Chapter – 1

Introduction

1.1 Introduction

In any modern economy, the banking sector is considered as the backbone.

Banking sector plays a critical role in the development of an economy. So it is rightly
called as an important financial pillar of the economy. Banking is a financial service
industry which provided various financial services to industry, trade, commerce and
individual household. It plays an important connecting role between who have and
who don’t have as it mobilize funds from people having surplus funds and to lend it to
them who are in shortage of funds. So in modern economy banks are not only dealing
in money and credit but they are leading to develop the economy. A sound banking
sector reflects sound and healthy financial sector which in turn strengthen the
economy.
Banking is a financial services industry. Banking provides various financial
services to industry, trade, commerce’s & individual households. It provides
financials supports to business. It is rightly called the backbone of economy. Finance
is the lifeblood of business and banking is a financial sector services industry. The
word ‘Bank’ has been derived from the Greek/Latin word ‘banco’. Originally, the
word referred to a system where People used to transact money over a sitting
arrangement of counters. It can be said that a bank is an institution that deals in
deposits, advances remittances & other auxiliary functions. A banker is a person who
conducts banking business.
Banking primarily means acceptances of deposits & lending’s loans /
advances. However, the scope & functions of banks have widened over a period of
time. Banking functions have expanded with expansions of business. Industry trade &
commerce all over the world this, in turn, led to expansions of banking also. Further
with the advents of computerizations & e-commerce the speed of banking transactions
& the geographical coverage has above been winded. Now a day’s; banks are also
working in capital market & insurance sector (bancassurance) along with their
primary business of acceptances of deposits & lending loans & advances. SBI is also

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working in capital market and insurance sector along with their regular banking
services.
The concept of insurance can be found in the history of our ancient India. Dr
R. P. Kangle (University of Bombay) in his well-known commentary on 'The Kautilya
Arthashastra' states, "The duty of the ruler to protect his subjects is often expressed
not in terms of Rakshana/Palana (protection/care), but in terms of ensuring their
YOGAKSHEMA". The word 'YOGAKSHEMA' is combination of 'yoga' and
'kshema'. 'Yoga' means 'the successful accomplishment of an object', while 'kshema'
means 'the peaceful, undisturbed enjoyment of that object'. This means that, the state
has to ensure more than mere protection of person and property. Thus the word
Yogakshema implies the and well being, including the idea of prosperity and
happiness.1
'Sharing of risk' on which the insurance concept is developed is as old as the
dawn of human civilization. The Aryans had evolved a system of village and com-
munity life, which was protection against ravages of time and give sustenance to
everyone. Other civilised people of the world also had independently conceived the
idea of collective protection. F. J. McLean in his famous book 'Human side of
Insurance' states that the term 'YOGAKSHEMA' is found in the Rig Veda, and that
some kind of commercial insurance was practiced by the Aryan tribes in India nearly
3000 years ago.2
The Manu Smriti also supports the system of 'collective co-operation' as
practiced by the Aryans. The society provided against many eventualities for
everyone. The mutual help system of the Aryans started with the birth of the child.
The society contributed to add to the comforts and colours on festive occasions or to
lessen the miseries of the widows and other members of bereaved families where
death had occurred. Besides, other social institutions like joint family system, caste
system, village panchayats, temples and charitable institutions also provided protec-
tion from the rigours of misfortune to a person and his dependants. 3

Insurance and Banking are coexisting financial institution while

complementing and supplementing each other. The Insurance Regulatory and
Development Authority Act, 1999 have created more opportunities to them for
expansion of their markets. They can serve the society in a very effective manner.
Banking Institutions have got the opportunities to enter in insurance business while

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insurance institutions have already under the autonomy of starting their banking
business. Many non-banking institutions have been opened, acquired funds and
dissolved with public money at their stakes. Since they were totally in the hands of
private persons, the Government control became ineffective. Banking institutions in
India are mainly under the control of Reserve Bank of India. People need insurance
but they prefer investment over risk coverage although latter is more important.
Indian mentally for insurance is very bleak people do not feel need of insurance
although they have dire-necessity for that. Insurance institutions in India have not
considered forced insurance. The voluntary-purchasing of insurance policies is rare
phenomena. They prefer to go to bank-offices rather than going to insurance offices
for getting risk coverage. The insurance institutions procure the business through their
agents who are the main link between people and the company. Agents’ attitude and
environment may work against the free will environment of insurance. The IRDA,
Act is expected to mobiles insurance coverage and resources for investment in the
economy. The Government has assured that there would not be any disinvestment in
the LIC, GIC and their subsidiaries. Insurance Act, 1938, has not been sufficient to
regulate the insurance business in India. Foreign companies would not be allowed to
hike their equity in the country through their Indian subsidiaries. It has opened a great
opportunities for the banking and insurance institutions. They can perform both the
functions.4
The life insurance and general insurance corporations are performing their
respective functions with the help of banks. LIC and GIC have opened their accounts
with banks. Policyholders have to approach the banks for realisation of cheques.
Indirectly banks have to intervene in their business. If the insurance companies
perform the business of banking institutions, they get benefits of business in financial
transactions. Policyholders are also benefited as they have not to run from pillar to
post. The claim amounts will be deposited in insurance banks. The account holders
get all the benefits and facilities of banks. It can be analysed under premium
Collection, claims, payment, pension plans, funds, investment consultant and
employment opportunities.
Bancassurance is a strategy adopted by banks or insurance companies arming
to operate in the financial market in a more or less integrated manner. It is inter-
linkage of different financial services as well as the distribution of these products.

