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CHAPTER 1.1
INTRODUCTION
FINANCE is the lifeblood of any economy. As such it is essential to know finance sector or
financial system of a country before we understand the financial services provided by them.
The financial system or the financial sector of any country is a complex matrix of Institutions,
markets and financial instruments. It consists of specialized and non-specialized financial
institutions, of organised and unorganized financial markets, of financial instruments and
financial services. All of these items have one thing in common. They facilitate transfer of
funds. The financial companies, through their activities, channelize the money in different
layers of the economy and therefore play a crucial role in influencing the domestic as well as
global economic scenario.
The term Financial services in a broad sense means mobilizing and allocating savings.
Thus it includes all activities involved in the transformation of savings into investment. As
such financial services could also be called as financial intermediation financial
intermediation is a process by which funds are mobilized from a large number of savers and
make them available to all those who are in need of it and particularly to corporate customers.
Thus financial services sector is an important area and vital for industrial development of a
country.
The word system, in the term financial system, implies a set of complex and closely
connected or inter-linked Institutions, agents, practices, markets, transactions, claims, and
liabilities in the economy. The financial system is concerned about money, credit and
finance--the three terms are intimately related yet are somewhat different from each other.
Money refers to the current medium of exchange or means of payment.
Credit or loans is a sum of money to be returned, normally with interest; it refers to a debt of
economic unit.
Finance is monetary resources comprising debt and ownership funds of the state, company or
person.
The Indian financial market is characterized by its two major segments - a traditional sector
that is also known as informal credit market and an organized sector. The informal credit
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market is operational largely in the rural area where the moneylenders are still a major source
of loans. Malpractices on the side of these moneylenders who lend to farmers is the biggest
reason as to why traditional unorganized sector is on a decline especially after the emergence
of credit co-operatives. Financial markets in the organized sector is conducted by a large
number of financial institutions which are business organizations providing financial services
to the community.
Financial institutions can be divided into two types of Institutions:
Regulators
Intermediaries
Regulatory Institutions are statutory bodies assigned with the job of monitoring and
controlling different segments of the Indian Financial System (IFS). These Institutions have
been given adequate powers through the vehicle of their respective Acts to enable them to
supervise the segments assigned to them. It is the job of the regulator to ensure that the
players in the segment work within recognized business parameters maintain sufficient level
of disclosure and transparency of operations and do not act against the national interests. At
present, there are three regulators directly connected to IFS:
lending institutions and investing institutions which mainly provide long term loans.
Money market intermediaries - It consists of commercial banks co-operative banks
and other Non-banking financial companies which supply only short term funds
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NBFCs are doing functions akin to that of banks , however there are a few differences:
(i) a NBFC cannot accept demand deposits (demand deposits are funds deposited at a
depository institution that are payable on demand -- immediately or within a very
short period -- like your current or savings accounts.)
(ii) it is not a part of the payment and settlement system and as such cannot issue
cheques to its customers; and
(iii) deposit insurance facility of DICGC is not available for NBFC depositors unlike
in case of banks.
With effect from December 6, 2006 the above NBFCs registered with RBI have been
reclassified as
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Some of the important regulations relating to acceptance of deposits by NBFCs are as under:
i) The NBFCs are allowed to accept/renew public deposits for a minimum period of
12 months and maximum period of 60 months. They cannot accept deposits repayable
on demand.
ii) NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI
from time to time. The present ceiling is 11 per cent per annum. The interest may be
paid or compounded at rests not shorter than monthly rests.
iii) NBFCs cannot offer gifts/incentives or any other additional benefit to the
depositors.
iv) NBFCs (except certain AFCs) should have minimum investment grade credit
rating.
vii) There are certain mandatory disclosures about the company in the Application
Form issued by the company soliciting deposits.
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CHAPTER 1.2
KEY CONCEPTS
Financial markets - In economics, a financial market is a mechanism that allows people to
easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such
as precious metals or agricultural goods), and other fungible items of value at low transaction
costs and at prices that reflect the efficient market hypothesis
Types of financial markets
The financial markets can be divided into different subtypes:
Money markets, which provide short term debt financing and investment.
Derivatives markets, which provide instruments for the management of financial risk.
o Futures markets, which provide standardized forward contracts for trading
products at some future date; see also forward market.
Lenders
Many individuals are not aware that they are lenders, but almost everybody does lend money
in many ways. A person lends money when he or she:
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Borrowers
Individuals borrow money via bankers' loans for short term needs or longer term
Investor
An investor is any party that makes an Investment. However, the term has taken on a specific
meaning in finance to describe the particular types of people and companies that regularly
purchase equity or debt securities for financial gain in exchange for funding an expanding
company. Less frequently the term is applied to parties who purchase real estate, currency,
commodity derivatives, personal property, or other assets.
Financial instruments
A real or virtual document representing a legal agreement involving some sort of monetary
value. In today's financial marketplace, financial instruments can be classified generally as
equity based, representing ownership of the asset, or debt based, representing a loan made by
an investor to the owner of the asset. Foreign exchange instruments comprise a third, unique
type of instrument. Different subcategories of each instrument type exist, such as preferred
share equity and common share equity, for example.
Financial instruments can be thought of as easily tradeable packages of capital, each having
their own unique characteristics and structure. The wide array of financial instruments in
today's marketplace allows for the efficient flow of capital amongst the world's investors.
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Treasury bill A treasury bill is also money market instrument issued by central government.
Convertible bond - A bond that can be converted into a predetermined amount of the
company's equity at certain times during its life, usually at the discretion of the bondholder
either fully or partially.
Commercial paper - An unsecured, short-term debt instrument issued by a corporation,
typically for the financing of accounts receivable, inventories and meeting short-term
liabilities. Maturities on commercial paper rarely range any longer than 270 days. The
debt is usually issued at a discount, reflecting prevailing market interest rates.
Deep discount bonds - A bond that sells at a significant discount from par value. A bond that
is selling at a discount from par value and has a coupon rate significantly less than the
prevailing rates of fixed-income securities with a similar risk profile.
Index linked guilt bonds -These are instruments having a fixed maturity. Their maturity value
is linked to the index prevailing as on the date of maturity.
Variable rate debentures -They are debt instruments. They carry a compound rate of interest
but this rate of interest is not a fixed one. It varies time to time in accordance with some predetermined formula as we adopt in case of calculation of dearness allowance.
Option bonds - These bonds may be cumulative or non-cumulative as per the option of the
bond holder.
