resident Indians and
Overseas Corporate Bodies.
It mobilised Rs. 203 billion (then, US$ 4.23 billion), more than twice the targeted
amount. This was an outstanding achievement since it came in the wake of India's nuclear
test. SBI followed this with Rs. 264 billion (then, US$ 5.5 billion) through the India
Millennium Deposit programme launched in October 2000, to raise long-term resources
to increase India's foreign exchange reserves and meet the needs of infrastructure
projects.
TY BMS | 2009 71
SBI is the first lender-of-choice for a chunk of the Indian corporate sector, both public
and private, 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. There is no borrowing need that SBI cannot fulfill.
SBI has had the distinction of

recording uninterrupted profits
since its inception. Its net profit
for the financial year ended
March 2004 was Rs. 36 billion
on a total income of Rs. 380
billion.
On the basis of Tier I capital as defined by the Basel Committee, SBI stands 98th among
the top 1,000 international banks and twelfth among 200 Asian Banks (Source: The
Banker Magazine, July 2003). It ranks number one in the Forbes listing of Indian
companies and 267 in Forbes International 500 list.
The State Bank of India has never been short of accolades bestowed upon it. Moody's
have rated SBI's local currency deposits A3. In 2001, it received a special award for
Excellence in Banking Technology from the Indian Institute for Development &
Research in Banking Technology, Hyderabad. J D Power, an independent international
agency carrying out studies on vehicles and vehicle financing ranked SBI as 'Highest in
Consumer Finance Satisfaction' in 2001.
Outlook Money, a financial magazine awarded SBI the 'Dream House' award 2003 for
the best housing finance company. In the same year it received 'The Most Respected
Company' award in banking and financial services sector by Business World, a weekly
magazine. In the Business Today-KPMG survey, SBI won the Largest Bank award, also
TY BMS | 2009 72
in 2003. 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.
HISTORY
In pre-independent India, three Presidency Banks

were amalgamated in 1921 to form the Imperial
Bank of India. This also functioned as the central
bank till 1935 when it was replaced by the new
Reserve Bank of India. State Bank of India came
into being as a successor to the Imperial Bank of
India on July 1st 1955, when the Indian Parliament
passed the State Bank of India Act.
In two years, 1959 and 1960, the State Bank of

India acquired eight banks, two of which were later
merged into one bank. These seven associate banks today form an important part of the
State Bank Group.
Research-driven, SBI has grown because it has an ear to the ground and responds to the
needs of every emerging market. It restructured its
business in 1995 into four strategic business units:
Corporate Banking Group, National Banking Group,
International Banking Group and Associates &
Subsidiaries.
The Corporate Banking Group, with focus on corporate

and project finance, caters to large corporate customers
including State-owned enterprises. The National Banking Group deals with mid-
corporates, small scale industries and agriculture and personal banking customers. The
TY BMS | 2009 73
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.
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,
spanning all time zones. It also has two wholly-owned subsidiaries: SBI (Canada) and
SBI (California); two subsidiaries: SBI International Ltd., Mauritius and Indo-Nigerian
Merchant Bank Ltd., Lagos; and two overseas joint-venture subsidiaries: Nepal SBI Bank
and Bank of Bhutan.
Given increasing incomes and changing lifestyles, personal banking is an obviously

important area. SBI has 96 Personal Banking Branches, catering to high net worth
individuals. 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.
PRODUCT
Besides providing project loans and infrastructure finance, SBI offers advisory services,
loan syndication facilities and treasury management and leasing. In a renewed focus on
the retail segment encompassing agriculture, small scale industries and small business
and personal segment, SBI offers products such as loans for raising crops, irrigation,
purchase of farm equipment et al, finance to small industries and businesses and a range
of personal loans for housing, vehicle purchase, education and general purpose.
To promote entrepreneurs, an Entrepreneurial Development Scheme was introduced in

