Bancassurance In India

INTRODUCTION OF BANK IN INDIA

The banking section will navigate through all the aspects of the Banking
System in India. It will discuss upon the matters with the birth of the banking
concept in the country to new players adding their names in the industry in coming
few years.
The banker of all banks, Reserve Bank of India (RBI, the Indian Banks
!ssociation (IB! and top "# banks like I$BI, %SB&, I&I&I, !B' !(R), etc. has
been well defined under three separate heads with one page dedicated to each bank.
%owever, in the introduction part of the entire banking cosmos, the past has
been well e*plained under three different heads namely+
%istory of Banking in India
'ationali,ation of Banks in India
Scheduled &ommercial Banks in India
The first deals with the history part since the dawn of banking system in India.
-overnment took ma.or step in the /010 to put the banking sector into systems and
it nationali,ed /2 private banks in the mentioned year. This has been elaborated in
'ationali,ation of Banks in India. The last but not the least e*plains about the
scheduled and unscheduled banks in India. Section 2" (1 (a of RBI !ct /032 lays
down the condition of scheduled commercial banks. The description along with a list
of scheduled commercial banks are given on this page.
DEFINITON OF BANK
!n organi,ation, usually a corporation, chartered by a state or federal
government, which does most or all of the following+ receives demand deposits and
time deposits, honors instruments drawn on them, and pays interest on them4
discounts notes, makes loans, and invests in securities4 collects checks, drafts, and
notes4 certifies depositor5s checks4 and issues drafts and cashier5s checks.
/
Bancassurance In India
INTRODUCTION OF INSURANCE IN INDIA
The Insurance sector in India governed by Insurance !ct, /036, the 7ife
Insurance &orporation !ct, /081 and -eneral Insurance Business ('ationalisation
!ct, /09", Insurance Regulatory and $evelopment !uthority (IR$! !ct, /000 and
other related !cts. :ith such a large population and the untapped market area of this
population Insurance happens to be a very big opportunity in India. Today it stands
as a business growing at the rate of /8;"# per cent annually. Together with banking
services, it adds about 9 per cent to the country<s -$=. 'early 6#> of Indian
populations are without 7ife insurance cover and the %ealth insurance. This is an
indicator that growth potential for the insurance sector is immense in India. It was
due to this immense growth that the regulations were introduced in the insurance
sector and in continuation Malhotra Committee was constituted by the
government in /003 to e*amine the various aspects of the industry. The key element
of the reform process was =articipation of overseas insurance companies with "1>
capital.
Since then the insurance industry has gone through many sea changes .The
competition 7I& started facing from these companies were threatening to the
e*istence of 7I& .since the liberali,ation of the industry the insurance industry has
never looked back and today stand as the one of the most competitive and e*ploring
industry in India. The entry of the private players and the increased use of the new
distribution are in the limelight today. The use of new distribution techni?ues and the
IT tools has increased the scope of the industry in the longer run.
DEFINITION
Insurance is a contract between two parties whereby one party agrees to
undertake the risk of another in e*change for consideration known as premium and
promises to pay a fi*ed sum of money to the other party on happening of an
uncertain event (death or after the e*piry of a certain period in case of life insurance
or to indemnify the other party on happening of an uncertain event in case of general
insurance.
The party bearing the risk is known as the 5insurer5 or 5assurer5 and the party
whose risk is covered is known as the 5insured5 or 5assured5.
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Bancassurance In India
HISTORY OF INSURANCE SECTOR
The business of life insurance in India in its e*isting form started in India in
the year /6/6 with the establishment of the )riental 7ife Insurance &ompany in
&alcutta. Some of the important milestones in the life insurance business in India are
given in the table /.

TABLE 1 MILESTONE!S IN THE LIFE INSURANCE BUSINESS
IN INDIA

Year Mile"to#e" i# the li$e i#"%ra#&e '%"i#e"" i# I#(ia

/0/" The Indian 7ife !ssurance &ompanies !ct enacted as the first statute
to regulate the life insurance business
/0"6 The Indian Insurance &ompanies !ct enacted to enable the
government to collect statistical information about both life and non;
life insurance businesses
/036 @arlier legislation consolidated and amended to by the Insurance !ct
with the ob.ective of protecting the interests of the insuring public.
/081 "28 Indian and foreign insurers and provident societies taken over
by the central government and nationalised. 7I& formed by an !ct of
=arliament, vi,. 7I& !ct, /081, with a capital contribution of Rs. 8
crore from the -overnment of India.


