Scope of Banking & Insurance Sectors in India

The financial sector in India has become stronger in terms of capital and the number of customers. It has become globally competitive and diverse aiming, at higher productivity and efficiency. Exposure to worldwide competition and deregulation in Indian financial sector has led to the emergence of better quality products and services. Reforms have changed the face of Indian banking and finance. The banking sector has improved manifolds in terms of capital adequacy, asset classification, profitability, income recognition, provisioning, exposure limits, investment fluctuation reserve, risk management, etc. Diversifying into investment banking, insurance, credit cards, depository services, mortgage financing, securitisation has increased revenues. As large number of players in various fields enter the market, competition would be intensified by mutual funds, Non Banking Finance Corporations (NBFCs), post offices, etc. from both domestic and foreign players. All this would lead to increased sophistication and technology in the sector. Corporate governance would come into the picture and other financial institutions would have to reach global standards. Also the limit for FDI in private banks is increased to 74% and the limit for FII is 49%. There are many challenges ahead for the banking sector such as technology, consumer satisfaction, corporate governance, risk management, etc. and they are redefining their priorities, which are now focused on cost reduction, product differentiation and customer centric services. Some of the major players in this sector are HDFC, ICICI, HSBC, State Bank of India, Punjab National Bank, Ing Vysya, ABN Amro Bank, Centurion Bank, City Bank, etc. The insurance sector has opened up for private insurance companies with the enactment of IRDA Act, 1999. A large number of companies are competing under both life and general Insurance. The FDI cap/equity in this sector is 26% and the proposals have to be cleared by Insurance Regulatory and Development Authority (IRDA) established to protect the interest of holder of Insurance policy and act as a regulator and facilitator in the industry. Some of the major players in this sector are LIC, Max New York Life Insurance, Bajaj Allianz, ICICI Prudential, HDFC Standard Life, Metlife Insurance, Birla Sun Life Insurance, etc. Various types of policies and instruments are coming up in the market to attract more customers. Most of the population of India is not insured, hence there is a lot of scope in this sector and a number of companies are planning to enter the sector. Every futuristic individual would want himself to get insured. Capital markets have a long history of over 100 years in India. Bombay Stock Exchange came into existence more than a hundred years ago to remove direct government control. Indian companies are now allowed to raise capital from abroad and Foreign Institutional Investors are allowed to enter the market due to an important policy initiative in 1993. The depository and

share dematerialization has enhanced the performance of the capital market reducing processing time and increasing returns. The major players are India Bulls Securities, Kotak, and many more. Many new instruments have been introduced in the market such as index futures, index options, derivatives, including futures and options. Also commodities market is gaining pace. There is a huge potential available in the market and to realize it venture capitalists are coming up with lots of finance. To make use of the human capital, technical skills, cost competitive workforce, research and entrepreneurship VCFs and VCCs are ready to invest in potential projects. For a stronger and resilient financial system, India needs to move beyond peripheral issues and act maturely by increasing profitability and efficiency, providing better solutions to the customers.

Indias insurance sector poised for 200% growth by 2010

by Jo Black Indian insurance sector is likely to register unprecedented growth of 200% and attain a size of Rs. 2000 billion ($51.2 billion) by 2009-10, in which a private sector insurance business will achieve a growth rate of 140% as a result of aggressive marketing technique being adopted by them against 35-40% growth rate of state owned insurance companies. The aforesaid findings are made by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) on `Insurance in Next 2 Years, saying that in the last couple of years, the insurance sector has grown by CAGR of around 175% and the trend will emerge still better because of potential factor. Currently, the insurance sector size is estimated at Rs.500 billion ($12.8 billion). Releasing the ASSOCHAM findings, its President, Mr. Venugopal N. Dhoot said that on account of intense marketing strategies adopted by private insurance players, the market share of state owned insurance companies like GIC, LIC and others have come down to 70% in last 4-5 years from over 97%. The private insurance players despite the sector is still regulated has been offering rate of return (RoR) to its policy holders which is estimated at about 35% as against 20% of domestic insurance companies. This factor is mainly responsible for hike in private insurance market share which will grow further which is why the ASSOCHAM estimates that its growth rate could even exceed 140%. Secondly, the state owned insurance companies such as LIC and GIC have limited number of policies to offer to their subscribers while in case of private insurance companies, their policy numbers are many more and the premium amount as well as the maturity period is much competitive as against those of government insurance companies. Interestingly, said Mr. Dhoot that the private sector insurance players have started exploring the rural markets in which until recently, the state owned companies had the monopoly. The Chamber has projected that in rural markets, the share of private insurance players would increase substantially as these have been able to generate a faith among their rural consumers. Estimating the potential of the Indian insurance market from the perspective of macro-economic variables such as the ratio of premium to GDP, ASSOCHAM reveals that Indias life insurance premium, as a percentage of GDP is 1.8% against 5.2% in the US, 6.5% in the UK or 8% in South Korea. ASSOCHAM findings further reveal that in the coming years, the corporate segment, as a whole will not be a big growth area for insurance companies. This is because penetration is already