Dual currency bonds - bonds that are denominated and pay interest in one currency and
redeemable in another currency come under this category.
Secured premium notes- these are instruments which carry no interest for a period of 3 years
Yankee bonds if bonds are raised in USA, they are called Yankee bonds and if the raised in
Japan they are called samurai bonds.
There are many other types of financial instruments which have been introduced. These
include certificate of deposits, inter-bank participations, easy exit bonds, infrastructure bonds,
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debt with equity warranty, convertible bonds with premium put, flip-flop notes, loyalty
coupons, etc
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CHAPTER 2
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BANKING SECTOR
Banks are the most prominent and very important part of the financial economy of India. The
performance of banks is completely linked to the growth of the economy while the nature and
quantum of growth is in turn linked to the availability of bank credit. Successive governments
to achieve their social, political and economic goals have recognized banks as their major
contributor to financial services. The structure of the Government Banking system has
undergone numerous changes since independence. Two phases of nationalization,
introduction of Regional Rural Banks in 1975 (to focus on rural spread on banking) and
permission to new private banks to set up operations since 1993-94 are some of the major
changes undergone.
Most of the banks have now been trying to function on the concept of a Universal Bank.
Apart from the traditional functions of a commercial bank, they are taking steps to build
themselves into a one stop financial centre wherein all the financial products would be
available. Banks have started catering to the retail segment to improve their deposit portfolio.
In order to have a maximum share in this segment, most of the banks have been introducing
new products. The delivery channels have also been shifted from branches to ATMs, phone
banking, net banking etc. With the advancement of technology and the birth of competition,
banks are in the race of becoming the best in the country. With an eye upon customer
satisfaction policy they are providing best of the best services with the minimum hazards.
Technology has become an important medium of not only attracting new customers but also
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in retaining them. The new generation private sector banks have made a strong presence in
the most lucrative business areas in the country because of technology upgradation. While,
their operating expenses have been falling as compared to the PSU banks, their efficiency
ratios (employees productivity and profitability ratios) have also improved significantly.
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Chapter 2.1
STRUCTURE OF THE INDIAN BANKING SECTOR
Banking Segment in India functions under the umbrella of Reserve Bank of India - the
regulatory, central bank. This segment broadly consists of:
1. Commercial Banks
2. Co-operative Banks
3. Development banks
Reserve Bank of
Commercial Banks
Public
Agricultural Credit
Private
Co-operative Banks
EXIM
Urban Credit
COMMERCIAL BANKS
The commercial banking structure in India consists of:
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Development Banks
Industrial
Agricultural
Scheduled commercial Banks constitute those banks which have been included in the
Second Schedule of Reserve Bank of India(RBI) Act, 1934. There are about 67,000 branches
of Scheduled banks spread across India.
RBI in turn includes only those banks in this schedule which satisfy the criteria laid down
vide section 42 (60)of the Act. Some co-operative banks are scheduled commercial banks
albeit not all co-operative banks are.
Unscheduled banks: For the purpose of assessment of performance of banks, the Reserve
Bank of India categorized the unscheduled commercial banks as under
1. Public sector
2. Private sector
3. Foreign banks
1. Public sector banks: They have either the Government of India or Reserve Bank of
India as the majority shareholder. This segment comprises of:
State Bank of India (SBI) and its Subsidiaries
Other Nationalized Banks
Regional rural banks mainly sponsored by public sector banks
2. Private sector banks: Private banking in India was practiced since the beginning of
banking system in India. The first private bank in India to be set up in Private Sector
Banks in India was IndusInd Bank. It is one of the fastest growing Bank Private
Sector Banks in India. IDBI ranks the tenth largest development bank in the world as
Private Banks in India and has promoted a world class institutions in India. A few
private sector banks in India are as follows
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Bank of Punjab
Bank of Rajasthan
Catholic Syrian Bank
Centurion Bank
Federal Bank
ICICI Bank
IDBI Bank
IndusInd Bank
ING Vysya Bank
Jammu & Kashmir Bank
HDFC Bank
Karnataka Bank
3. Foreign banks: By 2009 few more names is going to be added in the list of foreign
banks in India. This is as an aftermath of the sudden interest shown by Reserve Bank
of India paving roadmap for foreign banks in India greater freedom in India. Among
them is the world's best private bank by Euro-Money magazine, Switzerland's UBS.
The following are the list of foreign banks going to set up business in India
a)
b)
c)
d)
e)
CO-OPERATIVE BANKS
There are two main categories of the co-operative banks.
Short term lending oriented co-operative Banks - within this category there are
three sub categories of banks viz state co-operative banks, District co-operative banks
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India)
National Bank for Agriculture and Rural Development (NABARD)
Small Industries Development Bank of India (SIDBI)
National Housing Bank (NHB), etc
Chapter 2.2
HISTORY OF BANKING IN INDIA
Banking in India originated in the first decade of 18th century. The first banks were The
General Bank of India, which started in 1786, and Bank of Hindustan, both of which are now
defunct. The oldest bank in existence in India is the State Bank of India, which originated in
the "The Bank of Bengal" in Calcutta in June 1806. This was one of the three presidency
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banks, the other two being the Bank of Bombay and the Bank of Madras They merged in
1925 to form the Imperial Bank of India, which, upon India's independence, became the State
Bank of India.
The first fully Indian owned bank was the Allahabad Bank, established in 1865. However, at
the end of late-18th century, there were hardly any banks in India in the modern sense of the
term
By the 1900s, the market expanded with the establishment of banks such as Punjab National
Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were
founded under private ownership. Punjab National Bank is the first Swadeshi Bank founded
by the leaders like Lala Lajpat Rai, Sardar Dyal Singh Majithia. The Swadeshi movement in
particular inspired local businessmen and political figures to found banks of and for the
Indian community. A number of banks established then have survived to the present such as
Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central
Bank of India.
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In 1948, the Reserve Bank of India, India's central banking authority, was
Bank of India (RBI) "to regulate, control, and inspect the banks in India."
The Banking Regulation Act also provided that no new bank or branch of an existing
bank may be opened without a license from the RBI, and no two banks could have
common directors.
Period of nationalization: Despite the above mentioned provisions, control and regulations,
banks in India except the State Bank of India, continued to be owned and operated by private
persons. This changed with the nationalization of major banks in India on 19th July, 1969.
