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BANKING
 Introduction
Banking has become a part and parcel of our day-to-day life. Today, banks
offer an easy access to a common man. They carry out variety of functions apart
from their main functions of accepting deposits and lending. Banking is a service
industry. Banks provide financial services to the people, business and industries.
Merchant banking, money transfer, credit cards, ATM's are some of the important
financial services provided by the modern banks.
Indian banking system, over the years has gone through various phrases after
establishment of RBI in 1935 according to RBI Act, 1934 , during British rule, to
function as Central Bank of the country. Earlier Central Bank's functions were being
looked after by the Imperial Bank of India.
The development of 'Banking’ is evolutionary in nature. There is no single
answer to the question of what is Banking. Because a bank performs a multitude of
functions and services which cannot be comprehended into a single definition. For a
common man, a bank is a storehouse of money, for a businessman it is an
institution of finance and for a worker it may be a depository for his saving.
It may be explained in brief as "Banking is what a bank does". But it is not
clear enough to understand the subject in full The Oxford dictionary defines a bank as
"an establishment for the custody of money which it pays out on a customer's order'.
But this definition is also not enough, because it considers the deposit lending and
repayment functions only. The meaning of a bank can be understood only by its
functions just as a tree is known by its fruits, As any other subjects, it has its own
origin, growth and development.

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 Evolution
It is interesting to trace the origin of the word ‘Bank’ in the modern sense to
the German word "Banck" which means, heap or mound or joint stock fund. From
this, the Italian word "Banco" meaning heap of money was coined.
Some people have the opinion that the words "bank” is derived from the
French words, "bancus" or "banque" which means a "bench". Initially the bankers,
the Jews in Lombardy, transacted their business on benches in the market place
and bench resembled the banking counter.

 Development of Banking in India

Banking in India is indeed as old as Himalayas, but the banking functions
became an effective force only after the first decades of 20 th century. To
understand of the history of modem banking in India. We need to refer to the
English "Agency Houses" established by the East India Company, These Agency
Houses, were basically trading firms and carrying on banking business as part of
their main business. Because of this dual functions and lack of their own capital
they failed and vanished from the scene during the third decade of 18th century.

 Meaning and Definition of Banks

A bank is an institution which deals in money and credit. Thus, bank is an
intermediary which handles other people's money both for their advantage and
to its own profit. But banks are not merely a trader in money but also an
important manufacturer of money. In other words, a bank is a factory of credit
According to 5(b) defines banking as "accepting for the purpose of lending
or investment of deposits of money from the public, repayable on demand or
otherwise and withdrawals by cheque, draft and order or otherwise". Section 5

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 (1) (c) defines banking company as "Any company which transacts the business
of banking in India".
The Oxford Dictionary defines a bank as "an establishment for the custody
of money, which it pays out on a customer's order".
Section 5(c) of Banking Regulation Act,1949 has been defined banking as,
"One which transacts the business of banking which means the accepting for the
purpose of lending or investment of deposits of money from the public,
repayable on demand or otherwise and withdrawable by cheque, draft, order or
otherwise”.
 Features of banking
The following are the essential features of banking:
1. Dealing in money- The banks accepts deposit from the public and advances
them as loans to the needy people. The deposits may be of different type -
current, fixed and savings accounts. The deposits are accepted on various
terms and conditions
2. Withdrawals Deposits-The deposits (other than fixed deposits) made by
the public can be withdrawals by cheques, draft or otherwise i.e. the bank
issue and pays cheques. The deposits are usually withdrawal on demand
3. Dealing with credit-The banks are the institutions that can create credit i.e.
creation of additional money for lending. Thus, creation of credit is the
unique feature of Banking
4. Commercial in Nature- Since all the banking functions are carried on with
the aim of making profit, it is regarded as a commercial institution
5. Nature of an agent- Besides the basic functions of accepting deposits and
lending money as loans, banks possess the character of an agent because of
its various agency services

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 Main Functions of Banks
The following are the main functions of bank:
1. Accepting Deposits- Tapping the savings of the public by means of deposits
in one of the major functions of a bank. When a bank accepts deposits, it is
said to borrow money, as a borrower, the bank has to safeguard its position.
Therefore before opening an account a bank has to observe certain general
precautions. Every deposit is the property of the bank. The bank is
responsible for the safety of the deposit. A bank may its discretion in
allowing or not allowing a person to deposit and it cannot be questioned
2. Lending Money- Banking is essentially a business dealing with money. A
bank has to invest funds in different was to earn income. The bulk of income
is derived from lending funds, Banks provide loans and advances to traders,
industrialists against the security of some assets and they also advance loans
to the people on personal security. In both the cases the banks run the risk of
default in repayment. Therefore, the banks have to follow a sound lending
policy. Banks in India have responsibility of fulfilling social obligations.
Therefore, in order to protect their own interest as well as national interest
the following principles should be followed by the banks

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 INSURANCE
 Introduction
Risk is there at every walk of life, risk also endangers life itself. In the same
way all financial deals, as well as possession of money & property goods etc.
are fraught with the element of risk. For an example, money may be stolen, or
goods robbed or destroyed or an employee may misappropriate. A man may be
killed in an accident or may die of a fatal disease. The loss arising out of these
risks may be quite substantial and in extreme cases, it may be so heavy that
business may be crippled. The businessman and the owners of the property
discovered that if they got together and contributed a relatively small amount to
a common pool, the total amount so contributed would be sufficient to
compensate any of them for the loss arising due to such causes
All risks do not actually occur at all times and hence it imposable to
calculate probable chances of any particular risk materializing. It is quite that all
the people do not face risks at the same time, thus, the transfer of risk to another
i.e. the insurer is in fact a pooling of risks. If insurance did not exist, each
individual would have to bear the losses on his own. Insurance in effect means
that each one in the pool undertakes to bear a portion of the loss. Such an
agreement has proved to be advantageous to everyone as it is uncertain as to
who suffer the loss.
Insurance is a financial service for collecting the saving of the public and
proving them with risk coverage. The main function of Insurance is to provide
protection against the possible chances of generating loss. It eliminates worries
and miseries of losses by destruction of property and death. It also provides
capital to the society as the funds accumulated are invested in productive heads