The -eneral insurance business in India, on the other hand, can trace its roots
to the Triton Insurance &ompany 7td., the first general insurance company
established in the year /68# in &alcutta by the British. Some of the important
milestones in the general insurance business in India are given in the table ".
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Bancassurance In India
TABLE ) MILESTONE!S IN THE *ENERAL INSURANCE
BUSINESS IN INDIA
Year Mile"to#e" i# the +e#eral i#"%ra#&e '%"i#e"" i# I#(ia

/0#9 The Indian (ercantile Insurance 7td. set up, the first company to
transact all classes of general insurance business
/089 -eneral Insurance &ouncil, a wing of the Insurance !ssociation of
India, frames a code of conduct for ensuring fair conduct and sound
business practices
/016 The Insurance !ct amended to regulate investments and set
minimum solvency margins and the Tariff !dvisory &ommittee set
up.
/09" The -eneral Insurance Business ('ationali,ation !ct, /09"
nationalised the general insurance business in India with effect from
/st Aanuary /093.
/#9 insurers amalgamated and grouped into four companies vi,. the
'ational Insurance &ompany 7td., the 'ew India !ssurance
&ompany 7td., the )riental Insurance &ompany 7td. and the Bnited
India Insurance &ompany 7td. -I& incorporated as a company.

2
Bancassurance In India
HISTORY OF BANCASSURANCE
!fter Cirst 'arasimham &ommittee report, Indian banking system gone
through huge reforms like merchant banking, lease and term finance, capital
market D e?uity market related activities, hire purchase, real estate finance and so on.
Cew years back banks of India entered into another financial instrument that<s
Insurance.
7et<s have a ?uick look on Indian insurance market as at end;(arch "##1,
among the life insurers, there were /8 companies in private sector and 7ife
Insurance &orporation of India (7I& was the solitary public sector company.
!mong non;life insurers, 0 companies were in private sector and 2 companies were
in public sector as regarding the present si,e of the insurance market in India, it is
stated that India accounts not even /> of the global insurance market. !ccording to
various studies, in India 7I& done e*ceptionally very good .ob but its able to insured
"8;"1> of insurable population.
Thus in a country with more than /." billion population, the penetration ratio
was 2.6> by end of march;"##1 which was far less than world<s penetration ratio
(9.8>. It also indicates that a vast ma.ority of population remain outside the reach
of the insurance, especially in rural and semi;urban areas, in the conte*t of the
absence of social security schemes.
In year "##2, due to these vulnerable statistics, IR$! introduced an additional
channel of distribution in way long traditional distribution model of Insurance
industry called Bancassurance.
The prospects of bancassurance in India is really bright because of following
reasons+
Indian economy is growing with 0> of growth rate.
Increasing === (purchasing power parity.
%uge inflow of C$I.
@*pansion of middle income class Indians.
%uge banking infrastructure across urban, semi urban E rural India.
B!S@7 ')R(;II ("##0
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Bancassurance In India
DEFINITION
The sale of insurance and other similar products through a bank. This can
help the consumer in some situations4 for e*ample, when a bank re?uires life
insurance for those receiving a mortgage loan, the consumer could purchase the
insurance directly from the bank. Some critics feel that bancassurance gives the bank
too much control. Bancassurance is not legal in all countries, but it is legal in the
Bnited States.
A#other rea"o#" are
BANK INSURANCE COM,ANY
&ustomer retention Revenue and channel
diversification
Satisfaction of more financial
needs under the same roof.
Fuality customer access
Revenue diversification Fuicker geographical reach
(ore profitable resource
utili,ation
&reation of brand e?uity
@nriched work environment 7everage service synergies with
Bank
@stablish sales orientated culture @stablish a low cost ac?uisition
channel
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Bancassurance In India
BANCASSURANCE- AN O.ER.IE/
:orld<s banking system is changing or in other
words upgrading every ?uarter with various
innovative schemes, policies. Today with financial
innovations and financial liberali,ation has drawn
the world of banking sector very close to new
avenues. In these set of avenues most upcoming and
growing combination is Bancassurance.