good and companies receive good services. In both volumes and profitability therefore, the scope for expansion is modest. The Chamber has suggested that insurers strategy should be to stimulate demand in areas that are currently not served at all. Insurance companies mostly focus on manufacturing sector, however, the services sector is taking a large and growing share of Indias GDP. This offers immense opportunities for expansion opportunities. To understand the prospects for insurance companies in rural India, it is very important to understand the requirements of Indias villagers, their daily lives, their peculiar needs and their occupational structures. There are farmers, craftsmen, milkmen, weavers, casual labourers, construction workers and shopkeepers and so on. More often than not, they are into more than one profession. The rural market offers tremendous growth opportunities for insurance companies and insurers should develop viable and cost-effective distribution channels; build consumer awareness and confidence. The ASSOCHAM found that there are a total 124 million rural households. Nearly 20% of all farmers in rural India own a Kissan Credit cards. The 25 million credit cards used till date offer a huge data base and opportunity for insurance companies. An extensive rural agent network for sale of insurance products could be established. The agent can play a major role in creating awareness, motivating purchase and rendering insurance services. There should be nothing to stop insurance companies from trying to pursue their own unique policies and target whatever needs that they want to target in rural India. ASSOCHAM suggests that insurance needs to be packaged in such a form that it appears as an acceptable investment to the rural people.

Indian Insurance Business Projected to US$60 Billion by 2010

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected a 500% increase in the size of current Indian insurance business from US$ 10 billion to US$ 60 billion by 2010 particularly in view of contribution that the rural and semi-urban insurance will make to it. Rural and Semi-Urban Life Insurance business is expected to touch US$ 20 billion figure in next 4 years from current level of less than US$ 5 billion now as rural and semi-urban folk will want themselves to ensure them for better future and their rising purchasing power will motivate them to move towards insurance sector. In view of Assocham, the non-life insurance will rise to US$ 15 billion by 2010 from its negligible size now and in Urban areas, life insurance businesses are anticipated to reach US$ 15 billion and that of non-life insurance US$ 10 billion, according to Chamber Paper on Insurance Sector : Its Future Perspective. Assocham has revealed that rural and semi-urban India shall contribute US $35 billion to the Indian insurance industry by 2010, including US $20 billion by way of life insurance and the rest US $15 billion through non-life insurance schemes. A large part of rural India is still untapped due to poor distribution, large distances and high costs relative to returns. Urban sector insurance is estimated to reach US $25 billion by 2010, life insurance US $15 billion and non-life insurance US $10 billion. Estimating the potential of the Indian insurance market from the perspective of macro-economic variables such as the ratio of premium to GDP, Assocham Papers reveals that Indias life insurance premium, as a percentage of GDP is 1.8% against 5.2% in the US, 6.5% in the UK or 8% in South Korea. Assocham findings further reveals that in the coming years the corporate segment, as a whole will not be a big growth area for insurance companies. This is because penetration is already good and companies receive good services. In both volumes and profitability therefore, the scope for expansion is modest. Survey suggested that insurers strategy should be to stimulate demand in areas that are currently not served at all. Insurance companies mostly focus on manufacturing sector, however, the services sector is taking a large and growing share of Indias GDP. This offers immense opportunities for expansion opportunities. Being an agrarian economy again there are immense opportunities for the insurance companies to provide the liability and risks associated in this sector. The Paper found that the rural markets are still virgin territories to a great extent and offer exciting opportunities for insurance companies. To understand the prospects for insurance companies in rural India, it is very important to understand the requirements of India's villagers, their daily lives, their peculiar needs and their occupational structures. There are farmers, craftsmen, milkmen, weavers, casual labourers, construction workers and shopkeepers and so on. More often than not, they are into more than one profession. The rural market offers tremendous growth opportunities for insurance companies and insurers should develop viable and cost-effective distribution channels; build consumer awareness and confidence. The Paper found that there are a total 124 million rural households. Nearly 20% of all farmers in rural India own a Kissan Credit cards. The 25 million credit cards used till date offer a huge data base and opportunity for insurance companies. An extensive rural agent network for sale of insurance products could be established. The agent can play a major role in creating awareness, motivating purchase and rendering insurance services.