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 Principles of Insurance
An insurance contract made without due consideration to these principles is
treated as void, not enforceable by law these principles are as follows:-
1. Principles of Utmost Good Faith- One of the basic & primary principles of
insurance is utmost good faith. It states that insurance contract must be made
in absolute good faith on the part of both the parties. The insured must give
to the insurer complete, true & correct information about the subject matter
of the insurance
Material fact should not be hidden on any ground. This principle is
applicable to all types of insurance contracts. Insurance is for protection &
not for profit & hence correct information must be given to the insurance
company.
2. Principle of Insurable Interest- This principle suggests that the insured
must have insurable interest in the object of insurable. A person is said to
have such interest when the physical existence of the object of insurance
gives him some gain but which he is likely to lose by its non-existence
In other words, the insured must suffer some kind of financial loss by
the damage to the subject matter of insurance. Ownership is the most
important test of insurance interest. Every individual has insurable
in his own life. Insurance contracts without insurable interest are void,
Insurable interest is not a sentimental concepts but a pecuniary interest.
3. Principle of Indemnity- This is one important principle of insurance; this
principle suggests that insurance contract is a contract for affording
protection and not for profit making. The purpose of insurance is to secure
compensation in care of loss or damage

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 Indemnity means security against loss, the compensation will be paid
in proportion to the loss actually occurred. This amount of compensation in
the insurance contract is limited to the amount assured or the actual loss
whichever is less. The compensation will not be more or less than the actual
loss
4. Principle of Subrogation- This principle is an extension and a corollary of
the principle of indemnity. It is applicable to all the contracts of indemnity,
It is applicable to all rights and remedies which the assured would have
enjoyed regarding the said loss. When the compensation is paid for the total
loss, all the rights of the insured in respect of the subject matter of insurance
are transferred to the insurer. The assured will not realize more than the
actual loss suffered
5. Principle of Contribution- There is no restriction as to the number of times
the property can be insured. But on the occurrence of the loss can be realized
from one insurer or all the insurers together, this principle is, however, not
applicable to life insurance contract
6. Mitigation Loss- According to this principle every insured should all the
necessary steps to minimize the loss. E.g. if a trader takes out a marine
policy for the goods being shipped from Goa to Mumbai and if the storm
takes place due to which there takes might be risk of ship sinking. According
to this principle, the ship can be saved by throwing away some of the goods
in order to reduce the weight on the ship
7. Risk must Attach- The subject matter should be exposed to risk, e.g. for
goods placed in godown marine, insurance policy cannot be taken. However,
goods may be insured against fire or theft

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 8. Causa Proxima- The principle of causa proxima means that when a loss
has been caused by the series of causes, the proximate or the nearest cause
should be taken into consideration to determine the liability of the insurer.
The principle states that to ascertain whether the insurer is liable for the loss
or not, the proximate and not the remote cause must be looked into. For an
example, a cargo ship got a hole, due to negligence of the master and as a
result sea water entered and cargo was damaged

 Essential of an Insurance contract- Like other contracts, the contract of

insurance has the following:

1. There must be an agreement between two parties who are
competent to enter into a contract
2. The agreement must be in writing and the parties must give free consent to
terms and conditions
3. The event must be subject to risk or otherwise it will amount to betting
4. The event must also involve some element of uncertainty either as regards in
time or with respect to its occurrence
5. The risk should not to very small
6. The cost of insurance should not be prohibitive. Low cost can be achieved if
the number of risks insured is larger

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 BANCASSURANCE
 Definition
Bancassurance means selling insurance product through banks. Banks and
insurance company come up in a partnership wherein the bank sells the tied
insurance company's insurance products to its clients.

 Introduction
The concept of bancassurance was evolved in Europe. Europe leads the
world in Bancassurance market penetration of banks assurance in new life business
in Europe which ranges between 30% in United Kingdom to nearly 70% in France.
However, hardly 20% of all United States banks were selling insurance against
70% to 90% in many Western European countries.
In Spain, Belgium, Germany and France more than 50% of all new life
premiums is generated by banks assurance. In Asia, Singapore, Taiwan and Hong
Kong have surged ahead in Bancassurance then that with India and China taking
tentative step forward towards it. In Middle East, only Saudi Arabia has made
some feeble attempts that even failed to really take off or make any change in the
system. The motives behind bancassurance also vary. For Banks, it is n means of
product diversification and source of additional fee income.
Insurance companies see bancassurance as a tool for increasing their market
penetration and premium turnover. The customer sees bancassurance as a bonanza
in terms of reduced price, high quality products and delivery at the doorsteps.
With the liberalization of the insurance sector and competition tougher than
ever before, companies are increasingly trying to come out with better innovations
to stay that one-step ahead. Progress has definitely been made as can be seen by

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the number of advanced products flooding the market today - products with
attractive premiums, unitized products, unit-linked products and innovative riders.
But a hitherto untapped field is the one involving the distribution of these
insurance products. Currently, insurance agents are still the main vehicles through
which insurance products are sold. But in a huge country like India, one can never
be too sure about the levels of penetration of a product. It therefore makes sense to
look at well-balanced, alternative channels of distribution.
Nationalized insurers are already well established and have an extensive
reach and presence. New players may find it expensive and time consuming to
bring up a distribution network to such standards. Yet, if they want to make the
most of India's large population base and reach out to a worthwhile number of
customers, making use of other distribution avenues becomes a must. Alternate
channels will help to bring down the costs of distribution and thus benefit the
customers.