In Bancassurance, i.e., banc G assurance, refers banks and insurance company
tied up for selling insurance products. The concept of Bancassurance first appeared
in Crance in /06#, to define the sale of insurance products through banks<
distribution channels. Banks are being used as an effective alternate channel to
distribute insurance products either as Hstand;alone insurance products< or Hadd;ons
to the bank products< by way of combining the insurance with typical banking
productsDservices. Banks deals in both type of insurance policies i.e. life term and
non;life type (general.
Ma0or "%&&e"" $a&tor" $or 'a#&a""%ra#&e
Cavorable legal system in country
&ross selling of products
&oncept of Irelationship bankingJ
Ciscal factors like ta* incentives
Strong banking infrastructure coupled with strong banking culture
The given above are foundation stone for bancassurance in any country. In /06#<s
@uropean banking system was at the stage of maturity and diversifying their activity
and optimi,ing the products. Bancassurance si,ably contributed in banks revenue. It
also helped banks to retain its customer<s loyalty by providing them right investment
option at right time.
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Bancassurance In India
BANCASSURANCE STRUCTURE
BANCASSURANCE MODEL
(ost of the partnerships in India fall into the Fir"t Mo(el, where banks have
offered their services as distribution channels for insurance products through their
branch network. In terms of the present regulatory framework, Banks have taken up
a corporate agency for marketing insurance products for an agreed referral feeD
commission. The regulations provide for one bank tying up with only o#e life and
o#e non;life insurer, while insurers have the choice to tie;up with any number of
banks.
Cor the Se&o#( Mo(el, we have e*amples of SBI Li$e and ICICI ,r%(e#tial
where separate .oint ventures were floated to make a foray into the life insurance
business as private sector players.
!s yet, there are no instances of the Thir( and Fo%rth Mo(el" in India.
There is also a need for the evolution of regulations to accommodate these two
models.
It can be seen that in the Indian conte*t most of the players on both sides have
opted for the Fir"t Mo(el, a decision, which is in a way ?uite prudent. !s banks are
averse to assume risk and long;term commitments, a tentative coming together, akin
to dating without any firm or long;term commitment on either side, rather than
plunging into a marriage alliance, which would be ?uite costly and cumbersome to
e*tricate oneself from, make business sense.
6
Di"tri'%tio#
Allia#&e
1oi#t .e#t%re
Bet2ee# 'a#3
4 I#"%rer
Mer+er 'et2ee#
Ba#3
4 I#"%rer
B%il( or '%5
O2# i#"%ra#&e
O6eratio#
Bancassurance In India
BANCASSURANCE RE*ULATIONS IN INDIA
Bancassurance in India is a very new concept, but is fast gaining ground. In
India, the banking and insurance sectors are regulated by two different entities
(banking by RBI and insurance by IRDA and bancassurance being the
combinations of two sectors comes under the purview of both the regulators. @ach of
the regulators has given out detailed guidelines for banks getting into insurance
sector. %ighlights of the guidelines are reproduced below+
RBI *UIDELINES
RBI guideline for banks entering into insurance sector provides three options for
banks. They are+
17 ! bank can form a 0oi#t 8e#t%re with an insurance company for doing
bancassurance business. There will be ri"3 6arti&i6atio# in this model, i.e.4
through .oint venture the bank can underwrite or perform the principal function
of insurance.
)7 Cor banks, which are not eligible for this .oint;venture option, an i#8e"tme#t
o6tio# of up to /#> of the net worth of the bank or Rs.8# crores, whichever is
lower, is available. The bank can invest in the insurance company to provide
infrastructure and service support.
97 Cinally, any commercial bank will be allowed to undertake insurance business
as a &or6orate a+e#t of insurance companies. This will be on a fee basis with
#o-ri"3 6arti&i6atio#.
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Bancassurance In India
IRDA *UIDELINES
!s per the recommendations of the (alhotra &ommittee on Reforms in the
Insurance Sector, the Insurance Regulatory E $evelopment !uthority (IR$! !ct
/000 was passed by Indian =arliament. IR$! is constituted to regulate, promote and
ensure orderly growth of insurance and reinsurance business. !ccording to IR$!, a
private sector participant has to fulfill the following criteria for entry into insurance
sector+
(a (inimum paid;up capital of Rs./## crores
(b Investment in policyholders< funds only in India
(c Restriction of international companies to
minority e?uity holding of "1>
The I#"%ra#&e Re+%lator5 a#( De8elo6me#t A%thorit5 :IRDA; +%i(eli#e"
$or the 'a#&a""%ra#&e are
1; Chie$ I#"%ra#&e E<e&%ti8e+ @ach bank that sells insurance must have a chief
