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With an annual growth rate of 15-20% and the largest number of life insurance policies in
force, the potential of the Indian insurance industry is huge. Total value of the Indian
insurance market (2004-05) is estimated at Rs. 450 billion (US$10 billion). According to
government sources, the insurance and banking services’ contribution to the country's gross
domestic product (GDP) is 7% out of which the gross premium collection forms a significant
part. The funds available with the state-owned Life Insurance Corporation (LIC) for
investments are 8% of GDP.

Till date, only 20% of the total insurable population of India is covered under various life
insurance schemes, the penetration rates of health and other non-life insurances in India is
also well below the international level. These facts indicate the of immense growth potential
of the insurance sector.

The year 1999 saw a revolution in the Indian insurance sector, as major structural changes
took place with the ending of government monopoly and 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.

Though, the existing rule says that a foreign partner can hold 26% equity in an insurance
company, a proposal to increase this limit to 49% is pending with the government. Since
opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have
poured into the Indian market and 21 private companies have been granted licenses.

Innovative products, smart marketing, and aggressive distribution have enabled fledgling
private insurance companies to sign up Indian customers faster than anyone expected.
Indians, who had always seen life insurance as a tax saving device, are now suddenly turning
to the private sector and snapping up the new innovative products on offer.

The life insurance industry in India grew by an impressive 36%, with premium income from
new business at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff competition
from private insurers. This report, “Indian Insurance Industry: New Avenues for Growth
2012”, finds that the market share of the state behemoth, LIC, has clocked 21.87% growth in
business at Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But this was still
not enough to arrest the fall in its market share, as private players grew by 129% to mop up
Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in 2003-04.

Though the total volume of LIC's business increased in the last fiscal year (2004-2005)
compared to the previous one, its market share came down from 87.04 to 78.07%. The 14
private insurers increased their market share from about 13% to about 22% in a year's time.
The figures for the first two months of the fiscal year 2005-06 also speak of the growing
share of the private insurers. The share of LIC for this period has further come down to 75
percent, while the private players have grabbed over 24 percent.

There are presently 12 general insurance companies with four public sector companies and
eight private insurers. According to estimates, private insurance companies collectively have
a 10% share of the non-life insurance market.

Though the focus of this market research report is on the potential growth on the Indian
Insurance Sector, it also talks about the market size, market segmentation, and key
developments in the market after 1999. The report gives an instant overview of the Indian
non-life insurance market, and covers fire, marine, and other non-life insurance. The data is
supplied in both graphical and tabular format for ease of interpretation and analysis. This
report also provides company profiles of the major private insurance companies.

REPORT HIGHLIGHTS
- Gains of Liberalization in Indian Insurance Sector
- Indian Insurance Market Segmentation By Products
- Size of the Market and Market Share Of Life Insurers, In INR (crore)
- Market Share Of Non-Life Insurers
- Forecast of Life Insurance Growth Up to 2012
- Forecast of Non-Life Insurance Growth Up to 2012
- Market Revenue of Both Public and Private Insurers
- Policies and Measures Taken By IRDA To Develop The Insurance Market
- Research and Development Activities
- Regulation of insurance and reinsurance companies
- Major Challenges That Indian Insurance Sector is Facing
- Profiles of the Major Players

REPORT FEATURES
In the globalize market scenario, companies need to understand and challenge the
competitive markets they operate in the “Indian Insurance Industry: New Avenues for
Growth 2012” is a complete analysis of the market that will help you in decision making.
Chapter 2, 3, and 4 of this report discussed the impact of liberalization of the market and
market shares of public and private sector companies and polices implemented by IRDA to
develop the insurance market in India. Chapter 5, 6, and 7 deals with market revenue of
private and public players, opportunities and forecasts and policies taken by IRDA to develop
the insurance market. Major challenges of Indian Insurance Sector along with Profiles of
major players are discussed in Chapter 8 and 9. 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. Until the late 1980s,
the United States and Canada maintained a separation between investment banking and
commercial banks.

A majority of investment banks offer strategic advisory services for mergers, acquisitions, divestiture
or other financial services for clients, such as the trading of derivatives, fixed income, foreign exchange,
commodity, and equity securities.

Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the
promotion of securities (i.e., underwriting, research, etc.) is referred to as the "sell side."

Dealing with the pension funds, mutual funds, hedge funds, and the investing public who consume the
products and services of the sell-side in order to maximize their return on investment
constitutes the "buy side". Many firms have buy and sell side components.

The largest bulge-bracket firms (by market capitalization) on Wall Street include Goldman Sachs, Merrill
Lynch, Morgan Stanley, and Lehman Brothers. Credit Suisse, Citigroup, Deutsche Bank, JP Morgan Chase, and UBS AG
are "universal banks" rather than bulge-bracket investment banks, since they also accept
deposits (though not all of them have U.S. branches.)

Contents
[hide]
  1 Organizational structure of an investment bank
o 1.1 The main activities and units
 1.1.1 Front office
 1.1.2 Middle office
 1.1.3 Back Office
o 1.2 Chinese Wall
 2 Size of industry
o 2.1 Vertical integration
 3 Possible conflicts of interest
 4 References
 5 See also
 6 External links

[edit] Organizational structure of an investment bank

[edit] The main activities and units

On behalf of the bank and its clients, the primary function of the bank is buying and selling
products. Banks undertake risk through proprietary trading, done by a special set of traders who do
not interface with clients and through Principal Risk, risk undertaken by a trader after he buys
or sells a product to a client and does not hedge his total exposure. Banks seek to maximize
profitability for a given amount of risk on their balance sheet. An investment bank is split
into the so-called Front Office, Middle Office, and Back Office.

[edit] Front office

 Investment banking is the traditional aspect of investment banks which involves helping
customers raise funds in the Capital Markets and advising on mergers and acquisitions. These jobs
tend to be extremely competitive and difficult to land. Investment banking may involve
subscribing investors to a security issuance, coordinating with bidders, or negotiating with a
merger target. Other terms for the investment banking division include mergers and acquisitions
(M&A) and corporate finance. The investment banking division (IBD) is generally divided into
industry coverage and product coverage groups. Industry coverage groups focus on a
specific industry such as healthcare, industrials, or technology, and maintain relationships
with corporations within the industry to bring in business for a bank. Product coverage
groups focus on financial products, such as mergers and acquisitions, leveraged finance,
equity, and high-grade debt.

 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 eg. mutual funds). The investment management division of an investment bank
is generally divided into separate groups, often known as Private Wealth Management and
Private Client Services. Asset Management deals with institutional investors, while Private
Wealth Management manages the funds of high net-worth individuals.
  Sales & trading In the process of market making, traders will buy and sell financial products
with the goal of making an incremental amount of money on each trade. Sales is the term
for the investment banks sales force, whose primary job is to call on institutional and high-
net-worth investors to suggest trading ideas (on caveat emptor basis) and take orders. Sales
desks then communicate their clients' orders to the appropriate trading desks, who can price
and execute trades, or structure new products that fit a specific need.

 Structuring has been a relatively recent division as derivatives have come into play, with highly
technical and numerate employees working on creating complex structured products which
typically offer much greater margins and returns than underlying cash securities. The
necessity for numerical ability has created jobs for physics and math Ph.D.s who act as quants.

 Merchant banking is a private equity

activity of investment banks.[1] Examples include Goldman
Sachs Capital Partners and JPMorgan One Equity Partners. (Originally, "merchant bank" was
the British English term for an investment bank.)

 Researchis the division which reviews companies and writes reports about their prospects,
often with "buy" or "sell" ratings. While the research division generates no revenue, its
resources are used to assist traders in trading, the sales force in suggesting ideas to
customers, and investment bankers by covering their clients. There is a potential conflict of
interest between the investment bank and its analysis in that published analysis can affect
the profits of the bank. Therefore in recent years the relationship between investment
banking and research has become highly regulated requiring a Chinese wall between public and
private functions.

 is the division which advises external as well as internal clients on the strategies that
Strategy
can be adopted in various markets. Ranging from derivatives to specific industries,
strategists place companies and industries in a quantitative framework with full
consideration of the macroeconomic scene. This strategy often affects the way the firm will
operate in the market, the direction it would like to take in terms of its proprietary and flow
positions, the suggestions salespersons give to clients, as well as the way structurers create
new products.