The stated reason for the nationalisation was to give the government more control of credit
delivery. With the second dose of nationalisation, the GOI controlled around 91% of the
banking business of India. Later on, in the year 1993, one of the nationalised banks, namely,
New Bank of India was merged with Punjab National Bank. It was the first and only merger
of a Nationalised Bank into a Nationalised Bank, resulting in the reducing the number of
Nationalised Banks from 20 to 19.
After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the
average growth rate of the Indian economy.
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namely,
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government
banks,
private
banks
and
foreign
banks.
Chapter 2.3
TYPES OF BANKING ON THE BASIS OF FUNCTIONS
Wholesale banking is the provision of services by banks to the like of large corporate
clients, mid-sized companies, real estate developers and investors, international trade finance
businesses and institutional customers, such as pension funds and government
entities/agencies. Also included is banking services offered to other financial institutions. In
essence, wholesale banking services usually involve high value transactions. Services include
access to commercial banking products, including working capital facilities such as domestic
and international trade operations and funding, channel financing, and overdrafts, as well as
domestic and international payments, INR term loans (including external commercial
borrowings in foreign currency), letters of guarantee etc.
Retail banking refers to banking in which banks undergo transactions directly with
consumers, rather than corporations or other banks. Services offered include: savings and
checking accounts, mortgages, personal loans, debit cards, credit cards, and so forth.
Investment banks help companies and governments raise money by issuing and selling
securities in the capital markets (both equity and debt), as well as providing advice on
transactions such as mergers and acquisitions. Investment management is the professional
management of various securities (shares, bonds, etc.) and other assets (e.g. real estate), to
meet specified investment goals for the benefit of the investors. Investors may be institutions
(insurance companies, pension funds, corporations etc.) or private investors (both directly via
investment contracts and more commonly via collective investment schemes e.g. mutual
funds). The Investment management division of an investment bank is generally divided into
separate groups, often known as Private Wealth Management and Asset management. Asset
Management deals with institutional investors, while Private Wealth Management manages
the funds of high net-worth individuals.
Merchant banking is a private equity activity of investment banks. Merchant banking may
be defined as the which covers a wide range of activities such as management of customer
services, portfolio management, credit syndication, acceptance credit, counseling, etc
The economic liberalization in India has witnessed increased economic activities of the
foreign investors in India through investment banks in India. India has become one of the
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most preferred destination for the global investors. And as a matter of fact huge number of
investment banks has opened their shops in India to encash on the bullish market scenario.
The Indian companies are now more research oriented than ever before." Investment Banks
in India like Citigroup, Morgan Stanley, Merrill Lynch, and Deutsche Bank are selling the
India story to their global clients. Investment Banks in India has posted over 50% a year
returns from the equity markets in the last few years. Recent weeks have seen over 500
clients of these Investment Banks in India, including pension fund, hedge fund, and mutual
fund managers from across the globe; descend on India to explore further investment
opportunities.
AGRICULTURE - To give special focus to agriculture lending Bank has set up agri business
unit. Bank has also agri specialists in various disciplines to handle projects/ guide farmers in
their agri ventures. Advances are given for very small activity covering poorest of the poor to
hi-tech activities involving large fund outlays.
State Bank of India
through a network of 6600 rural and semi-urban branches. There are 972 specialized branches
which have been set up in different parts of the country exclusively for the development of
agriculture through credit deployment. These branches include 427 Agricultural Development
Branches (ADBs) and 547 branches with Development Banking Department (DBDs) which
cater to agriculturists and 2 Agricultural Business Branches at Chennai and Hyderabad
catering to the needs of hi-tech commercial agricultural projects.
They are the leaders in agri-finance in the country with a portfolio of Rs. 18,000 crores in
agri advances to around 50 lakh farmers
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Chapter 2.4
PRODUCTS AND SERVICES OFFERED BY BANKS
PERSONAL BANKING
1) DEPOSITS type of accounts
i.
Savings account
ii.
Current account
iii.
Fixed deposits
iv. Salary account
2) LOANS type of loans
i.
Personal Loan
ii.
iii.
iv.
Home Loan
v.
3) ADVANCES
i.
FUND ORIENTED
(a) Term loan
(b) Clean loan
(c) Bills discounting
(d) Advances
(e) Pre-shipment finance
(f) Post shipment finance
(g) Secured and unsecured lines of credit
ii.
NON FUND ORIENTED
(a)
Guarantees
(b)
Letter of credit
4) INVESTMENTS
i.
Tax Saving Bonds
ii. Government of India Bonds
iii. Investment in Mutual Funds
iv. Initial Public Offers by Corporates
v. Investment in "Pure Gold"
vi. Foreign Exchange Services
vii. Senior Citizens Savings Scheme, 2004
5) CARDS
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i.
ii.
Debit card
Credit card
9) CONSULTANCY
i.
Investment counseling
ii.
Project counseling
iii.
Tax consultancy
10) MISCELLANEOUS
i.
Traveller cheques
ii.
Sale of drafts
iii.
Remittances
iv. Trusteeship
v. Standing instruction
INTERNATIONAL BANKING
The services include corporate lending, loan syndications, merchant banking, handling
Letters of Credit and Guarantees, short-term financing, collection of clean and documentary
credits and remittances.
1) TRADE FINANCE
i) Issuing and confirming of letter of credit.
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2) MERCHANT BANKING- A bank that deals mostly in (but is not limited to)
international finance, long-term loans for companies and underwriting. Their
knowledge in international finances make merchant banks specialists in dealing
with multinational corporations
3) CORRESPONDENT BANKING - The Correspondent Banking Division develops
and maintains relationship with Banks and Financial Institutions across the Globe.
This network of Correspondent Banks form the foundation for all international
operations.
4) TREASURY Treasury involves the following functions
i) Buying and selling of bullion. Foreign exchange
ii) Acquiring, holding, underwriting and dealing in shares, debentures, etc.
iii) Purchasing and selling of bonds and securities on behalf of constituents.
5) OFFSHORE BANKING: It is involved mainly in raising funds in convertible
foreign currency as deposits and borrowings from Non Residents sources, helping
in establishing joint ventures, financing exports and imports and foreign
collaboration arrangements.