There should be nothing to stop insurance companies from trying to pursue their own unique policies and target whatever needs that they want to target in rural India. Assocham suggests that insurance needs to be packaged in such a form that it appears as an acceptable investment to the rural people. In the near future, when well see more innovations in agriculture in the form of corporatization or a more professional approach from the farmers side, insurance will definitely be one option that the rural Indian is going to accept.

Indian Insurance Market

The Indian insurance market in spite of having a history covering almost two centuries took a turn after the establishment of the Life insurance corporation in India in 1956. From being an open competitive market to being nationalized and then back to a liberalized market again, the insurance sector has witnessed all aspects of contest. The Indian insurance market conventionally focused around life insurance until recently, a various range of other insurance policies covering sectors like medical, automobile, health and other classes falling under general insurance came up, generally provided by the private companies. The life insurance of India added 4.1% to the GDP of the economy in 2009, an immense growth since 1999, when the gates were opened for the private company in the market.

Policy Change in the Indian Insurance Market

The Insurance Regulatory Development Act, 1999 (IRDA Act) allowed the entry of private companies in the insurance sector, which was so far the sole prerogative of the public sector insurance companies. The act was passed to protect the concerns of holders of insurance policy and also to govern and check the growth of the insurance sector. This new act allowed the private insurance companies to function in India under the following circumstances :

The company should be established and registered under the 1956 company Act The company should only the serve the purpose of life or general insurance or reinsurance business The minimum paid up equity capital for serving the purpose of reinsurance business has been decreed at Rs 200 crores The minimum paid up equity capital for serving the purpose of reinsurance business has been decreed at Rs 100 crores The average holdings of equity shares by a foreign company or its subsidiaries or nominees should not go above 26% paid up equity capital of the Indian Insurance company.

Investment Policy in the Indian Insurance Market

A policy known by the name of 'Health plus Life Combi Product', offering life cover along with health insurance has been granted permission by the IRDA act and insurance companies are allowed to provide it now. The FDI limit in the insurance sector has been capped at 26% for the foreign marketeers but the government is thinking to increase it to 49% and a bill of this offer is pending at the Rajya Sabha A low cost pension scheme is supposed to be formed by the Pension Fund Regulatory and Developmental Authority (PFRDA) on 1st April, 2010 to provide social security to the the poorer class.

The compulsory ceding by every General Insurance Corporation (GIC), would go on to stay at 10% under current regulations as specified by IRDA.

Future of Indian Insurance Market

As per the report of 'Booming Insurance Market in India' (2008-2011), concentration of insurance markets in many developed countries of the world has made the Indian insurance market more magnetic in terms of international insurance players. Furthermore, the report says

Home insurance sector is likely to achieve a 100% growth since home insurance are made compulsory for housing loan approvals by the financial institutions. In the coming three years Health insurance sector is all set to become the second largest business after motor insurance. During the period of 2008-09 to 2010-11 the non life insurance premium is likely to have a growth of 25%.

Insurance Companies in India

Registration has been granted to 12 private life insurance companies and 9 general insurance companies so far by the IRDA. Considering the existing public sector companies in the Indian insurance market there are 13 companies functioning in both life and general insurance business respectively. Some of the major insurance companies in public sector are

Life Insurance Corporation (LIC) of India National Insurance Company Limited Oriental Insurance Limited

Some of the major insurance companies in Private sector are

Tata AIG Life HDFC Standard Bajaj Allianz ICICI Prudential SBI Life