 Need for bancassurance in India

Researches and present day statistics speak about the need of a well-
equipped financial structure for a country that helps it to grow economically.
The financial resources in the hands of people should be channelized in
effective manner so as to increase the returns from the basic financial structure
of nation and also the quality of living of people. Insurance policies are
instruments or products that play major role in upholding the financial structure
of developed countries.
Bancassurance is one of the most profitable partnerships banks have, as the
name implies, with insurance companies. This means insurance companies sell
their products via bank’s online and offline channels to bank clients. In return,

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 banks get fees or commissions so there is a win – win relationship have been
set up between the two parties. Selling an insurance product is not an easy job,
selling an insurance product to Millennial could be even more challenging.
Though the teething phase of insurance, one may say is just past, a desirable
foothold is yet to be found. With growth in number of middle class families in
the country, RBI recognized the need of an effective method to make insurance
policies reach people of all economic classes in every corner of the nation.
Implementing bancassurance in India is one such development that took place
towards the cause.
The need and subsequent development of bancassurance in India began for
the following reasons:
1. To improve the channels through which insurance policies are sold/marketed
so as to make them reach the hands of common man
2. To widen the area of working of banking sector having a network that is
spread widely in every part of the nation
3. To improve the services of insurance by creating a competitive atmosphere
among private insurance companies in the market

 Model of Bancassurance
The Bank Insurance Model (BIM), also sometimes known
as Bancassurance or Allianz, is the partnership or relationship between
a bank and an insurance company, or a single integrated organization, whereby
the insurance company uses the bank sales channel in order to sell insurance
product’s, an arrangement in which a bank and an insurance company form a
partnership so that the insurance company can sell its products to the bank's
client base.

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1. BIM allows the insurance company to maintain smaller direct sales teams as
their products are sold through the bank to bank customers by bank staff and
employees as well
2. Bank staff and tellers, rather than an insurance salesperson, become the point
of sale and point of contact for the customer. Bank staff are advised and
supported by the insurance company through product information, marketing
campaigns and sales training
3. The bank and the insurance company share the commission. Insurance
policies are processed and administered by the insurance company
4. This partnership arrangement can be profitable for both companies. Banks
can earn additional revenue by selling the insurance products, while
insurance companies are able to expand their customer base without having
to expand their sales forces or pay commissions to insurance agents or
brokers
5. Bancassurance, the sale of insurance and pensions products through a bank,
has proved to be an effective distribution channel in a number of countries in
Europe, Latin America, Asia and Australia
6. BIM differs from Classic or Traditional Insurance Model (TIM) in those
TIM insurance companies tends to have larger insurance sales teams and
generally work with brokers and third party agents
7. An additional approach, the Hybrid Insurance Model (HIM), is a mix
between BIM and TIM. HIM insurance companies may have a sales force,
may use brokers and agents and may have a partnership with a bank
8. In India banking and insurance sectors are regulated by two different
entities. The banking sector is governed by Reserve Bank of India and the
insurance sector is regulated by Insurance Regulatory and Development
Authority (IRDA)
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 9. Bancassurance, being the combination of two sectors comes under the
purview of both the mentioned regulators. Each of them has elaborate and
descriptive rules, restrictions and guidelines

 RBI has the following conditions and restriction which are as under
1. Any scheduled commercial bank would be permitted to undertake insurance
business as agent of insurance companies on fee basis, without any risk
participation. The subsidiaries of banks will also be allowed to undertake
distribution of insurance products on agency basis
2. Banks which satisfy the eligibility criteria mentioned as under would be
permitted to set up a joint venture company for undertaking insurance
business with risk participation, subject to safeguards. The criterion are net
worth being at least INR 300 Cr., CRAR being at least 10%, reasonable
NPA, performance of subsidiaries (if any) should be satisfactory and there
should have been net profit for at least 3 consecutive years

 Corporate Agency Regulations

Banks can act as corporate agents for only one life and one non-life
insurance company for a commission, as per the current regulatory framework
set up by IRDA. The banks are not eligible for any payout other than
commission. It is also mandated that banks should also observe code of
conduct prescribed towards both customer and the principal who is the insurer

 Broker Route- Banks cannot become brokers, as regulations require

brokers to be exclusively engaged in insurance broking. RBI does not allow
banks to promote separate insurance broking outfits. Even otherwise MNC

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 banks or their parent corporations are not inclined to promote broking
subsidiaries in view of FDI cap of 26%.

 Why Banks are Highly Motivated to Enter Insurance Business

Now?
1. There are several reasons why banks should seriously consider
Bancassurance, the most important of which is increased return on assets
(ROA). One of the best ways to increase ROA, assuming a constant asset
base, is through fee income
2. Fee-based selling helps to enhance the levels of staff productivity in banks.
This is a key driver for raising motivation among bank workers
3. Banks those effectively cross-sell financial products can leverage their
distribution and processing capabilities for profitable operating expense
ratios
4. Overstaffing problem can mitigated without resorting to drastic and
politically unacceptable solutions like large scale firing
5. Banks seek to retain customer loyalty by offering them an expanded and
more sophisticated range of products (than simple bank deposits of few
varieties.)
6. Insurance distribution will increase the fee-based earnings of banks
7. Selling an insurance product via Digital Banking could be even more
challenging. The very first thing that comes to mind is selling the insurance
product as a part of banking package or bundle
8. For example, selling a life insurance together with a mortgage product or
car insurance with car loan.
9.

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 Bancassurance
A win-win solution

BANK
Customer Retention
Satisfaction of more financial needs Quality customer access
under the same roof
Revenue diversification
More profitable resources
utilization
Enriched work environment
Establish sales oriented culture
INSURANCE
Revenue and channel diversification
Quicker geographical reach
Creation of brand equity
Leverage service synergies with bank
Establish a low cost acquisition
channel

 Collaboration is the key

1. In their natural and traditional roles and with their current skills, neither
banks nor insurance companies could effectively mount a Bancassurance
start-up alone. Collaboration is the key to making this new channel work
2. Banks bring a variety of capabilities to the table. Most obviously, they own
proprietary databases that can be tapped for middle-market warm leads. In
addition, they can leverage their name recognition and reputation at both
local and regional levels
3. Strong players also excel at managing multiple distribution channels, cross-
selling banking products, and using direct mail. However, most banks lack
experience in several areas critical to successful Bancassurance strategies: in
particular, developing insurance products, selling through face-to-face
"push" channels underwriting, and managing long-tail insurance products

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 4. Where banks usually fall short, a strong insurer will excel. Most have
substantial product and underwriting experience, strong "push" - channel
capabilities, and investment management expertise. On the other hand, they
tend to lack experience or ability in the areas where banks prevail
5. They have little or no background in managing low-cost distribution
channels; they often lack local and regional name recognition and
reputation; and they seldom possess access to or experience with the middle
market

 Benefits of Bancassurance
1. Benefits to Consumers-
i. Comprehensive financial advisory services under one roof. i.e., insurance
services along with other financial services such as banking, mutual
funds, personal loans etc.