[edit] Middle office

 Risk management involves analyzing the market and credit risk that traders are taking onto the
balance sheet in conducting their daily trades, and setting limits on the amount of capital
that they are able to trade in order to prevent 'bad' trades having a detrimental effect to a
desk overall. Another key Middle Office role is to ensure that the above mentioned
economic risks are captured accurately (as per agreement of commercial terms with the
counterparty), correctly (as per standardized booking models in the most appropriate systems)
and on time (typically within 30 minutes of trade execution). In recent years the risk of
errors has become known as "operational risk" and the assurance Middle Offices provide now
includes measures to address this risk. When this assurance is not in place, market and
credit risk analysis can be unreliable and open to deliberate manipulation.

 Financeareas are responsible for an investment bank's capital management and risk
monitoring. By tracking and analyzing the capital flows of the firm, the Finance division is the
principal adviser to senior management on essential areas such as controlling the firm's
global risk exposure and the profitability and structure of the firm's various businesses. In
 the United States and United Kingdom, a Financial Controller is a senior position, often reporting
to the Chief Financial Officer.

 Compliance areas are responsible for an investment bank's daily operations' compliance with
FSA or other government regulations and internal regulations. Often also considered a back-
office division.

New-age banks gain market share

Press Trust Of India / Mumbai March 13, 2008

Banks such as Federal Bank, South Indian Bank and City Union Bank are losing out in market share to their new
age counterparts in the private sector, said a study which also named ICICI Bank and SBI as the best banks in
their respective categories.

However, old-time private sector banks continue to fare better in the growth of net profits, said research company
Dun & Bradstreet’s report on ‘India’s top banks’.

The D&B report has found that public sector banks accounted for 74 per cent of total deposits, 73 per cent of
total advances and 64 per cent of aggregate net profits among the scheduled commercial banks. On the other
hand, the share of new age private sector banks was in the range of 15-17 per cent, it said.

The D&B report said the annual growth rate of old-time private sector banks stood at 7.1 per cent in assets, six
per cent in deposits and 12 per cent in advances.

Banks such as Federal Bank, South Indian Bank, City Union Bank and Karnataka Bank are old-time private
sector banks, while ICICI Bank, HDFC Bank and Axis Bank are the new-age banks.

New age private sector banks dominated the growth league tables with an average y-o-y growth in assets at 38.7
per cent, deposits at 38.8 per cent and advances at 39.9 per cent, the report said.

However, old-time private sector banks fared better in terms of profitability which stood at an average 30 per
cent.

The industry average growth was about 25 per cent for deposits and 31 per cent for advances, the report said.

The report observed that Indian banking sector continues to remain fragmented, with the top 10 banks
accounting for 65 per cent and about 40 banks sharing 27 per cent of the assets.

“Fragmentation calls for consolidation, an issue that has not been addressed adequately in the Indian banking
industry,” it said.

 
The study was carried out among 80 scheduled commercial banks, including 28 public sector banks, 23 private
sector banks and 29 foreign banks.

Of this, the 37 banks listed on the stock exchanges reported a jump of 52 per cent in profits compared to the
previous corresponding period.

State Bank of India tops the list among the public sector banks, while ICICI Bank is the best bank in the private
sector.

 
Citibank stands out as the best foreign sector bank, but loses out to Standard Chartered Bank in terms of
profitability. Fixed Deposit 

A fixed deposit is meant for those investors who want to deposit a lump sum of money for a
fixed period; say for a minimum period of 15 days to five years and above, thereby earning a
higher rate of interest in return. Investor gets a lump sum (principal + interest) at the maturity
of the deposit. 

Bank fixed deposits are one of the most common savings scheme open to an average investor.
Fixed deposits also give a higher rate of interest than a savings bank account.  The facilities
vary from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility
on the amount deposited, premature withdrawal before maturity period (which involves a loss
of interest) etc. Bank deposits are fairly safer because banks are subject to control of the
Reserve Bank of India. 

Features
Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of
India (RBI) with regard to several policy and operational parameters. The banks are
free to offer varying interests in fixed deposits of different maturities. Interest is
compounded once a quarter, leading to a somewhat higher effective rate.  