SERVICES
ATM
PHONE BANKING
INTERNET BANKING
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Branchless banking
When ATMs were introduced, we thought that why do we need ATMs when we have good
old branches? Today, using ATMs is a globally accepted practice with millions of
transactions taking place everyday. Then came Phone Banking which gave users
opportunities to query their bank anytime of the day or night. Then there was Internet
Banking and Mobile Banking that allowed customers access on-the-move. These are all
commoditized, value-added facilities that 99% of Banks offer their customers.
b2 is the next step towards future of banking. It's a bank, where everything is done online
and since you don't need branches, we don't offer them. It brings the convenience of
banking at your finger-tips and makes your money earn harder. b2 understands that today's
banking is beyond payments & transfers and so it offers not only these but also offers bill
payments & mobile recharge.
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CHAPTER 3
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INSURANCE
Whenever there is uncertainty there is risk. We do not have any control over uncertainties
which involves financial losses. The risk may be certain events like death, pension, retirement
or uncertain events like theft, fire, accident, etc.
Uncertainty and risk work hand in hand. Uncertainty is difficult to avoid in many
circumstances but the risk arising can be avoided through various means. Insurance is one
these means; it is also good mode to spread losses.
Insurance may be described as a social device to reduce or eliminate risk of life and property.
Under the plan of insurance, a large number of people associate themselves by sharing risk,
attached to individual. The risk, which can be insured against include fire, the peril of sea,
death, incident, & burglary. Any risk contingent upon these may be insured against at a
premium commensurate with the risk involved.
Insurance is a contract between 2 parties whereby one party called
insurer undertakes in exchange for a fixed sum called premium to pay the
other party happening of a certain event.
Definition of Insurance
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Insurance is a contract whereby, in return for the payment of premium by the insured, the
insurers pay the financial losses suffered by the insured as a result of the occurrence of
unforeseen events. With the help of insurance, large number of people exposed to a
similar risk make contributions to a common fund out of which the losses suffered by the
unfortunate few, due to accidental events, are made good.
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Chapter 3.1
INSURANCE SECTOR IN INDIA
Insurance sector in India is one of the booming sectors of the economy and is growing at the
rate of 15-20 per cent annum. Together with banking services, it contributes to about 7 per
cent to the country's GDP. Insurance is a federal subject in India and Insurance industry in
India is governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and
General Insurance Business (Nationalisation) Act, 1972, Insurance Regulatory and
Development
Authority
(IRDA)
Act,
1999
and
other
related
Acts.
The origin of life insurance in India can be traced back to 1818 with the establishment of the
Oriental Life Insurance Company in Calcutta. It was conceived as a means to provide for
English Widows. In those days a higher premium was charged for Indian lives than the nonIndian lives as Indian lives were considered riskier for coverage. The Bombay Mutual Life
Insurance Society that started its business in 1870 was the first company to charge same
premium for both Indian and non-Indian lives. In 1912, insurance regulation formally began
with the passing of Life Insurance Companies Act and the Provident Fund Act.
By 1938, there were 176 insurance companies in India. But a number of frauds during 1920s
and 1930s tainted the image of insurance industry in India. In 1938, the first comprehensive
legislation regarding insurance was introduced with the passing of Insurance Act of 1938
that
provided
strict
State
Control
over
insurance
business.
Insurance sector in India grew at a faster pace after independence. In 1956, Government of
India brought together 245 Indian and foreign insurers and provident societies under one
nationalised monopoly corporation and formed Life Insurance Corporation (LIC) by an Act
of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5 crores.
The (non-life) insurance business/general insurance remained with the private sector till
1972. There were 107 private companies involved in the business of general operations and
their operations were restricted to organized trade and industry in large cities. The General
Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business
in India with effect from January 1, 1973. The 107 private insurance companies were
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amalgamated and grouped into four companies: National Insurance Company, New India
Assurance Company, Oriental Insurance Company and United India Insurance Company.
These
were
subsidiaries
of
the
General
Insurance
Company
(GIC).
In 1993, the first step towards insurance sector reforms was initiated with the formation of
Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N.
Malhotra. The committee was formed to evaluate the Indian insurance industry and
recommend its future direction with the objective of complementing the reforms initiated in
the financial sector.
Key Recommendations of Malhotra Committee
domestic companies.
LIC should pay interest on delays in payments beyond 30 days
Insurance companies must be encouraged to set up unit linked pension plans.
companies
with
economic
motives.
Insurance sector in India was liberalized in March 2000 with the passage of the Insurance
Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private
players and allowing foreign players to enter the market with some limits on direct foreign
ownership. There is a 26 percent equity cap for foreign partners in an insurance company.
There is a proposal to increase this limit to 49 percent.
Tracing the developments in the Indian insurance sector reveals the 360-degree turn
witnessed over a period of almost 190 years.
LATEST FACTS AND FIGURES
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Only 24 % of the Indian households own life insurance. Among rural households only 18%
have a life insurance protection. Only 14% of the policy owners are women. Of the 321 paid
million workers in India only 105 million workers are covered. Among the 216 million
uncovered workers about two thirds are highly unlikely to buy an insurance plan because they
feel they cannot afford it (64%) or they are disinclined for various other reasons like no one
has explained its benefits to me not interested, etc. (36%)
On the bright side of the remaining one-third, 18% are willing to buy in the near future.
Further the demand for life insurance continues to expand among the existing policy holders
(repeat purchase). Other things being equal, the present $40 billion market is expected to
grow to $100 billion in the future according to a recent McKinsey report.
The 40 odd insurance companies have accounted for an equity exposure of Rs 70,000 crore in
the last fiscal. The current fiscal will see 10-15% surge. LIC is a mega player with its
6,50,000 crores in investible financial assets. LIC had Rs 90000 crores mark-to-market
investible funds purely out of ULIPS LICs net investment in equity is in FY08 is estimated
to be Rs 6000 crores. If the life insurance companies are offered greater relaxation we would
reach the $100 bn size much sooner than expected.
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Chapter 3.2
BASIC FUNCTIONS OF THE INSURANCE INDUSTRY
1.
The fundamental function of an insurer is to provide a cover against the detriment caused to
the insured due to the happening of certain specified and agreed events. Thus, prior to
providing such umbrella through a product, the insurer has to assess the risk involved in the
transaction. The insurer has to identify the element of risk prevalent in the concerned industry
or a particular unit. The perception of risk requires the study of variables through various
methods including the application of scientific and statistical techniques and correlation
thereof with the industry or unit under study in light of their basic environmental and infrastructural characteristics. After the identification and categorization of the risks perceived, the
probability of happening of the loss-causing events and the severity of the loss has to be
assessed.
2.