1967 for technically qualified people for setting up small scale industries, supported by
entrepreneurship training. The Equity Link Scheme was a related scheme where even
initial equity funding was provided. Stree Shakti Scheme launched on Women's Day in
1988 provided a package of incentives to women entrepreneurs. Project Uptech is an
TY BMS | 2009 74
innovative programme, launched in 1988 for technological upgradation and

modernisation of location and industry-specific clusters of small and medium enterprises.
The programme now covers the sectors of rice milling, apple orchards, brass, grape
farming, energy conservation, bio-energy, etc.
It has recently introduced customised products like Arthias Plus to finance commission
agent intermediaries in agriculture, Channel Financing for downstream small scale units,
Dairy Plus for dairy farmers and Paryatan Plus for development of the tourism
infrastructure. Loan packages tailor-made for teachers, lawyers, doctors, police and army
personnel have been introduced. It has also entered into tie-up arrangements with leading
Public Sector Undertakings to provide retail loans to their employees.
RECENT DEVELOPMENTS
With all of its 9,039 branches computerised, more than 7,466 branches now offer Single
Window delivery. Over 2,619 offices covering 300 centres provide customers ‘Anytime
Anywhere Banking’. With over 3814 Automated Teller Machines (ATMs) the Bank
Group has put in place a country-wide network with an unparalleled reach.
Among its innovative value add-ons are e-rail purchase of rail tickets online, e-pay for
payment of utility bills, recharging mobile phone cards through ATMs, employee salary
payment for corporate internet banking customers and payment of fees to colleges and
universities through ATMs at some centres. SBI proposes to position many of its
branches as 'Super Shoppes' for distributing a whole range of financial products.
PROMOTION
SBI’s present logo was introduced in October 1971. Its circular shape has ancient
associations with unity, the fullness of man's being and his growing consciousness. It also
represents SBI's extension of banking needs to ‘unbanked’ areas of the entire country.
The small circle in the centre connotes that despite its size it is the small man who holds
TY BMS | 2009 75
centre stage for the bank. It positioned itself during the 1990s with the theme ‘The Nation
Banks on us’, which has given way to ‘With you - all the way’, reflecting its basket of
financial products to suit all needs. SBI has associated itself with sports events such as
the 5th World Cup Hockey Tournament held in Mumbai in 1981, the IX Asian Games
held in New Delhi in 1982, the 32nd National Games in 2002 and the 1st Afro-Asian
Games 2003 both held at Hyderabad.
BRAND VALUES
The State Bank of India stands tall amidst the banking fraternity. It holds promise for the
small account holder as well as for giant corporations. Its financial muscle provides
comfort to investors and hope to a resurgent India.
Things you didn't know about State Bank of India
1. An ATM at the Leh Branch in Ladakh is at an altitude of 12,000 feet above sea level.
2. SBI has four apex training institutions: State Bank Staff College, Hyderabad; State
Bank Academy, Gurgaon; State Bank Institute of Rural Development, Hyderabad and
State Bank Institute of Information and Communication Management and 47 training
centres across the country with a concurrent training capacity of 2,500.
3. Over 2.5 million Kisan Credit Cards have been issued to farmers and Rs. 58,200
million released to them as credit.
4. SBI promotes 177,076 Self Help Groups with finance of Rs. 6,245 million and
provides unique opportunities for micro enterprises as well as underprivileged
women.
5. SBI uses video conferencing facilities connecting 24 of its offices.
6. SBI recently launched the world’s first floating ATM located on a barge on the
backwaters of Kerala.
TY BMS | 2009 76
CHAPTER 4
TY BMS | 2009 77
4.1 CONCLUSION
Banking and insurance has become one of the most important tools for the success of any
country. 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. Today due to
liberalization of the economy, more and more sectors are becoming more and more
competitive.
Foreign banks have not only brought in new concept from the west but are also
responsible for improving quality standards in the banking sector. 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. 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 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. A
well-regulated life insurance industry which moves with the times by offering its
customers tailor-made products to satisfy their financial needs is, therefore, essential if
we desire to progress towards a worry-free future.
TY BMS | 2009 78
4.2 BIBLIOGRAPHY
1. Mishra, M. N., Insurance Principles and Practice, S. Chand & Co. Ltd., New
Delhi.
2. Life Insurance Corporation Act, 1956, Government of India.
3. The Marine Insurance Act, 1963, Government of India.
4. Sundhram, K. P. M., Banking Theory Law and Practice, Sultan Chand & Co.
Ltd.,
5. New Delhi.
6. Read, E. W., Commercial Bank Management, Harper and Row Publishers, New
7. York
8. Varshney, P.N., Banking Law and Practice, Sultan Chand & Sons, New Delhi.
9. Seth, Marketing of Banking Services, Macmillan India Ltd., New Delhi.
10. Nigam, B. M. Lal, Banking Law & Practice, Konark, New Delhi.
11. Selected Annual Reports of Companies.
12. Relevant Bare Acts on Insurance & Banking Services.
13. Jeff Madure, Personal Finance, Pearson Publication, New Delhi.
14. http://www.naukrihub.com/india/banking-insurance/overview/
15. PSU banks' policies saved India from financial blushes: Chidambaram
16. The importance of public banking
17. http://www.parinda.com/news/crime/20070918/2025/icici-personal-loan-
customer-commits-suicide-after-alleged-harassment-recov
18. http://www.hindu.com/2008/06/30/stories/2008063057470300.htm
19. http://www.indiatime.com/2007/11/07/icicis-third-eye/
TY BMS | 2009 79