The minimum deposit amount varies with each bank. It can range from as low as Rs. 100 to
an unlimited amount with some banks. Deposits can be made in multiples of Rs. 100/-. 

Before opening a FD account, try to check the rates of interest for different banks for
different periods. It is advisable to keep the amount in five or ten small deposits instead of
making one big deposit. In case of any premature withdrawal of  partial amount, then only
one or two deposit need be prematurely encashed. The loss sustained in interest will, thus, be
less than if one big deposit were to be encashed. Check deposit receipts carefully to see that
all particulars have been properly and accurately filled in. The thing to consider before
investing in an FD is the rate of interest and the inflation rate. A high inflation rate can
simply chip away your real returns.

Returns
 The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent, depending on
the maturity period (duration) of the FD and the amount invested. Interest rate also varies
between each bank. A Bank FD does not provide regular interest income, but a lump-sum
amount on its maturity. Some banks have facility to pay interest every quarter or every
month, but the interest paid may be at a discounted rate in case of monthly interest.  The
Interest payable on Fixed Deposit can also be transferred to Savings Bank or Current Account
of the customer. The deposit period can vary from 15, 30 or 45 days to 3, 6 months, 1 year,
1.5 years to 10 years. 

Duration Interest rate (%) per annum

15-30 days 4 -5 %
 30-45 days 4.25-5 %

46-90 days 4.75--5.5 %

91-180 days 5.5-6.5 %

181-365 days 5.75-6.5 %

1-2 years 6-8 %

2-3 years 6.25-8 %

3-5 years 6.75-8

Advantages
Bank deposits are the safest investment after Post office savings because all bank deposits are
insured under the Deposit Insurance & Credit Guarantee Scheme of India. It is possible to get
a loans up to75- 90% of the deposit amount from banks against fixed deposit receipts. The
interest charged will be 2% more than the rate of interest earned by the deposit. With effect
from A.Y. 1998-99, investment on bank deposits, along with other specified incomes, is
exempt from income tax up to a limit of Rs.12, 000/- under Section 80L.  Also, from A.Y.
1993-94, bank deposits are totally exempt from wealth tax. The 1995 Finance Bill Proposals
introduced tax deduction at source (TDS) on fixed deposits on interest incomes of Rs.5000/-
and above per annum.

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[edit] Back Office

 Operations involves data-checking trades that have been conducted, ensuring that they are
not erroneous, and transacting the required transfers. While some [who?] believe that
operations provides the greatest job security and the bleakest career prospects of any
division within an investment bank, many banks have outsourced operations. It is, however,
a critical part of the bank. Due to increased competition in finance related careers, college
degrees are now mandatory at most Tier 1 investment banks. [citation needed] A finance degree has
proved significant in understanding the depth of the deals and transactions that occur across
all the divisions of the bank.

 Technology refers to the IT department. Every major investment bank has considerable
amounts of in-house software, created by the Technology team, who are also responsible
for Computer and Telecommunications-based support. Technology has changed
 considerably in the last few years as more sales and trading desks are using electronic
trading platforms. These platforms can serve as auto-executed hedging to complex model
driven algorithms.

[edit] Chinese Wall

An investment bank can also be split into private and public functions with a Chinese wall which
separates the two to prevent information from crossing. The private areas of the bank deal
with private insider information that may not be publicly disclosed, while the public areas such as
stock analysis deal with public information.

[edit] Size of industry

Global investment banking revenue increased for the fifth year running in 2007, to $84.3
billion.[2] This was up 21% on the previous year and more than double the level in 2003.
Despite a record year for fee income, many investment banks have experienced large losses
related to their exposure to US sub-prime securities investments.

The US was the primary source of investment banking income in 2007, with 53% of the total,
a proportion which has fallen somewhat during the past decade. Europe (with Middle East
and Africa) generated 32% of the total, slightly up on its 30% share a decade ago. Asian
countries generated the remaining 15%. Over the past decade, fee income from the US
increased by 80%. This compares with a 217% increase in Europe and 250% increase in Asia
during this period. The industry is heavily concentrated in a small number of major financial
centres, including New York City, London and Tokyo.