Insurance @*ecutive to handle all the insurance matters E activities.
); Ma#(ator5 Trai#i#+ !ll the people involved in selling the insurance should
under;go mandatory training at an institute determined (authori,ed by IR$! E
pass the e*amination conducted by the authority.
9; Cor6orate a+e#t" &ommercial banks, including co;operative banks and
RRBs may become corporate agents for one insurance company.
=; Banks cannot become insurance brokers.
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Bancassurance In India
NEED AND SUCCESS OF BANCASSURANCE
In their natural and traditional roles and with their current skills, neither banks
nor insurance companies could effectively mount a bancassurance start;up alone.
Colla'oratio# i" the 3e5 to making this new channel work. The motive behind
bancassurance may differ from that of banker to that of an insurer.
NEED FOR BANKS
The motives behind banks selling insurance are >,ro(%&t Di8er"i$i&atio#!
and a source of >A((itio#al Fee-Ba"e( I#&ome!.
,ro(%&t Di8er"i$i&atio# Banks, without the e*ception of public sector banks
have become fle*ible, cost;conscious, competitive, customer;oriented and hi;
tech. Thanks to the innovations in the financial services, resulting in an
evolution of interconnected services, the movement towards O#e-Sto6
Fi#a#&ial S%6ermar3et is catching up. Banks today, are forced to offer wide
range of sophisticated products to their clients. The traditional products that the
banks offer are no longer sufficent, and there is an urgent need for product
diversification resulting in the need for Bancassurance.
A((itio#al Fee-Ba"e( I#&ome The opportunity to augment HFee-Ba"e(
I#&ome! is another alluring factor which has given impetus to the concept of
Bancassurance in India.
It is no longer possible for any financial Institution operating in global;si,ed
market to survive without additional sources of revenues. Banks today are finding
it hard to make money. @arlier banks used to make money from the interest
income4 mainly from the difference in interest rates on what they charged on
advances and those they paid on deposits. The net margin used to be the biggest
contributor to their bottom;line. -rowing market competition, however is weighing
down heavily on bank<s interest rate margin while credit risk is always a ma.or
concern. Banks have no option but to look at new avenues for making money. !s a
result, banks are increasingly looking to Commi""io#" and Fee" from selling
insurance products to supplement their core earnings resulting in a gradual shift
from IF%#(-Ba"e( I#&ome to IFee-Ba"e( I#&ome.
//
Bancassurance In India
NEED FOR INSURER
Cor insurance company it acts as a tool for increasing their IMar3et ,e#etratio#
and I,remi%m T%r#o8erJ
Sti$$ Com6etitio# !t present there are /8 life insurers and /2 general
insurers in India. The 7iberali,ation of the economy resulted in the entry of a
number of private companies into the battlefield resulting in an urgent need to
outwit one another. @ven the 26;year old 7I& started feeling the heat of
competition. %ence to outwit each other and to stay a step ahead there was a
need for a new strategy in the form of Bancassurance.
Hi+h Co"t o$ A+e#t" Insurers have been turning in great numbers to
alternative modes of distribution because of the high costs they have paid for
agency services. These costs became too much of a burden for many insurers
compared to the returns they generate. %ence there was a need felt for
bancassurance as a ICo"t-E$$e&ti8e Di"tri'%tio# channel.
R%ral ,e#etratio# Insurance industry has not been much successful in rural
penetration so far. %owever, Bancassurance could help bridge this gap. The
e*isting wide network of banks in rural areas can be utilised for selling
insurance products. %ence, there was need for bancassurance.
M%lti-Cha##el Di"tri'%tio# Insurers today are trying to gain entry into the
market through various distribution channels. !part from the traditional
agents, there was a need for a 2ell-'ala#&e(, alternative distribution channel.
Insurers started leveraging on multi;channel distribution. !nd, hence aroused
the need for Bancassurance in order to make the most of India5s large
population base and reach out to a worthwhile number of customers.
Tar+eti#+ Mi((le-I#&ome C%"tomer" )ver the last decade, life insurance
agents have sold fewer and larger policies to a more upscale client base.
(iddle;income customers, who comprise the '%l3 o$ 'a#3 &%"tomer", get
little attention from most life agents. By capitali,ing on bank relationships,
insurers will recapture much of this under served market. %ence, to capture
the large database of bank<s middle;income customers, there was a need felt
for Bancassurance.
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Bancassurance In India
BANCASSURANCE .ENTURES MUST HA.E CLEAR
OB1ECTI.ES