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 ii. Enhanced convenience on the part of the insured
iii. Easy accesses for claims, as banks are a regular go
iv. Innovative and better product ranges
v. Better customer retention and stronger relationships
vi. Clear competitive advantage in the rural areas
vii. Possibility that the insurer’s account as well as the accounts from the
claimants will remain with the bank
viii. Insurance products can augment the value of the banking products and
services
ix. Banks are in better position to offer complete integrated financial
solutions Opportunity to make better informed choice in financial matters
like selection of insurance cover
x. Ease of renewals through of executing standing instructions
2. Benefits to Insurance Company-
i. Captures premium of bank financed assets
ii. Greater geographical reach through banks’ network at relatively lower
cost
iii. Access to banks customers
iv. Gaining credibility in customer mindset by associating with banks
v. Ease of renewals and lower lapse incidence
vi. Potential for cross selling
vii. Potential for up-selling including depth and width
viii. Selling personal lines of insurance products to banks, depositors and other
customers
ix. Introducing co-branded products like Fire Policy for Home Loans
x. Attracting walk-in customers in bank network
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 3. Benefits to Banks-
i. Banks get more non-interest income
ii. Bank gets new customers and better penetration in existing customer base
iii. Increased association with the bank
iv. Branch achieves profitability target
v. Secure an additional and more stable stream of income through
diversification into insurance and reduce their reliance on interest spreads
as the major source of income
vi. Leverage on their extensive customer bases
vii. Sell a whole range of financial services to clients and increase customer
retention
viii. Reduce risk-based capital requirement for the same level of revenue
ix. Work towards the provision of integrated financial services tailored to the
life-cycle of customers
x. Access funds that are otherwise kept with life insurers, who sometimes
benefit from tax advantages

 WHY IS BANCASSURANCE MORE SUITED TO LIFE

INSURANCE PRODUCTS?
1. The main reason may be the complementary nature of life insurance and
banking products: bank employees are already familiar with financial
products and quickly adapt to selling insurance-based savings or pension
products

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 2. On the other hand, the non-life market requires special management and
selling skills, which are not necessarily prevalent in bancassurance. In
addition, such competencies require significant investment in training and
motivation, and therefore additional costs
3. Life insurance products are generally long-term products, which require
customers to have complete confidence in the institution that invests their
money
4. And we now know that, in many countries, banks have a better image and
are more trusted than insurance companies
5. Bank advisers can use their knowledge of their customers’ finances to target
their advice towards specific needs. This is a major advantage in life
insurance and less important in personal injury insurance
6. Some professionals also refer to the claims management aspect of personal
injury insurance, which could have a negative impact

 Banks have some in-built advantages in some of these areas-

1. Banks can put their energies into the small-commission customers that
insurance agents would tend to avoid
2. Banks’ entry in distribution helps to enlarge the insurance customer base
rapidly. This helps to popularize insurance as an important financial
protection product
3. Bancassurance helps to lower the distribution costs of insurers

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 Bancassurance training for bank employees:
The bank employees will need to be trained in the following aspects of the
insurance business:

1. Features of the insurance products sold

2. How to identify and approach a potential customer
3. Basic insurance needs
4. Handling basic objections
5. Other distribution channels and products
6. Expected roles
7. Procedures
8. Remuneration and incentive schemes
9. Cultures

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 NEED FOR A CASE STUDY
Today’s banking business is not the one we have seen in the past. It has
become much more diversified. With the shift in the customer preferences from
deposits to investments, intense competition etc., and the banks saw their profit
margin declining. Thus it has become imperative for the banks to retain the
customer by providing more value added services under one roof as well as to
find alternative ways to generate more income.
As bancassurance provides the best possible solution to all these, most of
the banks nowadays have started selling insurance products to its customers.
HDFC bank is also having a tie up with its subsidiary company HDFC Standard
Life Insurance for selling Life insurance products to its retail customers. Hence
there is a need for the study to know whether HDFC bank has been benefited
out of bancassurance by way of financial analysis and to suggest the areas
where they can make use of and get close to the bank if they wish to.

 STATEMENT OF THE PROBLEM

To understand the financial impact of bancassurance in HDFC bank and to
suggest the ways and means to improve the existing performance by way of
collecting responses from the customers.

BENEFITS TO THE ORGANIZATION

1. Through the study the bank can know its financial performance in
bancassurance and whether it is contributing to the overall progress of the
bank or not

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 2. The study would enable HDFC bank to know the general opinion of
customers about insurance and bancassurance so as to know whether any
awareness needs to be created about the same
3. The study would enable HDFC bank to know how far their initiatives in
promoting HDFC standard life Insurance products have reached its
customers
4. It would also enable the bank to know whether they have established a
strong relationship with the customers, as it is important for bancassurance
5. It would also enable the bank to know the number of persons who are
planning to take a life insurance policy in their near future so that it can
take the advantage of the same
6. The bank can also know the willingness of the customers in accepting
HDFC bank as their distribution channel in case of obtaining HDFC
standard Life Insurance policy in future
7. Finally, it provides the opportunity for the bank to know the areas where
they need to give much emphasis and uplift themselves in order to occupy
a key role in the area of bancassurance

 SCOPE OF THE STUDY

1. The study focuses on the financial performance of HDFC bank in
bancassurance and its contribution to the overall progress of the bank
with respect to life insurance alone
2. The study analyses the awareness of the customer and the viewpoints of
the customer about insurance as well as bancassurance
3. The study also measures the initiatives taken by HDFC bank in
endorsing HDFC Standard Life insurance products

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 4. The study also throws light on the relationship building by HDFC bank
with its customers, as it is the deciding factor for considering the bank as
a one- stop shop for all their financial solution
5. It also indicates the persons who are willing to take life insurance policy
in the immediate future and the reasons for taking the same
6. It also pinpoints the willingness of the customer in accepting HDFC
Bank, as their distribution channel, in case of their choice is HDFC
standard Life Insurance for obtaining a policy
 OBJECTIVES OF THE STUDY
1. Primary objective-
i. It is to make an analysis on the financial performance of HDFC bank
in bancassurance with specific reference to life insurance and to
suggest the ways and means to improve the existing performance by
way of collecting responses from the customers