Investment banking is one of the most global industries and is hence continuously challenged
to respond to new developments and innovation in the global financial markets. Throughout
the history of investment banking, it is only known that many have theorized that all
investment banking products and services would be commoditized. New products with higher
margins are constantly invented and manufactured by bankers in hopes of winning over
clients and developing trading know-how in new markets. However, since these can usually
not be patented or copyrighted, they are very often copied quickly by competing banks, pushing
down trading margins.[citation needed]

For example, trading bonds and equities for customers is now a commodity business[citation needed], but
structuring and trading derivatives retains higher margins in good times - and the risk of large
losses in difficult market conditions, such as the credit crunch that begin in 2007. Each OTC
contract has to be uniquely structured and could involve complex pay-off and risk profiles.
Listed option contracts are traded through major exchanges, such as the CBOE, and are almost
as commoditized as general equity securities.

In addition, while many products have been commoditized, an increasing amount of profit
within investment banks has come from proprietary trading, where size creates a positive
network benefit (since the more trades an investment bank does, the more it knows about the
market flow, allowing it to theoretically make better trades and pass on better guidance to
clients).
The fastest growing segment of the investment banking industry are private investments into
public companies (PIPEs, otherwise known as Regulation D or Regulation S). Such
transactions are privately negotiated between companies and accredited investors. These
PIPE transactions are non-rule 144A transactions. Large bulge-bracket brokerage firms and
smaller boutique firms compete in this sector. Special purpose acquisition companies
(SPACs) or blank check corporations have been created from this industry.

[edit] Vertical integration

In the US, the Glass-Steagall Act, initially created in the wake of the Stock Market Crash of 1929,
prohibited banks from both accepting deposits and underwriting securities which led to
segregation of investment banks from commercial banks. Glass-Steagall was effectively repealed
for many large financial institutions by the Gramm-Leach-Bliley Act in 1999.

Another development in recent years has been the vertical integration of debt securitization[citation needed].
Previously, investment banks had assisted lenders in raising more lending funds and having
the ability to offer longer term fixed interest rates by converting the lenders' outstanding
loans into bonds. For example, a mortgage lender would make a house loan, and then use the
investment bank to sell bonds to fund the debt, the money from the sale of the bonds can be
used to make new loans, while the lender accepts loan payments and passes the payments on
to the bondholders. This process is called securitization. However, lenders have begun to
securitize loans themselves, especially in the areas of mortgage loans. Because of this, and
because of the fear that this will continue, many Investment Banks have focused on becoming
lenders themselves,[3] making loans with the goal of securitizing them. In fact, in the areas of
commercial mortgages, many investment banks lend at loss leader interest rates[citation needed] in
order to make money securitizing the loans, causing them to be a very popular financing
option for commercial property investors and developers[citation needed].

[edit] Possible conflicts of interest

Potential conflicts of interest may arise between different parts of a bank, creating the
potential for financial movements that could be market manipulation. Authorities that
regulate investment banking (the FSA in the United Kingdom and the SEC in the United States) require
that banks impose a Chinese wall which prohibits communication between investment banking
on one side and equity research and trading on the other.

Some of the conflicts of interest that can be found in investment banking are listed here:

 Historically, equity research firms were founded and owned by investment banks. One
common practice is for equity analysts to initiate coverage on a company in order to develop
relationships that lead to highly profitable investment banking business. In the 1990s, many
equity researchers allegedly traded positive stock ratings directly for investment banking
business. On the flip side of the coin: companies would threaten to divert investment
banking business to competitors unless their stock was rated favorably. Politicians acted to
pass laws to criminalize such acts. Increased pressure from regulators and a series of
lawsuits, settlements, and prosecutions curbed this business to a large extent following the
2001 stock market tumble.[citation needed]

 Many investment banks also own retail brokerages. Also during the 1990s, some retail
brokerages sold consumers securities which did not meet their stated risk profile. This
 behavior may have led to investment banking business or even sales of surplus shares during
a public offering to keep public perception of the stock favorable.

 Since investment banks engage heavily in trading for their own account, there is always the
temptation or possibility that they might engage in some form of front running. Front running is
the illegal practice of a stock broker executing orders on a security