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BANKING AND INSURANCE

BANKING & INSURANCE

“BANKING & INSURANCE”

THE BACHELOR OF MANAGEMENT STUDIES

UNDER THE GUIDANCE OF

_________ COLLEGE OF COMMERCE AND ECONOMICS

_________ ( E ) , MUMBAI – 4000____

ACADEMIC YEAR 2009 - 2010

I FURTHER DECLARE THAT INFORMATION SUBMITTED BY ME IS TRUE AND

I FURTHER CERTIFY THAT THE INFORMATION SUBMITTED IS TRUE AND

Name of the guide

I EXPRESS MY SINCERE THANKS TO MISS ______________FOR HER

I WISH TO TAKE THE OPPORTUNITY TO EXPRESS MY DEEP SENCE OF

FINALLY IT IS THE FOREMOST DUTY TO THANK ALL MY RESPONDENTS,

Name of the student

1.1 BANKING IN INDIA

Foreign banks too started to arrive, particularly in

The fervour of Swadeshi movement lead to establishing of many private banks in

A second dose of nationalization of 6 more commercial banks followed in 1980. The

The nationalised banks were credited by some, including Home minister P.

1.2 ANCIENT BANKING PRACTICES

1.3 BANKING TRANSITION

• 1949: Enactment of Banking Regulation Act.

1.4 BANKING SECTOR

1.5 INDUSTRY ANALYSIS

Threat of new Entrants

banking with few, but profitable clients.

Rivalry among existing firms

1.6 MARKETING MIX

The key objectives for financial service providers are:

1.7 CHANGING SCENARIO

The intensification of competition in the banking industry because of growing private

2.1 INSUARNCE - INTRODUCTION

2.2 BRIEF HISTORY

2.3 INSURANCE BUSINESS

Insurance business has a positive correlation with economic development in an economy.

Royal Sundaram Alliance Insurance Co. Ltd.

The insurance industry is quite diverse in terms of portfolio of products provided by

1. Property and casualty (P&C)

The contract is valid for payment of the insured amount during:

1. The date of maturity, or

1. That of dying prematurely leaving a dependent family to fend for itself.

2.5 INSURANCE SECTOR REFORMS

• Mandatory Investments of LIC Life Fund in government securities to be reduced

The Insurance Regulatory and Development Authority

Insurance Penetration in different countries

2.7 WINDS OF CHANGE

Mergers & Acquisitions

astronomical. The loss of profitable business in view of undeserved competition among

Mergers & Acquisitions

“It Is Thus Clear That The Fittest Will Survive”

3.1 ICICI PRUDENTIAL

Brand-building in a complex category like life insurance is an uphill and multi-faceted

Very recently, the company launched a new

Things you didn't know about ICICI Prudential

3.2 CITI BANK

Citibank is the world's pre-eminent global

Citibank's long tradition of innovation, flexibility and professional experience has

An ever, ongoing development at Citibank is the continuous up-gradation of its

Alongside efficiency and proficiency, Citibank takes great pride in a customer-centric

Things you didn't know about Citibank

3. Citibank's retail network has expanded greatly as a result of its acquisition

Life insurance is universally acknowledged as an

_____ ( E ) , MUMBAI – 4000