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 Insurance as bank will facilitate deposits of premium. The burden on cash-
counter is lessened or the cash transaction is shifted to insurance bank. The premium
amount is regularly collected without any pressure on other activities of insurance.
Insurance business is expanded with extra zeal and effort as people working in the
marketing areas develop specialisation. They devote with additional knowledge and
equipment for the expansion of insurance business on the other hand. Management of
premium collection becomes easy as the insurance banks have diversified its
activities. New bank customer get information about insurance. They collect, analyses
and reinforce the available information at insurance bank counter from the fellow
depositor of premiums and receivers of claims-amount. Insurance policy is accepted
by its realisation of actual benefits towards which Indian population is apathetic. The
premium account is regularly collected as the customers visit often the insurance-bank
for their daily transaction. They are reminded of premium-deposits. The premiums
collected are deposited in a commercial bank who use the money for their transactions
and investment. If so much money is retained by insurance-bank, it would be utilised
by them for getting some profit on the money.

The public is accustomed to get insurance and banking services at a place.

Insurance industry will work like a multiple shop store were in all the financial
functions would be performed by them. The investor would also come to the
insurance offices for getting all the information and services fulfilled. However the
insurance-bank should not have to confine only on insurance-investment but should
have widen its horizon to help all types of people seeking financial suggestions.

Payment of premium would be easy and prompt if the policyholder has opened
account with the insurance-bank. It would be like salary saving scheme wherein no
policyholder would bother for monthly remittance of premium. Merely accounting
transaction in the insurance-bank facilitate the payments. The account holder would
be reminded of the minimum balance in the account for payment of premium. The
insurance bank becomes total bank of people as it takes cares of all financial
transactions. Payment of electricity bill income tax and business-invoices would be
easy by insurance Bank.
The claims-amount paid by the insurance industry is not immediately used by
the clients. It is deposited in the bank from whereby they withdraw their amount from
time to time leaving a sufficient amount with the bank for their investment as per
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rules. If this amount is retained by the insurance-bank, the money would be utilised
for further investment. The client's account in the insurance-bank is immediately
credited with the amount of claim from which they withdraw amount from time to
time. Such types of facilities of premium-deposits and claim-settlement by bank
motivate public to deal with the insurance, bank wherein they would prefer to deposit
their other savings. Old-age people get monthly withdrawal of the amount. They
would not suffer any more by making the commercial banks. The technological
development wherein phone and computer facilities would serve their clients at the
home. Employment opportunities would increase as expert people would have been
appointed to meet the clients at the residence who would pay cash at the time of need.
Only telephone facilities would do all the jobs as automatic-services would be
completed on computers. If the client has personal computer it would be mere useful
and efficient services to them. The claim amount of insurance industry reveals the
bank or banking business based only on it.
Several banks are unable to maintain their profitability on account of non-
performing assets and non-circulation of investible funds. They should merge with
LIC or GIC who should be starting banking business, too for their development to
achieve leadership. Competence in view of becoming tough competition from outside
country. Once banks have merged with LIC or QIC, they would perform letter under
their guidance who would need basis infrastructure for expansion of insurance banks.
The banks would be performance a fresh. The employees would get a change of
revival. They would proper training and motivation. The productivity and
performance would boost their morale, highly motivated employees would share more
responsibility of insurance and banks. The educated people would get opportunities to
demonstrate their capabilities. Indian economy would get sufficient tads from
insurance and banking institutions. Resource mobilisation would help development of
peoples’ health, economic conditions and entrepreneurship. India will emerge a
powerful Nation.5

1.2 Statement & Significance of the Study

The institution of life insurance provides security in the modern world, which
is governed mostly by materialistic considerations. The role of money in the industrial
society has made it necessary that there should be an institution like life insurance,

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providing hedge against any life risk. The agrarian society in India, the institution of
joint family provided the needed security. With the industrialisation of the country
joint family is being replaced by nuclear family. Hence, there is no security in the
event of bread winner of the family dies or becomes permanently disabled. The
growing role of money in our economy and the expanding industrialisation make it
necessary that there should be an arrangement for social security. It has been proved
that life insurance alone is the answer.6
Insurance is a contract in which a sum of money is paid by the assured in
consideration of insurer’s incurring the risk of paying a large sum upon a given
contingency. Life Insurance contract may defined whereby the insurer, in
consideration of a premium paid either in lump sum or in periodical installments,
undertakes to pay expiry of a certain sum of money either on death of the insured or
the contract embodies an agreement in which broadly stated, the insurer undertakes to
pay a stipulated sum upon the insured or at some designate time to a designated
beneficiary.
Life insurance is a unique financial product. It deals scientifically and
precisely with variables that are emotional and, within the context of our own
individual lives, completely unpredictable. Perhaps the most important factor about
life insurance is simply that it works. It is not only an investment but has a
psychological aspect of family protection after sudden death of the insured. Since the
1850s, when the modern life insurance policy was created, insurance companies have
consistently kept their contractual “promise to pay.” This in turn has made it possible
for millions of men and women in this country to keep their promises to their families,
building a plan of financial security on the foundation of life insurance protection.
Although no amount of protection can be a substitute for the loss of the person,
millions of families have been protecting themselves under life insurance, thereby
affording them the confidence that their families would continue to lead a decent life.
Apart from affording this protection individually, life insurance companies with their
vast reserves participate in a big way in the nation-building activity. They are the
major contributors towards development of all infrastructure facilities all over the
country.7
The Insurance sector is of vital importance to every modern economy. First
because it encourages the savings habit, second because it provides a safety net to
rural and urban enterprises and productive individuals. And perhaps more importantly
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it generates long- term ingestible funds for infrastructure building. The nature of the
insurance business is such” that he cash inflow on insurance companies is constant
while the payout is deferred and contingency related.
This characteristic of their business makes insurance companies the biggest
investors in long gestations infrastructure development projects in all developed and
aspiring nations. This is the most compelling reason why private sector (and foreign)
companies which will spread the insurance habit in the societal and consuming
interest are urgently required in this vital sector of the economy.
India adopted the New Economic Policy in 1991 as a result of its participation
in General Agreement of Trade & Tarrif (GATT). The Urugway round of GATT
proved to be a landmark in the economic history of the country. The role of WTO also
increase the after the acceptance of Dunkel Report in principle. This opened the new
avenues of globalization, privatization and liberalization as against the socialistic
pattern of society adopted by India in its constitution under the Directive Principles of
State Policy. The Life Insurance business was Nationalised as a result of the process
of socialisation in 1956 when Dr. C. D. Deshmukh was the Finance Minister of India.
The Life Insurance Corporation of India has so far been working as a government
monopolist in the field of life insurance business. But the new trend of lasseize faire
after the new economic policy led to privatization of life insurance business. This
created the situation of monopolistic competition in life insurance sector. A number of
new companies like ICICI prudential, Birla Sun Life, Bajaj Allianz, Max New York
Life etc. entered the life insurance market. SBI Life is also one of them. State Bank of
India started to work in Insurance sector with its bank channels. This is a
bancassurance.8