2. Secondary Objectives-
i. To analyze the financial performance of HDFC bank in bancassurance
and its contribution to the overall progress of the bank using ratio
analysis
ii. To analyze the initiatives taken by the HDFC bank in endorsing the
HDFC Standard Life Insurance products
iii. To assess the relationship building factors of HDFC bank, this is
significant for bancassurance
iv. To know the customer preferences in selecting HDFC bank as a
distribution channel in case of their willingness to obtain HDFC
Standard Life Insurance policy in future
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 LIMITATIONS OF THE STUDY-
1. Time has played a biggest constraint that the research could not be
carried out comprehensively as the duration of the study was only 4
months
2. As the research contains the Secondary data for making a financial
analysis the accuracy and reliability of the analysis depends on reliability
of figures derived from financial statements
3. The sample size for collecting the primary data was meager as it includes
only 100 respondents, hence the conclusion would not be a universal one
4. Personal biases and prejudices of the customers may also affect the
study. In spite of the limitations, the study was effective in analyzing the
performance of HDFC bank in bancassurance with specific reference to
life insurance

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 SOME OF THE BANCASSURANCE TIE-UPS IN INDIA

BANKING COMPANY INSURANE COMPANY

Bank of Rajasthan, Andhra Bank, Birla Sun Life Insurance Co. Ltd.
Bank of Muscat, Development Credit
Bank, Deutsche Bank and Catholic
Syrian Bank.
State Bank of India. State Bank of India Life insurance
company Ltd.
ICICI bank, Bank of India, Citi Bank, ICICI Prudential Life Insurance
Maharashtra Bank, Allahabad Bank. co. Ltd

HDFC Bank, Union bank of India, HDFC Standard Life Insurance co.
Saraswat Bank. Ltd.

Corporation Bank, Life Insurance Corporation of

Indian Overseas Bank, India.
Centurion Bank,
Satara District Central Co-operative
Bank, Janata Urban Co-operative
Bank, Mahila Sahkari Bank, Vijaya
Bank, Oriental Bank of commerce.
Canara Bank, Lakshmi Vilas Bank, Dabur CGU Life Insurance
American Express Company Pvt. Ltd Company Pvt ; Ltd.
Bank.

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 RECENT TRENDS OF BANCASSURANCE
1. Bancassurance has not only targeted the mass market but has also carefully
begun to segment the market which has resulted in the tailor‐made or rather
perfect products for each segment
2. Some bancassurance focus exclusively on distribution. In some markets,
face‐to‐face contact is preferred which proves to be a favorable arrangement
for the development of bancassurance business
3. Initially banks opt for either “referral models” or “corporate agency.”
4. Banks are offering space in their own premises to accommodate the
insurance staff for selling the insurance products or giving access to their
client’s database. Insurance companies can use this opportunity to increase
their sale
5. Nowadays banks are campaigning and marketing the insurance products
across the globe. Number of banks in India act as “corporate agents‟ to
insurance company

 Recent tie up of a Bank and an Insurance company-

Bancassurance
1. The news was from NEW DELHI that the country’s largest insurer Life
Insurance Corporation of India (LIC) on Thursday has signed an agreement
with private sector lender Axis Bank making it its bancassurance partner
wherein the bank will distribute LIC’s products to its customers

This is one of the biggest tie-ups announced after financial sector regulators
liberalized norms governing the sale of insurance products by banks, called

27
Bancassurance, under which lenders were allowed to sell products of multiple
insurance companies

Bancassurance is a model where the insurance company joins hands with a

bank in order to sell its products. This is also known as ‘channel sales’ in banking
parlance

In the preliminary phase, the bank will distribute LIC’s life insurance
products across its branches in West Bengal, Bangalore and Haryana – Panchkula.
Additionally, it will also provide post sales services such as premium collection
and renewal of policies.

“The coming together of the two major reputed organizations would enable
them to combine and utilize the synergies for enhancing customer satisfaction,”
LIC executive director for bancassurance Mukesh Gupta said.

In a statement, LIC said that as on June 30, 2016, Axis Bank had a network
of 3,006 domestic branches and extension counters situated in 1,882 centers

From April 1, norms have been revised under which corporate agents like
banks are allowed to tie-up with three life, three non-life and three standalone
health insurance companies.

Earlier, under the bancassurance model where banks sold insurance meant
that they could only sell products of one life, one non-life and one standalone
health insurer. Apart from LIC, Axis Bank also has a tie-up with Max Life
Insurance in the life insurance space.

Rajiv Anand, executive director and head retail banking, Axis Bank said that
banks have increased roles in insurance distribution.“Over the last five years the
life insurance business at Axis Bank has grown at a CAGR of over 25 percent. The

28
partnership with LIC would enable us to further expand our existing bouquet of
offerings and put forth a compelling proposition for our customers,” he said.
Experts says that this move of LIC will help them to gain momentum since over
the last few years most of LIC agents has decided to quit selling its products.

2. Private life insurer Tata AIA Life and Citibank entered into a bancassurance
partnership in India to serve insurance needs of over 18.4 million households in
the country.

"This partnership aims to enhance the value proposition to Citibank's

customers. I am confident that with our customized products, unique technology
support for sales and services, and Citibank's expert relationship managers, we will
enhance customer experience to a new level," Tata AIA Life CEO and Managing
Director Naveen Tahilyani told reporters.

This is a growing base of approximately 18.4 million households across 14

cities in India that has a large protection gap, estimated at over Rs 150 trillion, he
said. "In India, for every Rs 100 needed for a family's income protection, only Rs
7.4 is currently provided for, leaving a protection gap of 92.6 percent," he pointed
out.