I#"%rer" Ba#3"
Be ali+#e( 2ith +oo( ,e#etrate &lie#t 'a"e
,%'li& ima+e o$ 'a#3 F%rther 2ith more 6ro(%&t"
For+e relatio#"hi6 Le8era+e 6o"iti8e ima+e
Earlier i# &%"tomer!" li$e I#&rea"e &%"tomer lo5alt5
Lo2er a&?%i"itio# &o"t"
C%"tomer"


B%5 lo2er-&o"t" 6ro(%&t"
B%5 more 6ro(%&t" $rom a Si#+le "o%r&e
*et 'etter@ more e$$i&ie#t Ser8i&e
/3
Bancassurance In India
BENEFITS OF BANCASSURNCE
Bancassurance is an important tool in the hands of Bankers, Insurers and
&ustomers to ma*imi,e their benefits at the same time, as everybody is a winner in
this system.
The Ba#&a""%ra#&e Co#&e6t I" So /ell De"i+#e( That@


HEAD BANK /INS TAIL INSURER /INS

!nd If The &oin %ad ! Third Side Truly :e &an Say That The C%"tomer Al"o
/i#"7 Thus, it is /i#-/i# situation for all.

Th%"@ The Be#e$it" O$ Ba#&a""%ra#&e Ca# Be Co#"i(ere( From The Follo2i#+
,oi#t O$ .ie2
17 Benefit To Banks
)7 Benefit To Insurers
97 Benefit To &ustomers.