There is a vast market competition to SBI for bancassurance. Insurance

companies are selling their product at the doorstep of the customer. They are also
having strong advertising backup. Separate offices, agent network, advertising,
channel partners and other such aspects supporting other companies for insurance
business. The major player in insurance in India is LIC. LIC has a strong agent
network and goodwill among the people in India. This creates a huge competition
before SBI.9

SBI offering bancassurance services to its customers with regular banking.

There are already many problems before banking, bancassurance also suffering from
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these. The nature and intensity of problem may be differ according to the place of
branch viz. a rural bran or a urban branch. A rural branch may suffer with the problem
of electricity, that of urban bank may suffer with the problem of parking space. There
are many problems before SBI. The major problems may be grouped with
infrastructural problems, human resources, work environment, marketing problems,
training etc. The researcher has opted to study and analyse these problems with the
help of primary survey.

Therefore, the researcher has in this study analysed the customers’ views
towards bancassurance services provided by SBI and the problems faced by the
employees of SBI with reference to bancassurance services.

It is now clear that the banking sector is the backbone of every economic
system. Banks are the channels that circulate the lifeblood of business i.e. Finance. It
is through the pipelines of banking system that this lifeblood is circulated all over the
economic system. By shifting it from places where it is kept idle to places when it is
badly required. After independence the banking system in India has shouldered the
great responsibility of uplifting the downtrodden classes, eradication of poverty,
creating employment opportunities and has thereby acted as agent of economic
growth and development.
Commercial banks in India are facing new challenges under conditions of
privatization, liberalization, globalization and IT- revolution. Indian banks must
change themselves for ‘change is the Mantra’ of success in dynamic business
environment.10
Maximization of profit and wealth and Excellence in service quality can be
achieved only through a continuous change leading towards the summit of perfection.
It is surprising fact that in spite of increasing pressures of costs, NPAs,
profitability and competition commercial banks in India could not do much except
some primary steps for improving insurance business for profit maximization and
services excellence.

The IRDA Act, 1999 has opened wide challenges to financial institutions.
Now banks can also enter in insurance business. The insurance is the basic need of
life. Uncertainty of life and death is reducing the working capacities of people
because of tension involved. Once it is secured, person feels happy to perform life job

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effectively. In a bank where he has his bank account, if he gets facilities of insurance;
he would certainly purchase insurance policies. Insurance link deposit would be more
attractive to the account holders. With payment of slightly a higher amount at the time
of deposit, he can secure term insurance. Term insurance would be the most
appropriate form of life insurance to be sold by banks. Health schemes and accident-
benefits can be lucrative business for a bank. The banks should chalk out at the
earliest to start new business of life as well as general insurance. In canada, many
banks have been successfully doing this job. This is not new to India now. In India
also many banks are working in insurance sector also with good performance. State
Bank of India is also one of them. 11

Importance of Bancassurance
Banks with over 65,000 branches and 65% of household investments are the
backbone of the Indian financial market. In India, there are 75 branches per million
inhabitants. Clearly, that's something insurance companies would find nearly
impossible to achieve on their own. Considering it as a channel for insurance gives
insurance an unlimited exposure to Indian consumers. Banks have expertise on the
financial needs, saving patterns and life stages of the customers they serve. Banks also
have much lower distribution costs than insurance companies and thus are the fastest
emerging distribution channel. For insurers, tying up with banks provides extensive
geographical spread and countrywide customer access; it is the logical route for
insurers to take. The banks as well as the insurer are benefitted from this arrangement.
Bancassurance is a long standing dream of offering a seamless service of banking, life
and non-life products. The importance of bancassurance can be better to understand
from an analysis of the benefits that came to both banks and insurance companies,
etc.12
There are many benefits of bancassurance to the bank. These benefits of
bancassurance to the banks can be described as follows –
Bancassurance is blessed with the possibilities of increased income generation,
better utilization of infrastructure and improved productivity by using the same
available staff for insurance business.
With technological support, banks possess vast information about customers
including their financial and social positions. The quality and quantity of such

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information provide impetus to assess the customer expectations and to develop
products to meet their needs through faster distribution channels.
Banks are now able to undertake a broader spectrum of activities. Banks and
insurance are not seen as competitive business, rather as complimentary to each other
in the financial markets. The regulatory changes in many countries are moving
towards acceptance of the concept of universal banking.
Banking and insurance are an integral part of financial sector. Combination of
these affords an opportunity to have complete solutions to all their financial service
needs of the customer, much beyond the traditional standalone banking services and
insurance products.
Prospects of Bancassurance
Insurance is one of the fastest growing sectors of the Indian economy and to
encourage more investments in the insurance sector, private sector was allowed to
conduct insurance business. As a result, private sector companies entered into
insurance business. Life insurance is one important segment of the insurance sector
that provides safety to the family of the insured after a sad demise of the insured. It
also works as the investment and saving instrument. At present, as many as 24
companies are operating in the life insurance sector. SBI is also one of these. This is a
bancassurance service provided by SBI.13

Bancassurance is more cost effective than traditional agency and broker

channels. The primary vantage offered by bank distribution of insurance products is
the customer relationship; bancassurance margins were significantly higher than other
traditional channels. The popularity of bancassurance has increased recently.
In India, bancassurance is contributing significantly in new business growth,
specially among private sector companies. Bancassurance is tied up with commercial
banks, cooperative banks and regional rural banks. It is cost effective for insurers to
top into rural communities. It is expected account for 13% in life and 5% in non-life
business during next five years. In India, more banks have come to realise the value of
their distribution network and are reportedly trying to discard existing channels in
favour of financial service sector including insurance companies.
The booming emerging equity markets have led to increasing interest in unit-
linked and investment-linked products, which have become mainstay products sold
through banks. The recent liberalisation of emerging insurance markets has brought

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with it a huge inflow of foreign companies. Many of the newly formed insurance
companies resort to bancassurance to quickly penetrate the domestic markets although
other channels are also used.