On the basis of the risks perceived, the insurer develops a product to cover the stipulated
risks. While designing an insurance product, an insurer decides its cost to be charged from the
insured in the form of premium, reduction thereof in certain cases like not lodging any claim
during the previous covered period(s), suggesting the implementation of risk-mitigating
measures, etc. The features of a product should be flexible enough to provide for the
determination of premiums, rebates, additional premiums, etc. depending upon the risk
benchmarks as determined.
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The core function of the marketing force of an insurance company is to generate awareness
about the insurance products among the target market. But in the Indian scenario, where the
insurance penetration is too low as compared to the other nations, the marketing force needs
to perform the pro-active role in developing an insurance culture. It is through the efficiency
of the sales force of an insurance company that the desirability and the success of a product
are determined.
In Indian insurance market, the function is, basically performed by the agents. The persons
desiring to function as insurance agents have to obtain license to act as such from the IRDA
or an officer authorized by the Authority in this behalf. The agents approach the prospective
buyers and apprise them of the basic features of the products. In order to dispense with the
functions, the agents need to possess adequate knowledge of the insurance industry, products
and the modalities attached therewith. Further, the marketing personnels should be adequately
backed by the back-office setup.
The term selling in the context of insurance industry connotes the issuance of policies to the
applicant proposer. The non-life insurance policy basically embodies the covenant between
the insurer and the insured wherein the former agrees to indemnify the latter for the loss
caused to him on the happening of the certain agreed events up to a specified limit. The life
insurance policy generally contains the agreement whereby the insurer agrees to pay to the
insured or the beneficiary of the policy an agreed amount on the expiry of the term of the
policy or in the event of the death of the insured respectively. The additional benefits in the
shape of Riders viz. Accidental Death Benefit, Double Sum Assured, Critical Illness benefits,
Waiver of Premiums, etc. can also be appended with the policy on the payment of an
additional premium.
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In Indian industry, the function is, generally performed by the insurer. In addition, the
insurance companies depute their Direct Selling Representatives to look after the function.
They receive the proposal documents, vet them and issue policies to the proposers.
5. Management of Portfolio:
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Chapter 3.3
ROLE OF INSURANCE SECTOR
I Protective role
Insurance has been playing protective role towards the development of industry and
commercial institutions. The major protective measures have been :
i) Protection from risks arising out of natural calamities
Insurance has also been playing important role in protecting the industry and commercial
activities from natural calamities like fire, marine losses, floods, earth quakes, cyclones etc.
Financial security
Insurance provides financial security also to industry and commerce. Exports of goods to
other countries by sea, storage of goods in safe godowns and various other kinds of financial
losses are secured by insurance policies.
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Protection of debts
A trader can protect himself by taking appropriate policy against the credit sales or property
kept on security against goods or property. Thus, the insurance protests the trader even in case
the debtor dies or of damages to the goods.
vii)
Protection to the business institution due to sudden death of the key man
The successful operation and development of a business largely depends on its directors,
managers and administrative personnel. Sudden and untimely death of such person may
badly affect the functioning of the business and many problems may also arise in day-today functioning of business. Insurance plays important role by insuring the life of key
man in the business so that the future can be protected safely from uncertainties.
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vi)
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CHAPTER 3.4
Life insurance plans for individuals
Group insurance
It offers life insurance protection under group policies to various groups such as employersemployees, professionals, co-operatives, weaker sections of society, etc. It also provides
insurance coverage for people in certain approved occupations at the lowest possible
premium cost.
Group insurance plans have low premiums. Such plans are particularly beneficial to those for
whom other regular policies are a costlier proposition. Group insurance plans extend cover to
large segments of the population including those who cannot afford individual insurance.
A number of group insurance schemes have been designed for various groups. These include
employer-employee groups, associations of professionals (such as doctors, lawyers, chartered
accountants etc.), members of cooperative banks, welfare funds, credit societies and weaker
sections of society.
Endowment policy
An endowment policy covers risk for a specified period, at the end of which the sum assured
is paid back to the policyholder, along with the bonus accumulated during the term of the
policy.
An endowment life insurance policy is designed primarily to provide a living benefit and only
secondarily to provide life insurance protection. Therefore, it is more of an investment than a
wholelife
policy.
Endowment life insurance pays the face value of the policy either at the insured's death or at a
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are similar to endowment policies as they too offer maturity benefits to the
policyholders, apart form covering risks like all life insurance policies.
But joint life policies are categorized separately as they cover two lives simultaneously, thus
offering a unique advantage in some cases, notably, for a married couple or for partners in a
businessfirm.
Under a joint life policy the sum assured is payable on the first death and again on the death
of the survivor during the term of the policy. Vested bonuses would also be paid besides the
sum assured after the death of the survivor. If one or both the lives survive to the maturity
date, the sum assured as well as the vested bonuses are payable on the maturity date. The
premiums payable cease on the first death or on the expiry of the selected term, whichever is
earlier.
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A pension plan
A pension plan an annuity is an investment that is made either in a single lump sum payment
or through installments paid over a certain number of years, in return for a specific sum that
is received every year, every half-year or every month, either for life or for a fixed number of
years.
Annuities differ from all the other forms of life insurance in that an annuity does not provide
any life insurance cover but, instead, offers a guaranteed income either for life or a certain
period.
Typically annuities are bought to generate income during one's retired life, which is why they
are also called pension plans. By buying an annuity or a pension plan the annuitant receives
guaranteed income throughout his life. He also receives lump sum benefits for the annuitant's
estate in addition to the payments during the annuitant's lifetime.
assurance
policy.
No surrender, loan or paid-up values are granted under term life policies because reserves are
not accumulated. If the premium is not paid within the grace period, the policy lapses without
acquiring any paid-up value.
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Life protection
Flexibility
Investment Options
Transparency
Disability
Critical Illness
Surgeries
Liquidity
Tax planning
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A whole life policy runs as long as the policyholder is alive. As risk is covered for the entire
life of the policyholder, therefore, such policies are known as whole life policies. A simple
whole life policy requires the insurer to pay regular premiums throughout the life. In a
whole life policy, the insured amount and the bonus is payable only to the nominee of the
beneficiary upon the death of the policyholder. There is no survival benefit as the
policyholder is not entitled to any money during his / her own lifetime.
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Loan cover term assurance policy is an insurance policy, which covers a home loan. Such a
policy covers the individual's home loan amount in case of an eventuality. The cover on such
a policy keeps reducing with the passage of time as individuals keep paying their EMIs
(equated monthly installments) regularly, which reduces the loan amount.