/2
Bancassurance In India
BENEFITS TO BANKS
There Are Si+#i$i&a#t A(8a#ta+e" To Ba#3" ,arti&%larl5 I# The Li+ht
O$ The Cha#+i#+ I#tere"t S&e#ario O$ Ba#3i#+ I# I#(ia7 The5 Are
Fee-Ba"e( I#&ome Cor banks, Bancassurance would mean a ma.or gain.
Since interest rates have been falling and profit on off take of credit has been
low, all banks have been able to do is sustain themselves but not profit much.
%ence the banks today have shifted their focus from F%#(-'a"e( revenue
(loans E advances to Fee-'a"e( income. @nter bancassurance and fee based
income through hawking of risk products would be guaranteed, thus giving an
additional boost to the banks bottom line. E<am6le There are about /6
crore bank accounts. 7et<s assume a bank sells one insurance policy to each of
these account holders over a period of five years. Take a highly conservative
average first year premium per policy of Rs.8###, and an average commission
of /8> that banks would garner. Banks can earn a total commission of
Rs./3,8##cr (going by a simple back;of;the;envelope calculation+ Rs.8###K
/8> K /6 cr accounts L Rs./3,8## cr in commission
I#&rea"e( Ret%r# O# A""et" :ROA; )ne of the ways to increase R)!,
assuming a constant asset base, is through fee income. Banks that build fee
income can cover more of their operating e*penses. The sale of insurance
products builds fee income. Banks that effectively cross;sell financial
products can leverage their distribution and processing capabilities for
profitable operating e*pense ratios.
I#&rea"e" Sta$$ ,ro(%&ti8it5 Bancassurance gives an opportunity to the
bank staff to harness their sales skills and adapt to the changing business
environment. Selling of insurance products provides bank employees with
new challenges and enhanced skills thus improving their productivity and
efficiency.
,ro$ita'ilit5 Bancassurance provides financial benefits in the form of
commissions, profits from new business, bank<s fi*ed cost reduction, and
increases the staff productivity. Thereby resulting into profits.
E<am6le 7I& distributed over Rs.9### crores as commission to agents
every year. If banks succeeded in capturing /#> of it, it would mean a
revenue of Rs.9## crores.
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Bancassurance In India
E#ha#&e" C%"tomer Relatio#"hi6 Bancassurance results in high customer
relationship with the bank by providing more services. It seeks C%"tomer
Lo5alt5 by offering satisfactory and e*panded base for services. Selling
whole range of financial services to clients increases C%"tomer Rete#tio#7
Creati#+ A U#i8er"al Ba#3i#+ ,lat$orm + Bancassurance offers a good
opportunity to increase the bank<s share of the customers re?uirements
through the cross;selling of insurance products. !ll financial products are
available under one roof, thereby facilitating convergence. Bancassurance
helps banks to become one step closer to be O#e-Sto6 Fi#a#&ial
S%6ermar3et7
I#&rea"i#+ The C%"tomer Ba"e + Banks can garner fresh business by using
insurance as a selling hook.
BENEFITS TO INSURER
Bancassurance provides a complete package of solutions to the insurer<s
needs. The Be#e$it" Are
Chea6er Tha# A+e#t" Bancassurance may work out to be cheaper compared
to companies appointing agents for selling insurance products. This is
particularly considering the banks< wide network and the reach they have
compared to the agents.
R%ral ,e#etratio# The e*isting wide network of banks in rural areas can be
utili,ed for selling insurance products. =enetration into the rural areas too
becomes easier for banks. This channel allows an insurer to effectively tap the
r%ral "e&tor. Selling insurance through traditional methods in rural area is an
e*pensive proposition. ! tie up with a bank allows an insurance company to
access large customer base at a low cost.
Co"t-Re(%&tio# Studies reveal that 8#> of an insurance company<s cost is
directly or indirectly related to distribution. @*penses ratio in insurance
activities through bancassurance is very low.
/1
Bancassurance In India
E<am6le SBI Li$e finds that this channel saves as much as =AB of their
operating cost when compared to business procured through their own regular
agents.
Mar3et ,e#etratio# :ide network of branches form the ideal distribution
channel. Brban as well as rural both markets are tapped simultaneously. Banks
have an established distribution network of more than 16,### branches spread
throughout the country. This enables the Insurance companies to enhance their
+eo+ra6hi&al rea&h without any additional cost by utili,ing this e*isting
network.
Re(%&e( Relia#&e O# Tra(itio#al A+e#t" + Insurance companies now have
an alternative distribution channel. They can achieve geographical reach
rapidly without the need to build up a network of agents. Bancassurance acts
as a source of new business to reach wiser customer base with the help of a
bank.
Tar+eti#+ Mi((le-I#&ome C%"tomer" Through agents the insurer can only
sell fewer and large policies to a more up scale client. The middleclass income
holders who comprise the bulk of bank customers get very little attention. By
using bancassurance channel the insurer can capture much of its underserved
market.
Fa&ilitate" *ro2th Reduced costs and high premium turnover results in
profitability, thereby facilitating growth of the Insurance co.
E<am6le Ba0a0 Allia#C has witnessed a 38#> growth due to
Bancassurance
I#&rea"e" ,remi%m T%r#o8er The insurer can increase their volume of
business through banking distribution channel and gain better. Tap into the
huge and high net worth customer base of banks. !lso, on an average an
insurance advisor in the bank is able to sell insurance product D-E times higher
than an insurance agent.
E<am6le ,7Na#(a+o6al o$ Birla S%#li$e 2a" ?%ote( a" "a5i#+ The
average si,e of the policy for the agency channel is Rs./0,8## per policy and
for bancassurance it is Rs 30,### per policy.
/9
Bancassurance In India
,ro8i(e" Com6etiti8e A(8a#ta+e =rovides &om6etiti8e A(8a#ta+e over
the non;bancassurers. %aving been accustomed to the customer<s choices,
banks are in a better position to understand the needs of the customers and sell
tailor made policies. &ustomers too, considering their long;standing
relationship with banks, find them more trustworthy.