Guidelines of Reserve Bank of India for Bancassurance

The Reserve Bank of India (RBI) has given certain guidelines for banks
entering into the insurance sector. They are as follows:
(1) Any commercial bank will be allowed to undertake insurance business
as the agent of insurance companies and this will be on fee basis with
no risk participation.
(2) The joint ventures will be allowed for financially strong banks wishing
to undertake insurance business with risk participation.
(3) For banks which are not eligible for this joint venture option, an
investment option of –
i) Up to 10% of the net worth of the bank, or
ii) Rs. 50 Crore, whichever is lower is available. The bank that wants
to enter in insurance industry, they have to follow these guidelines.
The Insurance Regulatory & Development Authority has given certain guidelines
which are as follows
(1) Each bank that sells insurance must have a chief insurance executive to
handle all the insurance matters and activities.
(2) All the people involved in selling insurance should undergo mandatory
training at an institute determined by IRDA and pass the examination
conducted by the IRDA.
(3) Commercial banks, including co-operative banks and RRBs may
become corporate agents for one insurance company.
(4) Banks cannot become insurance brokers.
On the Indian front, SBI Life has reaped the maximum benefits out of bancassurance.
Taking advantage of its branch network, it generated almost 39% of its total premium
in 2006-07 through bancassurance route. Thus, bancassurance has its own share of
advantages and disadvantages. If properly executed, the concept of one-stop shop for
financial products is bound to be a reality.14

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Success Factors of Bancassurance
The success of bancassurance is dependent on more than one factor. These factors can
be broadly grouped under the following15 –
1. Promotion and Distribution
The type of promotional procedure and distribution channel that a bancassurance
firm selects has a bearing on the design and pricing of the products. It also affects
the way in which the products are promoted and expected to be perceived in the
marketplace. Many banks actually entered the bancassurance market with a
defensive strategy to avoid start-up troubles including losing market share to
insurance companies. Subsequently, gained experience through expanded product
range, developing sales culture within the organization, creating multichannel
distribution system and utilizing customer's database are benefiting the banks.
2. Activities Integration –
Integrating the support services and synchronizing the delivery channels are more
important strategies for bancassurance business. These activities include
overseeing corporate governance, capital policy, and information technology and
organization structure. Corporate governance comprises activities pertaining to
strategy development and management of different cultures. The focus is towards
synchronization of management structures with a senior team of bankers and
insurers participating through group approach. A centralized management division
initiates job rotation and implementation of cross over strategies.
Capital policy involves funding and investing resources by banks as well as
the insurance companies. The combine asset management strategy provides
economies of scale and affords an edge over the competitors to deal in the market
effectively. One of the reasons for convergence of banking and insurance is to use
the management information system as effectively as possible.
The setup or structure of the organization has to recognize the need of
compliance with various statutory requirements of different regulatory authority.
The structure should also have the inherent insight to address issues involved in
day-to-day functions.
3. Operational Factors
There are several operational aspects which need to be looked upon after to
facilitate the growth and development of bancassurance. Allocation of sales force
is one of the prominent factors which have a direct bearing on the growth of
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 business. Allocation should be done on an annual basis because frequent
dislocation will hamper the lead time available to the sales force to equip them.
Similarly, sales target should not be frequently revised and be based on the size of
the branch and potentiality of the area of operation. Moreover, the company
should not withdraw any agent just because of dismal results without giving an
opportunity to fully actualize his potentialities.
4. Emphases on Training
Number of trained officials, content of training and evaluation mechanism are
important aspects. The IRDA also insist on mandatory training for stipulated
hours for the ground level employees. The training requirements for the sales team
should include basic knowledge of banking products and distribution channels,
building effective relationship and knowledge about bank customer's expectations.
Some of the methods by which effective training can be imparted include agency
meetings, branch office meetings, in-house magazines, training circulars, area
sales conferences, performance evaluation seminars, certificate courses, audio
visual aids, etc.
5. Cultural Integration
The officials of banks and insurance come from different backgrounds. Their
thinking and business approaches are quite different. While banks are demand
driven organizations with reactive selling philosophy, insurance companies are
usually need-driven organizations with aggressive marketing philosophy. There
are chances that bancassurance operations are likely to face these differences. The
best approach in this condition should be to develop a single culture that requires
full commitment of the top management to develop synergy in the organizations.
Future Scope of Bancassurance
The insurance market has a considerable amount of latent potential, given the
fact that the Indian economy is expected to do well in the coming decades leading to
increase in per capita incomes and awareness. Further, the stakeholders have to work
toward maintaining a favorable environment for stable growth, increasing the
penetration of insurance to rural and underpenetrated areas and increasing the
contribution to the economy.
The concept is still in its embryonic stage but the client's preference for this
channel has been encouraging and the future looks to be rosy for bancassurance.
Predominantly, the new insurance companies have opted for this channel in a bigger
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way. The future only will decide the models which would emerge as favourites and
the ones which will not make it. The success of the model to a considerable extent
will also be decided by the integration of the human resources in terms of mindset, IT
and supportive systems. From the client's point of view, bancassurance is a value-
added proposition as they would be advised by better trained and more trustworthy
bank officials rather than advisors/ agents (with exceptions) whose primary
consideration, it is often said would be their own monetary benefit.
The cost synergies of integrating banking and insurance operations apart, the issue of
bancassurance is laden with several potential risks. To name a few, lack of focus in
areas of insufficient managerial experience, supervisory oversight and enhanced
potential for regulatory arbitrage, reengineering and the change management issues,
inappropriate capital allocation within the group and the distinct possibility of both
the partners to aggregate risk exposures rather than acting as a hedge.
Notwithstanding the apprehensions, for private insurers in another three to four years
time, bancassurance is set to grow at a fast pace and eventually capture equal share of
the insurance business as their agency channel.
Challenges before Bancassurance