This plan provides a lump sum in case of death of the life assured during the term of the plan.
The lump sum will be a decreasing percentage of the initial sum assured as per the policy
schedule. Since this is a non-participating (without
profits) pure risk cover plan, no benefits are payable on survival to the end of the term of the
policy.
Various insurance companies offering loan repayment protection insurance policy are
Tata AIG
ING Vysya
LIC
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Chapter 3.5
GENERAL INSURANCE PLANS
General Insurance provides much-needed protection against unforeseen events such as
accidents, illness, fire, burglary et al. Unlike Life Insurance, General Insurance is not meant
to offer returns but is a protection against contingencies. Almost everything that has a
financial value in life and has a probability of getting lost, stolen or damaged, can be covered
through General Insurance policy.
Property (both movable and immovable), vehicle, cash, household goods, health, dishonesty
and also one's liability towards others can be covered under general insurance policy. Under
certain Acts of Parliament, some types of insurance like Motor Insurance and Public Liability
Insurance have been made compulsory.
Major insurance policies that are covered under
General Insurance are:
1- Home Insurance
2- Health Insurance
3- Motor Insurance
4- Travel Insurance
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CHAPTER 4
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MUTUAL FUNDS
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A mutual fund is the answer to all these situations. It appoints professionally qualified and
experienced staff that manages each of these functions on a full time basis. The large pool of
money collected in the fund allows it to hire such staff at a very low cost to each investor. In
effect, the mutual fund vehicle exploits economies of scale in all three areas - research,
investments and transaction processing. While the concept of individuals coming together to
invest money collectively is not new, the mutual fund in its present form is a 20 th century
phenomenon. In fact, mutual funds gained popularity only after the Second World War.
Globally, there are thousands of firms offering tens of thousands of mutual funds with
different investment objectives. Today, mutual funds collectively manage almost as much as
or more money as compared to banks.
A draft offer document is to be prepared at the time of launching the fund. Typically, it pre
specifies the investment objectives of the fund, the risk associated, the costs involved in the
process and the broad rules for entry into and exit from the fund and other areas of operation.
In India, as in most countries, these sponsors need approval from a regulator, SEBI
(Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor
and its financial strength in granting approval to the fund for commencing operations.
A sponsor then hires an asset management company to invest the funds according to the
investment objective. It also hires another entity to be the custodian of the assets of the fund
and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund.
In the Indian context, the sponsors promote the Asset Management Company also, in which it
holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset
Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life
Asset Management Company Ltd., which has floated different mutual funds schemes and
also acts as an asset manager for the funds collected under the schemes
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Chapter 4.1
WHY INVEST IN MUTUAL FUNDS?
Convenience
As an investor, you have to keep track of your investment, which takes time and effort. When
you invest in a Mutual Fund scheme, you pass on this function to a Fund Manager. Moreover,
you are relieved of nagging problems associated with capital market investing, like bad
deliveries, and non-receipt of share certificates and dividend warrants.
Expertise
Mutual Funds employ experienced professionals to research investment options. As industry
players, they have access to information that may not be available to you.
Returns
Over the medium and long-term, Mutual Funds have the potential to provide favorable
returns within the same risk category. After a brief period in the doldrums, the Mutual Fund
industry in India has performed credibly over the past year. According to a study conducted
by the Association of Mutual Funds in India, of the 118 equity schemes in the market, 91
outperformed the benchmark Bombay Stock Exchange Sensex.
Lower expenses
You have to bear several costs if you invest directly in the market. These include brokerage,
stamp duty and custodial charges, in addition to the expenses incurred in tracking your share
portfolio. Mutual Funds too have to bear these costs, but economies of scale enable them to
reduce procedural expenses like these.
Reduced risk
It's not possible for investors having a small capital outlay to maintain a diversified portfolio.
However, Mutual Funds, with the advantage of pooling of resources, can. This reduces the
risk, as not all stocks go through a downtrend at the same time.
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Variety
Mutual Funds offer schemes to suit specific investment needs. For instance, there are growth
schemes for investors who are willing to bear a greater risk, gilt schemes for investors who
are risk-averse and retirement plans for those with an eye on the future.
Flexibility
Some Mutual Funds offer products such as systematic investment plans, regular withdrawal
plans, monthly income plans and dividend reinvestment plans, which are appropriate for
retirement planning. These allow you to invest and withdraw funds as per your needs.
Liquidity
In case of open-ended schemes, a majority of Mutual Funds provide investors easy entry and
exit at prices related to the scheme's net asset value (NAV). They are also prompt in meeting
redemption demands.
In case of close-ended schemes, unit holders can sell their units on the stock exchange. Some
Mutual Funds also repurchase units at NAV-linked prices during certain periods.
Timely Decisions and Safety against Loss
The Fund Managers, being experienced and armed with the market scenario, can take timely
decisions about when to sell or buy the units. Timely buying or selling of units reduces the
loss that could have been incurred.
Transparency
Mutual Funds send out periodic newsletters to unit holders, detailing the scheme's portfolio,
performance, investment strategy, and the outlook of the scheme and the fund manager. You
can also find information on websites and in newspapers or magazines.
Regulation
All Mutual Funds in India have to be registered with the Securities and Exchange Board of
India (SEBI), and comply with its regulations.
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Chapter 4.2
MUTUAL FUNDS SCHEMES
There are mainly two types of Mutual Funds on the basis of interval. They are,
Open-ended schemes are sold at the NAV based prices, generally calculated on every
business day. These schemes have unlimited capitalization, open-ended schemes do not have
a fixed maturity - i.e. there is no cap on the amount you can buy from the fund and the unit
capital can keep growing. These funds are not generally listed on any exchange. Open-ended
funds are bringing in a revival of the mutual fund industry owing to increased liquidity,
transparency and performance in the new open-ended funds promoted by the private sector
and foreign players.
Close ended schemes have a stipulated maturity period, limited capitalization and the units
are listed on the stock exchange are called close-ended schemes. These schemes have
historically seen a lot of subscription. This popularity is estimated to be on account of firstly,
public sector MFs having floated a lot of close-ended income schemes with guaranteed
returns and secondly easy liquidity on account of listing on the stock exchanges.
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DEBT SCHEMES
MEDIUM-TERM DEBT FUNDS
They have a portfolio of debt and money market instruments where the average maturity of
the underlying portfolio could be in the range of five to seven years. Such funds seek to
optimize returns while maintaining a balance of safety, yield and liquidity.