29
 SWOT ANALYSIS OF BANCASSURANCE
1. Strengths:
i. Accurate Customer Details- The accuracy in customer details can do
wonders. The data generated by many sources lacks accuracy. But the
accuracy of data is very high in bancassurance. This helps in targeting right
segment of customers for right policy. The communication address and
phone number of customers are updated on time and avoids waste of time
and resources in communication
ii. Insurance Is Mandatory for Loans- The bank whenever offers loan
bound to issue appropriate class of insurance too. It is legally mandatory
for a bank to club loan products with relevant insurance. For example, life
insurance is required for personal loan. In case of property insurance, fire
insurance is mandatory. Similarly, for different classes such as cattle
insurance, Agriculture insurance etc. demanded while selling the loan
products for the same
iii. Customized Policies at Lower Premium- The insurance policies are
customized for bancassurance channel. The statistical analysis of customer
data helps to devise right set of policies for different customers. The
features and premium of insurance products designed for bancassurance
channel comparatively better than any other channel. In fact, the insurance
policies are lucrative in bancassurance channel
iv. Issuance of Very Special Class Insurance- The risky class of businesses
will not be issued as it affects the profit of the insurer. Some of the risky
classes are weather insurance, cattle insurance etc. if the customer
approaches through bancassurance channel then the policies will be issued.
30
 In other words, the risky policies are issued only bancassurance customer
and not for others
v. Good Numbers of Leads to Cross Sell- The bank customers can be
targeted to sell insurance policies. The existing customer database can be
used to generate leads. As the number of sales leads increase the sale
closures also increases. Thus the more leads ends in more sale closure. The
banks can cross sell insurance policies to its customers.
vi. Services under One Roof for Customers- The customer can enjoy
convenience of core banking products and insurance policies under one
roof. Otherwise the customer needs to run around in search of different
financial products to meet his needs time to time
vii. Relationship Based Business Model- The insurance is considered as
concept selling. The sales executive cannot expect immediate sale closure.
Each phase of the sales process consumes time. The time taken to follow-
up etc. is lengthy. The success of insurance sales is purely based on
relationship between the seller and the buyer. The bank employees can turn
the rapport created as policies
viii. Important Source of Income- The fee-based services increase the
productivity of the employee as well as the bank branch. The existing
resources can be utilized to sell financial products. Otherwise the insurance
company needs to spend on resources. It is easy to train the bank
employees as they are graduates. Banks due to competition loses profit in-
core banking products and it can be compensated in selling insurance
products

31
 2. Weakness
i. Lack of Initiatives from Bank Employees- The bank employees should
sell insurance in addition to their routine works. They perceive insurance
as a burden on their head without considering its benefits. They are not
interested in attending insurance training and suffer without product
knowledge. The initiatives to create rapport with insurance company
employees are minimal
ii. Dependency on insurer Employee- The bank employees are solely
depending on bancassurance executive for sales. The sales executive can
handhold in the initial time but not always. A bancassurance executive will
be given handful of bank branches. It is difficult to manage and address all
the requirements simultaneously
iii. Customer Orientation is less- Most of the bank employees tend to sell the
policies which can fetch maximum benefits for them in terms of
commission volume. But they forget to fulfill the customer requirements.
The bank employees are having profit orientation not customer orientation
iv. Can Only Promote Tie-Up Insurer Products- As per IRDA guidelines,
an insurer can have tie-up with any number of insurers. But a bank can
have tie-up with only one life insurer and one non-life insurer. Thus a bank
is restricted to sell only one bank products and cannot sell multiple insurers
products simultaneously

32
 3. Opportunities
i. Growing Channel of Marketing- The bancassurance generates significant
proportion of premium for any insurer. The bancassuance is inevitable as it
generates huge premium next to agency channel. The growth rate of
bancassurance channel is exponential in recent years
ii. Dual Support Model- The customer who takes the insurance policy
through bancassurance channel is expected to enjoy dual support. In other
words, support from bank as well as insurance company. The scope for
better customer services is higher in bancassurance.
iii. Tax Payers Can Be Targeted- Every year during March, the sale of life
insurance reaches its peak. At that time selected customers referably (tax
payers) can be targeted for single premium policies.
In a nutshell the bank employees should be prepared to allot time for
insurance in March
iv. Sales Can Be Driven By New Campaigns- The insurers can devise new
campaign to motivate bank employees for selling the insurance policies.
The winner of each campaign can be awarded with foreign tour, gold, cash
prizes etc. thus the inner urge to sell more and win can be increased
v. Scope of Premium Payment through EMI’s- As per IRDA regulations,
the premium for non-life insurance cannot be paid in installments. But the
banks can pay the premium to insurer on behalf of the customer and can
collect premium from customers in installments. Thus the bank can extend
the comfort of premium installments to its customers

33
 4. Treats
i. Insurance Becomes Additional Responsibility- The bank employees
should sell insurance in addition to core banking activities. During the
introductory phase the burden will be extreme for them. But the bank
employee will be more comfortable in selling insurance as the time
progresses. The friction is more in the initial phase of the bancassurance tie-
up. Those successfully completes the first phase can really excel in selling
insurance
ii. Rapport Maintenance between Employees- The rapport between bank
employee and sale executive is affected by variety of factors. Some of the
important factors are: the initiatives taken by bank employees and
executive, meticulous planning and allocation of time for selling insurance,
the number of branches under the supervision of executive etc. for
example, if an executive is allotted with more number of banks then the
rapport level with each bank employee is limited due to lack of time.
iii. Brand Equity and Poor Service- Generally, out of bancassurance tie-up,
the brand equity of the insurer is improved. But the poor insurance service
may dilute the bank brand equity. So the bank needs to analyze the insurer
carefully before tie-up. Otherwise poor insurance service may hinder the
sale of core banking products
iv. Competitive Quotes from Others- Sometimes, the premium quote of other
channels is comparatively lower than the bancassurance channel. More
specifically, the direct marketing motor premium is cheapest one. In such
cases, the customer prefers to buy from the channel which charges the
lowest premium

34
 v. New Bancassurance Proposals- The bancassurance channel has limited
contractual term and can be renewed subsequently. Generally, each bank
receives invitation from insurer to become bancassurance channel partner.
If bank gets profitable contract than the current one then the present tie-up
will come to an end

 Distribution channels for bancassurance-

There many distribution channels of bancassurance but the most important
are here below:

Distribution Channel

1. Carrer Agents

2. Special Advisor

3. Salaried Agents

4. Bank Employess

5. Internet

6. E- Brokerage

35
1. Career agents- With suitable training, supervision and motivation can be
highly productive and cost effective. Moreover their level of customer service is
usually very high due to the renewal commissions, policy persistency bonuses,
or other customer service-related awards paid to them
2. Special advisers- Special advisers are highly trained employees usually
belonging to the insurance partner, who distribute insurance products to the
bank corporate clients. Usually they are paid on a salary basis and they receive
incentive compensation based on their sales
3. Salaried agents- Salaried agents have the same characteristics as career
agents. The only difference in terms of their remuneration is that they are paid
on a salary basis and they receive incentive compensation based on their sales
4. Bank employees- Bank employees can usually sell simple products.
However, the time, which they can devote to insurance sales, is limited and a
limited target market, i.e. those customers who actually visit the branch during
the opening hours. In many set-ups, the bank employees are assisted by the
bank financial advisers. In both cases, the bank employee establishes the
contact to the client and usually sells the simple product whilst the more
affluent clients are attended by the financial advisers of the bank, which are in a
position to sell the more complex products
5. Internet- Internet banking is already established as an effective and profitable
basis for conducting banking operation. Bancassurance is confident that internet
banking will also prove an efficient vehicle for cross selling of insurance
policies by bankers. Such an arrangement can prove beneficial for both banks as
well as insurance company
6. E-Brokerage- Banks can open or acquire an E- Brokerage arm and sell
insurance products from multiple insurers. The changed legislative climate
across the world should help migration of bancassurance in this direction. The
biggest advantage of this medium is sale of policies, strong brands, easy
distribution, effective mergers, etc. with internet capabilities

36
Scope for Bancassurance in India-
It has become clear that as economy grows it not only demands stronger and
vibrant financial sector but also necessitates providing with more sophisticated and
variety of financial and banking products and services. As India is being
considered one of the fast developing economy among the emerging market
economies, financial sector has also grown much vibrant with the financial
reforms.
In fact, in recent years, it is surmised that even the ‘global economic growth’
hinges on growth prospects of the emerging economies like China and India to a
greater extent. Significantly, Indian economy has recorded an average growth of
over 8.5 per cent for the last four years, with macroeconomic and financial stability
(RBI, 2006) and indications are that it may grow at even better rate in the near
future provided there is good monsoon.
Moreover, as India has already more than 200 million middle class
populations coupled with vast banking network with largest depositor’s base; there
is greater scope for use of bancassurance.
In simple words, it is aptly put that bancassurance has promised to combine
insurance companies’ competitive edge in the “production” of insurance products
with banks’ edge in their distribution, through their vast retail networks.

1. Bankers’ Perspective- In the post reforms, the financial sector has more
number of players of both domestic and foreign and the dividing line between
the banks and non-banking financial institutions’ activities had considerably
thinned down

37
 Banks’ response to these developments has been to migrate towards newer
and non-traditional areas of operations especially relating to fee based activities
/ non-fund based activities. This is reflected in the sharp increase of proportion
of non-interest income to total income in recent years.
Although this was an unprecedented achievement in the Indian banking
industry, diversification towards new areas such as bancassurance, promises
greater scope for further enhancement in earnings with no menace of increase in
NPA’s. India has a widely stretched and well established banking network
infrastructure. It is this contrasting situation to assimilate the two systems by
way of ‘bancassurance strategy’ to reap the benefits of synergy. This is an
opportune time for both banking and the insurance sectors to come closer and
forge an alliance for the mutual benefit.
Both the regulators, i.e., RBI and IRDA have already pre offered appropriate
policy guidelines and set in a congenial environment for such an endeavor.
2. Insurers’ Perspective- The success of any new business/ products/ service
depends on how quickly and widely it reaches out to the customers/ potential
customers. This holds good even for insurance products, the insurance
companies can reach out the entire country at a greater speed with less cost
through bancassurance.
With the sweeping financial reforms in the insurance sector and the
consequent opening up of this sector, all the private entities plunged almost
simultaneously with a very little spacing of time and the entire insurance sector
has been exposed to stiff competition.
A number of foreign insurance companies in both life and non-life segment
have entered by way of joint ventures with an equity stake of up to 26 per cent
in the local companies.

38
 The foremost advantage for insurance company being that they will have the
direct access to the large customer base, at relatively faster rate and at the
lowest cost. Banks’ prior knowledge about the customers and their financial
standing and other background is a gold mine for the insurers not only to tap the
market but also would help to device the products that suits customers the most .
For the insurance sector, it is now the most congenial policy environment to
adopt bancassurance as IRDA has been encouraging banking institutions and
the corporate sector to actively take part in the distribution system of insurance
products. Similarly RBI as the regulator of banking system had smoothened the
way for the banks to enter the insurance activities.

39
 Survey Analysis

Gender

40%

Male Female
60%

My survey consists of 30 people of whom 18 are females and 12

are males.

40
 Age Group
12
11

10
10

6
6
Age Group

4
3

0
18-25 26-35 36-45 46 and above

The age group of these 30 people lies within 18-25 is 10,

26-35 are 11, 36-45 are 3 and 46 and above 6.

41
Q1. Do you have a life insurance?

Do you have a life Insurance?

20%

Yes

No

80%

From the survey I came to know that 80% i.e. 24 people as a life
insurance policy where as 20% i.e. 6 people don’t have the life insurance
policy.

42
Q2. Have you heard about bancassurance?

Have you heard about bancassurance?

20%

80% Yes

No

24 people i.e. 80% are known to bancassurance but 6 people i.e.

20% are not known to bancassurance.

43
Q3. How much risk does it involve in bancassurance?

18
16
16

14

12

10
9

6
5
4

0
High Risk Low Risk No Risk

5 people say there is high risk involved in bancassurance. 16

people say there is low risk involved in bancassurance and 9 people say
that no risk is involved in bancassurance.

44
Q4. Do you think bancassurance is more beneficial as compared to
LIC?

10
9
9
8 8
8

5
4
4

2
1
1

0
Strongly Agree Agree Not decided Disagree Strongly
Disagree

8 people in both category i.e. strong agree and agrees that

bancassurance is beneficial than LIC. 9 people has still not decided
whether bancassurance is beneficial than LIC. 4 people don’t think that
bancassurance is beneficial than LIC and only 1 people feels that LIC is
more beneficial than bancassurance.

45
Q5. Which company will you prefer for bancassurance?

13%

30%

SBI LIFE
17% BAJAJ ALLIANZ
HDFC LIFE
KOTAK MAHINDRA
ICICI PREUDENTIAL
10% BANK OF BARODA
17%

13%

30%i.e. 9 people prefer STATE BANK OF INDIA LIFE. 10%i.e.