Life insurance market, after enjoying a decade of strong growth, is currently

facing a challenging time involving macroeconomic environment, consumer
sentiments, rapid regulatory changes. Amid these global and industry slowdown
phase, the insurance players are grappling with slow growth, rising costs,
deteriorating distribution structure and stalled reforms. The Regulator, IRDA, is
tightening and standardizing the rules of the business to protect the policyholders’
interest and to establish life insurance as long term contract.
While the insurance industry still struggles to move out of the shadows cast by
the challenges and uncertainties of the last few years, the strong fundamentals of the
industry augur well for a roadmap to be drawn for sustainable long-term growth. The
insurance sector appeared poised to sustain growth on the back of a growing
population, strengthening incomes, purchasing power, rising aspirations, accelerating
urbanization and transforming demographics. These realities provide the optimism
that household numbers could raise in line with age changes in the younger
population group, increase in the working population, growing incomes, customized

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product offerings etc. Increased incomes are expected to result in large disposable
incomes, which can be tapped by the insurance sector.
Notwithstanding the strong improvement in penetration and density in the last 10
years, India largely remains an underpenetrated market. In meeting the significant
potential, the industry has an increased role and responsibility.
The demand for insurance products is likely to increase due to the exponential growth
of household savings, purchasing power, the middle class and the country’s working
population. The following are the key drivers to increase insurance penetration:
• Increase in the working population and higher disposable income
• Awareness of various financial products including insurance
• Awareness of need to invest for a secured future for self and family
• Increasing universe of potential insurance takers – Individuals and Companies
across industries
• Expansion of the universe of insurance takers driven by professionalization of
companies
• Increasing number of providers offering a comprehensive range of products at
competitive prices and higher level of customer satisfaction.
• Regulations which are conducive for growth and expansion of industry.
The insurance companies need to re-work on their strategies to remain in the
business maintaining a long term profitable growth. Some of the key areas are
described as under:
Product Innovation: The insurance industry need to focus on innovation both
in products and service delivery, which will offer consumers simple and easy-to-
understand products. Innovation should not only be in the form of benefits attached to
the products but also as per customer preferences. With customers asking for
increased levels of customization, product innovation is one of the best strategies for
companies to increase their market share.
Multi-distribution: The typical distribution channels used by insurance companies
now include bancassurance, direct selling agents, brokers and corporate agents. To
increase market penetration, insurance companies need to expand their distribution
network. In the recent past, the industry has witnessed the emergence of alternate
distribution channels such as electronic channel, direct marketing, telemarketing, etc.

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Bancassurance: The bancassurance channel has grown rapidly in past few years
especially in Asia. But the model has not developed to its full potential in the Indian
insurance industry, despite in existence for more than a decade. Recently, the Finance
Minister proposed that banks should be allowed to sell policies of multiple insurance
companies. IRDA is also considering a proposal to allow cross selling of micro-
insurance products by banks. This would increase insurance access due to the large
network of banks for selling their products.
Cost Effective Operations: The expenses incurred by insurance companies include
expenses towards setup cost, acquisition, maintenance, marketing & advertising and
other expenses. The challenge for most of the life insurers is to control these expenses
and increase efficiencies with a view to achieve long term profitable growth.
Customer Centricity: Customer service is of prime importance in any industry and
insurance is not different. If the Indian insurance industry is to make rapid strides of
progress, efficient service delivery to the policyholder in its truest sense is the need of
the hour. The Regulator is also taking necessary steps, from time to time, to protect
the policyholders’ interest. The life insurer comes in contact with the customer at
several points in time. To fill the gap between insurer and customer expectation, the
insurers companies need to ensure easy product understanding by the customer, hassle
free claims settlement and speedy resolution of customer grievances.
Regulatory Trend: Consumer awareness and protection has been a prominent part of
the regulatory agenda. Regulatory developments in the recent years show the focus on
increasing flexibility in competitive strategies such as niche focus, merger and
acquisitions and on removing structural anomalies in the products and operations. The
insurance companies have to adjust to the new product and other guidelines in a
phased manner to align its goal with the regulator’s objective.
Profitable Growth: In order to achieve profitable growth for long term sustainability,
insurers have two key imperatives. Firstly, they would need to conserve capital and
optimize the existing resource deployment and distribution networks. Secondly, they
would need to innovate not only in terms of value propositions but more importantly
in terms of operating models in order to develop sustainable competitive edge.
Problems of Bancassurance

In spite of the prospects of bancassurance there are several problems which are
faced by the banks, bank employees, managerial staff etc. From the customers point

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of view bank should provide perfect banking service to them. Customers are
expecting more and more services as the time being changing day by day. The
banking services are changing as the technology is also upgrading. Banks are going to
reduce overheads and trying to increase the profits. Therefore, the banks entered into
insurance sector also so as to encash its faith in the minds of customers. But basic
problems are still existing. Bancassurance is definitely giving an income to banks, but
the challenges before banks are still remain as it is. The employees have to work extra
for bancassurance. There are no separate premises for bancassurance. No such
facilities are provided.

The researcher has therefore opted to study the performance of the

bancassurance during the period under study. The researcher has also studied various
problems before bancassurance in this research. The study can be said really fruitful
only when banks will motivate further research & take active steps for
implementation, the recommendations and suggestions.