SHORT-TERM DEBT FUNDS
They have a portfolio of debt and money market instruments where the average maturity of
the underlying portfolio could be in the range of one to two years. Such funds seek to
generate higher returns with greater stability.
MONEY MARKET DEBT FUNDS:
Enhancement of income with a high level of liquidity is the objective of these funds with a
judicious portfolio mix of money market and debt instruments. Under normal circumstances,
the fund will have a 50-90 per cent exposure to money market instruments while holding 1050 per cent in debt instruments.
MEDIUM-TERM GILT FUNDS
These aim to provide steady returns with low risk and highest possible safety by investing
primarily in Government Securities. The average maturity of the securities in the portfolio
would be over three years.
SHORT-TERM GILT FUNDS
They are dedicated gilt schemes, which seek to generate reasonable returns with investments
in Government Securities. The securities invested in are of short to medium term residual
maturities.
FLOATING RATE FUNDS
These funds invest in securities with floating interest rates, which are generally linked to
some benchmark rate like Prime Landing Rate. Floating Rate Funds have a high relevance
when the debt markets are volatile and investors can effectively make use of these funds to
hedge their debt fund investments against the interest rate fluctuations.
MONTHLY INCOME PLANS (MIPs)
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These are basically debt schemes, which make marginal investments in the range of 10-25 %
in equity to boost the schemes returns. MIP schemes are ideal for investors who seek slightly
higher return than pure long-term debt schemes at marginally higher risk.
BALANCED SCHEMES
These schemes invest approximately half the funds in equities and the other half in debt.
They seek to balance risk while aiming to offer better returns than pure debt schemes.
FUND OF FUNDS
Fund of funds (FoFs), as the name suggests, are mutual fund schemes, which invest in other
mutual fund schemes. There have been a few such FoF schemes in the past and recently too
some new FoFs have been launched
Diversification
Just as a mutual fund scheme offers diversification by investing in various equity scrips, a
FoF offers diversification by investing in various MF schemes.
Secondly, you get a chance to diversify across various fund managers and investing styles.
Thirdly, even if a fund manager quits one AMC and joins another whose fund you already
own in the FoF, you are not affected by this constant movement of the fund managers.
Convenience
By choosing a suitable FoF, you get a chance to invest across different class of funds with
just one investment. Thus, it becomes very convenient for investing and monitoring. Suppose
you wanted to invest in 5 equity funds and 5 debt funds. Assuming each fund has a minimum
stipulated investment of Rs.5000, you would need Rs.50,000. In a FoF, Rs.5000 would do the job.
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Chapter 4.3
VARIOUS PRICES INVOLVED IN MUTUAL FUNDS
Fund administrators add up the market value of the fund's investments at the end of each
business day. The fund company then subtracts the value of the fund's debts or other
liabilities. The difference equals the fund's net asset value.
The fund company next divides the net asset value by the number of shares the fund has
issued to investors. The result equals the price of each share.
Sale Price- Is the price you pay when you invest in a scheme. Also called Offer Price. It may
include a sales load
Repurchase price- Is the price at which a close-ended scheme repurchases its units and it
may include a back-end load. This is also called Bid Price.
Redemption Price - Is the price at which open-ended schemes repurchase their units and
close-ended schemes redeem their units on maturity. Such prices are NAV related
Sales Load Or entry load - Is a charge collected by a scheme when it sells the units. Also
called, Front-end load. Schemes that do not charge a load are called No Load schemes.
Repurchase or Back-end Load or exit load - Is a charge collected by a scheme when it
buys back the units from the unit holders
SEBI has stipulated that the maximum exit load cannot be higher than 7%. And for closed
ended funds the maximum exit load cannot be higher than 5%.
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Chapter 4.4
INDIAN MUTUAL FUND INDUSTRY
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Fund Regulations, and with recent mergers taking place among different private sector funds,
the mutual fund industry has entered its current phase of consolidation and growth. The graph
indicates the growth of assets over the years. As at the end of October 31, 2003, there were
totally 31 funds in India, with assets under management of about Rs. 12, 67,260 million.
Performance of mutual funds in India
Let us start the discussion of the performance of mutual funds in India from the day the
concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited
investors or rather to those who believed in savings, to park their money in UTI Mutual Fund.
For 30 years it goaled without a single second player. Though the 1988 year saw some new
mutual
fund
companies,
but
UTI
remained
in
monopoly
position.
The performance of mutual funds in India in the initial phase was not even closer to
satisfactory level. People rarely understood, and of course investing was out of question. But
yes, some 24 million shareholders was accustomed with guaranteed high returns by the
beginning of liberalization of the industry in 1992. This good record of UTI became
marketing tool for new entrants. The expectations of investors touched the sky in profitability
factor. However, people were miles away from the preparedness of risks factor after the
liberalization.
The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate
about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets
Under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher
performance
by
April
2004.
It
rose
as
high
as
Rs.
1,540bn.
The net asset value (NAV) of mutual funds in India declined when stock prices started falling
in the year 1992. Those days, the market regulations did not allow portfolio shifts into
alternative investments. There were rather no choice apart from holding the cash or to further
continue investing in shares. One more thing to be noted, since only closed-end funds were
floated in the market, the investors disinvested by selling at a loss in the secondary market.
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CHAPTER 5
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Participation in the growth curve of the Indian economy in the next four years will provide
foreign banks a launch pad for greater business expansion when they get more freedom after
April 2009.
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WEAKNNESSES
Although India witnessed a growth rate of almost 9% in the fiscal 2007-08, a vast majority is
still below the poverty line who do not have enough resources for essential commodities,
forget developing an insurance or banking culture among them.
The insurance penetration in India is 4 % whereas the world average is 7.52% which is quite
low.
The government interventions have been a major obstacle in the path of development of
private players. Also in India till today a vast majority of non-performing assets belong to the
public sector undertakings.
To add to weaknesses the Indian economy is filled with corruption, black money,
bureaucracy, political intervention and social back-drops- illiteracy, poverty, unemployment,
etc. This hinders the growth and development of private players.
Regulatory issues, Lack of suitable products, Solvency requirements, Labour reforms, Legal
reforms, Agents compensation are the various reasons that are holding back growth in
insurance product as explained in previous chapter.
OPPORTUNITIES
Large rural population which has the potential but were ignored till date are now opening up
new arenas of business for many conglomerates who have a wide rural reach.
Only 24 % of the Indian households own life insurance. The remaining 76% are still to be
tapped.