3 people prefer BAJAJ ALLIANZ. 13%i.e. 4 people prefer HDFC LIFE.
17%i.e. 5 people prefer KOTAK MAHINDRA and ICICI
PREUDENTIAL respectively. And remaining 13%i.e. 4 people prefers
BANK OF BARODA.

46
Q6. How much premium do you pay quarterly?

12
11

10
9

8
5000-7000
6 7001-10000
5 5 10001-15000
4 15001-20000

0
5000-7000 7001-10000 10001-15000 15001-20000

11 people pay premium amounting between Rs.5000 to 7000. 9

peoples pay premium between Rs.7001 to 10000. 5 people pay premium
amounting from 10001 till 20000. Every person pays the above premium
quarterly.

47
Q7. How much fees does your bank charge according to the services?

18
16
16

14

12

10
8
8

6 5

2 1

0
500-1000 1001-2500 2501-5000 5001-9000

The banks charges fees according to the services provided by they

to the customers ranging from 500 to 1000, 1001-2500, 2501-5000 and
5001-9000 of which 16, 8, 5 and 1 person pays it respectively.

48
Q8. Do you get appropriate information about your policies?

Yes

No
28

28 people that is around 93.34% gets well information about their

policy whereas 2 people i.e. 6.66% are not informed or known to their
policy.

49
Q9. Is taking a life insurance very important?

18
16
16

14
12
12

10

4
2
2
0 0
0
Strongly Agree Agree Not decided Disagree Strongly
Disagree

16 i.e. 53.33% people strongly agree in taking a life insurance

policy. 12 i.e. 40% people just agree to take the life insurance policy. 2
i.e. 6.66% people have not decided rather to take life policy or not. No
one disagree or strongly disagree to take the life policy.
This is good sign for the insurance company that people are
understand the importance of life insurance policy.

50
Q10. Do you think risk coverage is as important as return from the
investment?

Yes

No

30

All 30 people in the survey i.e. 100% think that risk coverage is as
important as return form the investment.

51
Q11. Do you think there is lack of interest in insurance agents? Is that a
reason for less marketing of insurance products in rural areas?

14
12
12
10
10

8
7
6

2 1
0
0
Strong Agree Agree Not decided Disagree Strong
disagree

10 people have a view that due to lack of interest in agents of

insurance company is the reason for less marketing of insurance
products in rural areas. 12 people agree to the same view. 7 people have
not decided whether the view is correct or wrong. 1 people disagree with
that statement and no one strongly disagree with the point.

52
Q12. Are you satisfied with your bank, which has provided insurance service under
one roof?

35

30 29

25

20

15

10

5
1
0
Yes No

29 people which are around 96.67% are satisfied with their bank
that has provided the insurance services which includes life insurance as
well as general insurance. 1 person is not satisfied with the bank.

53
 CONCLUSION
The fact that the banking operations in India, unlike in other developed
countries, are still branch oriented and manually operated vis-à-vis highly
mechanized and automated banking channels, viz., internet banking, ATMs, etc.
are all the more conducive for flourishing of bancassurance. Regulators could
explore the possibility of allowing banks having tie-up arrangements with more
than one insurance company, giving wider choice for the customers. In addition
to acting as distributors, banks have recognized the potential of bancassurance
in India and will take equity stakes in insurance companies, in the long run
Adequate training coupled with sufficient incentive system could avert the
banks’ staff resistance if any. In sum, bancassurance strategy would be a ‘win-
win situation’ for all the parties involved -the customer, the insurance
companies and the banks. The most immediate advantage for customers is that,
in insurance business the question of trust plays a greater role, especially due to
the in-built requirement of a long term relationship between the insurer and the
insured.
1. For banks it just acts as a means of product diversification and additional fee
income
2. For insurance company it acts as a tool for increasing their market
penetration and premium turnover
3. For customer it acts as a bonanza in terms of reduced price, high quality
products and delivery to doorsteps
The success of bancassurance greatly hinges on banks ensuring excellent
customers relationship; therefore banks need to strive towards that direction.
The changing mindset is cascading through the banking sector in India and this

54
would be a right time for banks to resorting to bancassurance, especially in the
context of proactive policy environment of regulatory authorities and the
Government.
It is important for an insurer to understand the merits and demerits of
bancassurance channel. It helps immensely to plan the resources in accordance
with the channel requirement. In other words the contractual terms etc. can be
planned to maximize the channel effectiveness. Otherwise smooth functioning
of bancassurance channel is difficult

55
 REFERENCES
I. BIBLOGRAPHY
1. Bancassurance: an emerging concept in India by NAVIN SETHI.
2. "Insurance Management", 11th Edition, by P.K.GUPTA Himalaya
Publication.
3. Banking Services and information Technlogy: The Indian Experience by
R.K. UPPAL
4. “Bancassurance: Taking the lead” online article by Hindu Business Line,
January 2006.
5. Bancassurance- Trends and Opportunities. by V.V. RAVI KUMAR
6. Management of Indian Financial Institution by R.M. SHRIVASTAVA and
DIVYA NIGAM
7. Principles and Practices of Banking 3rd edition of INDIAN INSTITUE OF
BANKING AND FINANCE
8. Commercial Banking and Finance by H. RAJASHEKAR.

II. WEBLIOGRAPHY
1.www.irda.gov.in
2.www.google.com
3.www.banknet.com
4.www.insuremagic.com
5.www.hdfcbank.com
6.http://www.newindianexpress.com/business/news/LIC-Axis-Bank-ink-pact-
in-largest-bancassurance-deal/2016/07/29/article3551895.ece
7. Bancassurance: an emerging concept in India by Navin Sethi.
8. http://blogs.timesofindia.indiatimes.com/business/finance/
9. http://www.bancassuranceworld.com/
10.http://www.moneycontrol.com/news/business/tata-aia-life-citibank-enter-
into-bancassurance-tie-up _1279159.html?utm_source=ref article
11.http://www.allbankingsolutions.com/Banking-Tutor/bancassurance.shtml
12.http://indianexpress.com/article/business/business-others/irda-allows-banks-
to-tie-up-with-nine-insurers/
13.https://www.rbi.org.in/scripts/PublicationsView.aspx?id=9773

THANK YOU!!

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