1.3 Rationale of the Study

Customer service in banking is a business activity which is subject to evolutionary

change and development, as its processes, structure and market-place are all modified.
Strategy, however, exists as a methodology for operating the organization within the
environment, for analysing the organization and market-place, and for providing a
framework for action. It provides a view in a vision against which planning, the
allocation of resources and the setting of objectives takes place. The application of a
strategic methodology to Customer service in banking as an interpretative and
practical exercise is a vital element in .structuring and focusing bank energies towards
an increasingly complex and volatile business environment.
The value of applying generalized, conceptual thinking to an industry as
apparently dynamic as the banking industry is often questioned. It is thought dial its
long-term view is not justified given the realities of the market-place, its framework
for action precluding effective entrepreneurial responses 10 opportunities. Strategy
should, however, attempt to encompass the totality of business activity and to create a
unity of purpose and action out of the instructing elements that make up a business
environment.

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 To create this synthesis requires an approach that is both structural, that is it
deals in fixed terms of either methodology or time, and is able to respond flexibly to
short-term changes which are either organizational or environmental. Clearly the
more able a strategy is to deal in a cohesive way with the totality of factors that affect
a business the more able it is to accommodate changing patterns of business and
provide successful long-term lines of action.
In customer service of banks, for example, evolutionary changes are much
slower than in the corporate market, simply because the market is so large and the
number of environmental factors relatively few. But against this is the fact that in a
slow moving industry, decisions tend to be cumulative and irreversible, so although
the decisions are fewer and more temporally spaced out they tend to be more
fundamental and critical.
The term customer service in banking represents an imprecise category of
activity; devised in the past few decades and now used extensively, it tends to
represent any banking which is not wholesale based. It tends to encompass any
business that is conducted through a branch network and which is focused mainly
towards the personal sector. But it does not represent just one industry; to be accurate,
‘customer service in banking’ should encompass all sectors who provide a related
range of banking services - money transmission, deposit and credit services and some
form of financial advice. The nature of the market-place means that a variety of
different industry groups, for example clearing banks, building societies and finance
houses, are competing for different segments of the market-place. All display
different structural and behavioural characteristics, and it is this breadth and richness
of activity and interaction that has created the highly dynamic ‘customer service in
banking’ industry of today.
The banks also were in desperate need for augmenting their lending portfolio
and also to diversify their portfolio risk. Banks took this opportunity to cater to the
multiple banking requirements of the individuals by segmenting the individuals as a
separate business market and called it by the name of ‘Customer Service in Banking’.
Thus, we can define Customer Service in Banking as doing banking business with
individual customers.
Banks are now providing insurance services to its customers. This is called
bancassurance. Many banks have get tied with insurance companies for providing the
insurance services. The benefit of bank’s faith in customers helps to promote
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insurance product to the customers vis-a vis banks also get profit from the sale of
insurance policies to the customers. SBI is also providing bancassurance services to
its customers. This is now a very popular bank service with other services of the
banks. The practice of bancassurance is now not a new one.
The saga of insurance is presumably as old as that of mankind itself. The
inclination to secure oneself against loss and adversity stimulated ancient men as
much as it motivates today's ambitious folks. The beginning of insurance can thus be
traced back to ancient times. In fact, it is said to have started with the code of
Hammurabi in 2100 BC, which formalized the concepts of civic responsibilities,
bottomry and respondentia. Bottomry and respondentia loans refer to marine contracts
covering vessels and cargo.
People are aware of the product when there are a number of seller. They go to
the market where selective bargaining is present for purchasing a desirable article.
People want to purchase a insurance policy e.g. Health and accident which is not
available. People do not want to purchase money back which are sold by LIC. These
are mere examples. If people can find products of their choice in a market that is full
of good sellers, they remain in the market. Ultimately insurance business would
increase. A firm propagates his own product but at the same time propagates
indirectly others product of the same line. If Banks are telling about insurance
benefits, LIC and GIC are also benefited. If insurance industry is telling banking,
facilities, the banks are also indirectly benefited. Market expansion is inevitable in
insurance area.

One of the premium sectors showing upward growth is insurance. India is the
fifth largest life insurance market in the emerging insurance economies globally and is
growing year on year. With increasing competitiveness, the insurance players are
bringing out newer products to attract more customers. The sector of life insurance
has witnessed immense growth in the past few years. Today, it is second only to
banks for mobilized savings and forms a formidable part of the capital market.
The life insurance sector controls more than H 34,000 crores of deployed capital, over
H 18 lakh crores of managed assets and investments in infrastructure exceeding H 2
lakh crores. Another indication of the sector’s growth is its infrastructural strength
which comprises of over 10,000 branches, more than 21 lakh agents. The Indian
insurance industry is acknowledged globally to have matured tremendously since the

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opening up of the sector in 2001. The industry has witnessed phases of rapid growth
along with spans of growth moderation, intensifying competition amongst competing
companies, and significant expansion of the customer base. There have also been
number of product innovations and operational innovations necessitated by increased
competition among the players. All this can be attributed to the reforms leading to the
relaxation of the policy regulations that ignited the growth of the Indian insurance
industry.
The level of awareness and consciousness has risen among people for the need
to insure them and elevation in the levels of literacy, population and urbanization has
added fuel to the fire leading to ever growing demand of the insurance products. Also,
increasing the FDI cap from current 26% to 49% is viewed as the next major factor to
push the insurance density and penetration higher.
During this period, there has been increase in penetration, increased coverage
of lives, substantive growth through multiple channels (agency, banc-assurance,
broking, direct, corporate agency amongst others) and increased competitiveness of
the market (from 4 private players in FY 2000-01 to 23 private players in FY 2013-
14). The Authority has also issued guidelines in May 2013 permitting Indian insurers
to open foreign insurance company (including branch office) for life, general and
reinsurance business.
Although the bancassurance is beneficial to the banks, the bank employees are
still not fully aware about this concept. The employees are not trained according to
insurance business. The regular banking work is acting as a burden to the employees
as there is no sufficient staff in the banks. There are many problems in bancassurance
which may be considered on priority basis by the banks. Banks are going to increase
their profit through bancassurance. But problems are still as it is. The infrastructural
facilities are not good. There is no separate infrastructure provided for bancassurance
business. There is scarcity of space. Human resources problems are not solved.
Customers are yet not aware about bancassurance. They do not know the about the
term bancassurance, the services and the benefits of it. The poverty and
unemployment, illiteracy are the problems of masses in rural area.