By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy.
The growing literacy rates, declining mortality rate, rising income, huge population in the
middle age section are all indicators of opportunities aplenty lying in India.
With new technological advancements the whole financial structure would be transformed in
the near future. According to K. V. KAMATH India has just started to witness the
development and professionalization of banking and other financial services in its true sense.
The concept of financial planners will come soon to India providing complete financial
solutions even to person with limited financial means. Also in near future financial products
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will be fully customized to suit customer requirements. Such flexible products will require
utmost regulations and right people mix who understand consumer needs.
Also with so many players in the market it has created stiff competition which will lead to
improved efficiency among these players to attract a small pie of market share.
THREATS
As such financial sector is a booming sector and there are quite a few threats as such but the
Indian companies are facing the following two major threats
With the Indian economy opening up since 1991 and deregulation of various activities Indian
players in the financial services sector have a huge threat from their foreign competitors as
they have advanced technology, huge resources to invest and expertise in handling finances.
These companies make huge profits out of Indian markets and drain away the wealth of India
to their land.
With increasing use of internet banking and mobile banking there is an increase in internet
piracy, hacking and such other threats which would leak confidential information and affect
the goodwill of the company.
Change is a continuous process and in order to accommodate the changes and challenges that
are taking place in the present globalization scenario this industry has to re-orient its
marketing strategy and compete not jus for survival but growth and profits.
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CHAPTER 6
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QUESTIONNAIRE
Name:
Age:
25-35
35-45
45 and above
Q.1 Are you aware of the three types of Banks??
i.
ii.
iii.
Commercial banks
Co-operative banks
Development banks
Yes
No
Any one
(Mention)
Q.1 Are you aware of the three types of Banks? I). Commercial banks II). Co-operative
banks III). Development banks
20
10
Yes
No
70
Any 1
Out of 100 people those where surveyed, 70 people had knowledge about all the three banks
and also their services. 10 people who did not know about these banks were given
information at the time of survey.
Q.2 According to you, which sector is more preferable for investment?
22
43
Public Sector
35
Private Sector
Both
Out of 100 people, 43 people preferred public sector as their choice of investment, 35 people
preferred private and rest think both are suitable for investment.
Q.3 Are you satisfied with the fixed deposit interest rate of your bank?
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20
Yes
No
80
Out of 100 people, 80 people are satisfied with the interest rates provided by their banks to
them. Rest 20 people were still expecting the rate to increase and some are also planning to
discontinue their investment in their respective banks.
Q.4 Do you think investment in pure gold is/would be beneficial? (keeping todays scenario
in mind)
30
70
Yes
No
Out of 100 people, 70 people think that investing in pure gold is beneficial due to its rising
prices. 30 people still feel its risky to invest in gold and real estate is a better option than
gold.
45
65
Yes
No
Out of 100 people, 65 people were aware of the tax saving bonds. Rest 45 people had little or
no knowledge about such benefits. Therefore, while conducting the survey, they were made
aware of these bonds.
Q.6 Are you satisfied with the DEMAT A/C services?
16
22
62
Yes
No
Dont have DEMAT A/C
Out of 100 people, 62 people were satisfied with their DEMAT accounts. 22 people had some
technical issues regarding how to operate the daily transactions and records. 16 people did
not have DEMAT a/c.
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12
Yes
No
88
Out of 100 people, 88 people find ATM service the most feasible and convenient service
provided by the banks. 12 people still have some issues regarding its operations.
Q.8 Do you think investment in LIC is/would be a benefit for you and your family?
10
Yes
No
85
Dont know
Out of 100 people, 85 people think LIC as a beneficial option for their family. Around 15
people are not sure with this option.
Q.9 Do you think insurance companies act fairly as far as premium rates are concerned?
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15
Yes
85
No
Out of 100 people, 85 people think that insurance companies provide better premium rates.
15 people are not aware of the overall scenario of different rates of different companies.
Q.10 Are you aware of the money back policy?
10
Yes
90
No
Out of 100 people, 90 people knew about the money back policy. 10 people who dint know
about the policy, were made aware during the survey.
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Q.11 If you have taken the money back policy, are you aware of the Bonus on full sum
assured?
20
Yes
70
No
Out of 90 people who were aware of the money back policy, 70 people knew that bonus is
assured on the full amount. Rest 20 people were made aware of this information.
Q.12 Are you satisfied with the general insurance plan you opted for?
10
Yes
90
Out of 100 people, 90 people were satisfied with their insurance plans.
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No
Q.13 Are you aware of various Mutual Fund companies and their schemes?
15
Yes
85
No
Out of 100 people, 85 people were aware of the various mutual fund companies and different
services provided by them. While, the rest who did not know about it were informed during
the survey.
Q.14 Are you ever benefitted from any of the Mutual Funds schemes?
10
Yes
75
No
Out of 85 people who were aware about mutual funds, 75 people benefited from the scheme
they opted for. Rest 10 were dissatisfied.
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CHAPTER 7
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CONCLUSION
Financial services in India have evolved over the years but the years but there is a vast scope
of development in this sector. The challenges facing the financial services sector are lack of
qualified personal having financial creativity, lack of specialization in one service, lack of
investor awareness and no initiative taken for research and development. Also the whole
financial system is undergoing a phenomenal change in accordance with national and global
requirements so it is high time that we become transparent in our operations.
But at the same time we cannot ignore the opportunities available to us such as the large
talent pool which is the new age tech-oriented youth who are ready to take-off and help India
realize its dream of being a superpower.
Although the global economy has slowed down due to US sub-prime crises and it has
affected ours financial services sector too, the future ahead will be bright with all economies
overcoming the recession phase. Not to forget with opportunities knocking the door there will
also be cut-throat competition wherein the best player would win.
Indian consumers are increasingly becoming more aware and are actively managing their
financial affairs. To woo such consumers marketers have to create a customized product
suiting their requirements. Firms will have to constantly innovate in terms of product
development to meet ever-changing consumer needs.
To conclude financial services are vital for any economy. If industries and agriculture are the
growth drivers then banks, insurance, mutual funds are catalysts. The term Finance with its
varied connotations has evolved over a period of time. The complex matrix of financial
system, financial services and financial intermediaries are closely linked to each other and
are lifeblood of any economy without which we cannot operate.
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www.wikipedia.com
www.investopedia.com
www.moneycontol.com
Newspaper
i.
ii.
Times Of India
Economic Times
Books
i.
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