This research work conducted in Marathwada region of Maharashtra State

with its 8 districts namely, Aurangabad, Jalna, Parbhani, Hingoli, Latur, Osmanabad
and Nanded. Marathwada region of the Maharashtra state is known as backward area

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of the state. The people in Marathwada are facing the problems related with
backwardness of the area. The infrastructure is not good, the water facilities is not
available. The bancassurance business is effected badly due to the socio-economic
conditions of the masses in the region.

Considering all these problems the researcher has studied various issues
related with bancassurance and the performance of the same with reference to State
Bank of India in Marathwada region.

1.4 Research Questions Considered

The research questions are outlined as follows:

1. What is Bancassurance?
2. Whether the employees of State Bank of India in Marathwada region are
aware about bancassurance?
3. Whether the customers of State Bank of India in Marathwada region are
aware about bancassurance?
4. Whether the branches of State Bank of India in Marathwada region have
given notable performance in bancassurance?
5. Whether the customers of State Bank of India in Marathwada region are
satisfied with bancassurance services?
6. Whether the employees of State Bank of India in Marathwada region are
facing any problems with reference to various areas such as: infrastructure,
human resources, work environment, training, marketing and poverty &
educational issues?

1.5 Objectives of the Study

The objectives of the study are as follows:

1. To study the socio-economic profile of sample employees and the sample
customers of State Bank of India in Marathwada region.
2. To present a general profile of the area under study i.e. Marathwada
Region of Maharashtra state with reference to Banking and Insurance
business.
3. To present an overview of the concept of Bancassurance.
4. To study the historical background of Banking and Insurance in India.

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 5. To study the performance of Bancassurance.
6. To study the satisfaction of the customers of State Bank of India in
Marathwada region with bancassurance services.
7. To analyze various problems in bancassurance faced by bank employees of
State Bank of India in Marathwada Region of Maharashtra State.

1.6 Limitations of the Study

The limitations of the study are as follows:

1. The study is geographically limited to 08 districts of Marathwada Region
in Maharashtra State.
2. The study is limited to a period of five (05) years i.e. from 20012-13 to
2016-17.
3. The study is limited to bancassurance business (Life Insurance) of State
Bank of India in Marathwada Region of Maharashtra State.

1.7 Hypothesis of the Study

Hypothesis of the present study are as follows:

1. The employees and the customers of State Bank of India are not well aware
about bancassurance.
2. The performance of State Bank of India in Marathwada region is improving its
performance with reference to bancassurance.
3. Poverty and unemployment is hurdle in bancassurance.
4. The customers of State Bank of India in Marathwada Region are not fully
satisfied with bancassurance services provided to them such as: banking
services, bancassurance services, product range, cooperation & guidance, after
sales service and claim settlement.
5. The employees of State Bank of India in Marathwada Region are facing
various problems with reference to infrastructure, human resources, work
environment, training, marketing and poverty & educational issues and that
there is significant difference between the opinions of employees of Rural and
Urban branches of State Bank of India.
6. The growth prospects of bancassurance in SBI branches in Marathwada region
are not satisfactory unless solution to the problems provided.

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1.8 Methodology of Research
This study is a field survey specially made for employees and the customers of
State Bank of India in Marathwada region. It is based upon empirical data. The
empirical data is collected with the help of field survey. The field survey is conducted
by using structured questionnaire with multiple choice questions having close ends.
This is also descriptive study. Therefore, the researcher has opted a survey based
model of research methodology.
The research methodology is described below:
Primary Data:
The study is based upon primary data. Primary data is collected with the help
of structured questionnaire specially prepared for this study. The researcher has
adopted the method of personal visit and noting the responses in the questionnaire for
the customers of State Bank of India. The researcher has prepared questionnaire for –
Questionnaire ‘A’ : For Officers & Employees of SBI
Questionnaire ‘B’ : For Customers of SBI
Primary data has been collected with the help of this questionnaire and the
same was analyzed for drawing conclusions.
Secondary Data:
The researcher has also used secondary data from various sources available in
the published form. This includes:
1. News Papers & Periodicals
2. Research Journals
3. Published Reports of various Companies
4. Internet sources
Statistical Methods:
Statistical methods are the important tool of analysis. The researcher has used
various statistical methods such as collection of data, classification of data, tabulation
of data, graphic representation of data. The researcher has also used the techniques of
percentage, average etc. for data analysis. Testing of hypothesis is done with the help
of Chi-square test of Goodness of Fit.
Selection of Sample:
Present study is an in-depth analysis of the performance and problems of
bancassurance with reference to State Bank of India in Marathwada Region.
Universe of Study:
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 The universe of study consists of the total number of branches of State Bank
of India in Marathwada region. Total Branches of State Bank of Indian in the area
under study is 387. This covers the rural and urban branches from 08 district of
Marathwada i.e. Aurangabad, Jalna, Hingoli, Parbhani, Beed, Osmanabad, Latur and
Nanded. The universe also covers the employees working in State Bank of India in
Marathwada region and the customers thereof.

First Layer Sample

The researcher has selected all 8 districts in Marathwada.

Second Layer of the Sample

Further the researcher has selected 10 rural and 10 urban branches of SBI from
8 districts of Marathwada i.e. 20 branches of SBI from each district. Thus the total 80
rural branches and 80 urban branches of SBI were selected.

Third Layer of the sample

The researcher has further selected 03 bank employees (1 Officer and 2

Employees) from each selected branch of SBI. Thus the total sample comes to 240
employees from rural branches and 240 employees from urban branches. Thus the
total 480 bank employees were selected. The researcher has also selected 10
customers from each sample bank. Thus, the total customer sample comes to 10 x 80
= 800 (400 rural and 400 urban) customers.

The researcher has with the help of random sampling by strategic convenience
method. The sample is shown in the following table.

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 Table No. 1.1

Selection of Sample

Sr. District Branches Employees Sample Customers Sample

No. sample
Rural Urban Rural Urban Rural Urban
01. Aurangabad 10 10 10 x 3 = 10 x 3 = 10 x 5 10 x 5
30 30 =50 =50
02. Jalna 10 10 10 x 3 = 10 x 3 = 10 x 5 10 x 5
30 30 =50 =50
03. Parbhani 10 10 10 x 3 = 10 x 3 = 10 x 5 10 x 5
30 30 =50 =50
04. Hingoli 10 10 10 x 3 = 10 x 3 = 10 x 5 10 x 5
30 30 =50 =50
05. Beed 10 10 10 x 3 = 10 x 3 = 10 x 5 10 x 5
30 30 =50 =50
06. Osmanabad 10 10 10 x 3 = 10 x 3 = 10 x 5 10 x 5
30 30 =50 =50
07. Latur 10 10 10 x 3 = 10 x 3 = 10 x 5 10 x 5
30 30 =50 =50
08. Nanded 10 10 10 x 3 = 10 x 3 = 10 x 5 10 x 5
30 30 =50 =50
Total 80 80 240 240 400 400

1.9 Chapter Scheme

The chapter scheme of the thesis is as follows:

Chapter – 1 Introduction

1.1 Introduction
1.2 Statement & Significance of the Study
1.3 Rationale of the Study
1.4 Research Questions Considered
1.5 Objectives of the Study

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 1.6 Limitations of the Study
1.7 Hypothesis of the Study
1.8 Research Methodology
1.9 Chapter Scheme

Chapter – 2 Review of Literature

2.1 Introduction
2.2 Studies Related with Banking
2.3 Studies Related with Insurance
2.4 Studies Related with Bancassurance
Chapter – 3 Profile of the Area under Study
3.1 Introduction
3.2 Historical Background
3.3 Geographical Profile
3.4 Demographic Profile of the Area
3.5 Bank & Insurance Business in Marathwada
Chapter – 4 Performance of Bancassurance in Marathwada
4.1 Introduction
4.2 Term Bancassurance
4.3 History of Indian Banking System
4.4 Historical Review of Insurance Business
4.5 Performance of Bancassurance in Marathwada
Chapter – 5 Customer Satisfaction with Bancassurance Services
5.1 Introduction
5.2 Satisfaction about Banking Services
5.3 Satisfaction about Bancassurance Services
5.4 Satisfaction about Product Range
5.5 Satisfaction about Cooperation & Guidance
5.6 Satisfaction about After Sales Services
Chapter – 6 Problems in Bancassurance
6.1 Introduction
6.2 Problems Related with Infrastructure
6.3 Problems Related with Human Resources
6.4 Problems Related with Work Environment

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 6.5 Problems Related with Marketing
6.6 Problems Related with Training
6.7 Problems Related with Competition
6.8 Problems Related with Poverty & Education
Chapter – 7 Conclusions & Recommendations
7.1 Introduction
7.2 Fulfillment of Objectives
7.3 Conclusions
7.4 Testing of Hypothesis
7.5 Recommendations
Bibliography
Questionnaire
Thus, in this chapter the researcher has given an introduction to the subject
matter under study. Statement & Significance of the Study is stated, Rationale of the
Study is given, Research Questions Considered are also presented. Objectives,
Limitations and Hypothesis of the Study are also given. The Research Methodology
used for present study is explained and the Chapter Scheme of the thesis is given.

References:

1. Kangle R. P. (1990) Kautiliya Arthashastra-Marathi Translation, Maharashtra

Rajya Sahitya Sanskriti Mandal , Mumbai, Pg. 4.
2. Mishra M. N. & Mishra S. B. (2009) Insurance Principles and Practice, S.
Chand & Company Ltd., New Delhi. Pg. No. 677-678
3. Mishra M. N. & Mishra S. B. (2009), Ibid., Pg. 680
4. Mishra M. N. & Mishra S. B. (2009), Ibid., Pg. 681
5. Mishra M. N. & Mishra S. B. (2009), Ibid., Pg. 683-84
6. Mishra K. C. & Kumar C. S. (2009), Life Insurance – Principles and Practice,
Cengage Learning India Pvt. Ltd., Delhi, Pg. 56-57.
7. Sahoo S. C. & Das S. C. (2009), Insurance Management, Himalaya Publishing
House, Mumbai, Pg. 23.
8. Sahoo S. C. & Das S. C. (2009),, Ibid. Pg. 24.
9. Sethi Jyotsna & Bhatia Nishwan (2012), Elements of Banking and Insurance,
PHI Learning Pvt. Ltd., New Delhi. Pg. 424 – 428.
10. Sethi Jyotsna & Bhatia Nishwan (2012), Ibid. 428-429.
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11. Subba Rao M.V. (1948) Outline of Banking Systems in India, Vora 8s Co.
Bombay, P. 150.
12. Desai Vasant (2000) Banking & financial Systems, Himalaya Publishing
House, Mumbai, P. 252.
13. Panda G. S. (1995), Principles & Practice of Insurance, Kalyani Publishers,
New Delhi, Pg. 35-36.
14. Panda G. S. (1995), Ibid. Pg. 36-38.
15. Subramanian K. & Velayudham T K (1997), Banking Reforms in India –
Managing Change, Tata McGraw-Hill Publishing Company Limited, New
Delhi. Pg. 262.
16. Panda G. S. (1995), Ibid. Pg. 36-38.

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