BA NCAS
SURERS NON-
BANCASSURERS
/6
Bancassurance In India
BENEFITS TO CUSTOMERS
A8aila'ilit5 O$ A Com6lete ,a&3a+e &ombined bank and insurance
products will find Com6lete Sol%tio# to the customers7 Banks and Insurance
companies are converging towards a model of global retail financial
institution offering a wide array of products. It leads to the creation of O#e-
Sto6 Sho6 where a customer can apply for mortgages, pensions, savings and
insurance products.
Re(%&e( Co"t" + Bancassurance gives the insurance company the benefit of
cost;effective distribution channel, the benefit ultimately passing on to the
customers in way of reduced premiums. The customer gains as the costs are
reduced.
*oo( F%alit5 ,ro(%&t =roduct innovation and distribution activities are
directed towards the satisfaction of the needs of the customer. Since banks
can understand the needs of the customers in a better way, the customer gets a
good ?uality product. !lso, he gets the advantage of a &%"tomiCe( product as
per his need and re?uirements.
Time Sa8i#+" 4 Co#8e#ie#&e The customers can get risk coverage at bank
itself which saves time and adds to the customer<s convenience. The ease of
renewals adds to the customer<s comfort. The customer can obtain a basket of
products under one roof.
/0
Bancassurance In India
BANCASSURANCE A S/OT ANALYSIS
Banking and Insurance are very different businesses. The latter has a
greater risk and hence is a more capitali,ed one. (oreover, the two have
different time hori,ons, with life insurance in particular, focusing on the
long run. !lso Bankers and Insurers come from diametrically opposite
work cultures where the former are accustomed to ,%ll type of
environment; meaning dealing with walk in customers, the latter are
trained to go out and solicit customers; the so;called ,%"h marketing
techni?ue.
%owever. @very coin has two sidesM similarly4 Bancassurance
enables banks and insurance companies to complement each other<s
strengths as well. Thus, combining the two to create greater value, indeed,
whether the model will be successful, are debatable ?uestions.
It is therefore essential to have a S:)T analysis done in the conte*t
of bancassurance e*periment in India. ! S:)T !nalysis of
Bancassurance is given below+
"#
Bancassurance In India
STREN*THS
Ba#&a""%ra#&e S&ore" O8er The Other I#"%ra#&e Di"tri'%tio# Cha##el"
O# A&&o%#t O$ The Follo2i#+ Rea"o#"
Banks have &re(i'ilit5 established and en.oy a wide network of branches even
in remotest areas.
Banks en.oy 6ri(e o$ 6la&e in the hearts of people because of their long
presence and sustained image.
Banks understand r%ral 6"5&holo+5 because of their incessant interaction with
the public and fle*ibility of approach.
Inspite of the hype created regarding total branch mechani,ation (TB( and
full computeri,ation of branches, this is mostly in metro and urban centers. The
rural and semi;urban branches still function using traditional ma#%al
o6eratio# systems.
The bankers have a branch network to make $a&t to $a&e &o#ta&t with the
customers and a great deal of trust over the customers.
Indian banks have built fairly intimate ties with customers by effectively
leveraging the Indian propensity of tr%"t i# 'a#3i#+. Such customer bases
offer an e*citing opportunity of reaching potential life insurance buyers at
relati8el5 lo2 &o"t7
!s banks understand customer<s needs, deliver trusted advice and create lasting
value, they are strategically positioned to &ro""-"ell various products to their
customers because of their e*tensive branch network, use of their lo#+-
"ta#(i#+ relatio#"hi6 with both corporate and retail customers.
Though 7ife as well as -eneral Insurance products can be marketed through
bancassurance, life insurance selling has been preferred by many perhaps as
>"a8i#+"! is a common factor.
"/
Bancassurance In India
/EAKNESS
I# I#(ia@ Ba#&a""%ra#&e Nee(" To Ta&3le /ith The Follo2i#+ Limitatio#"
La&3 O$ Net2or3i#+ In spite of growing emphasis on total branch
mechani,ation (TB( and full computeri,ation of bank branches, the rural
and semi;urban banks have still to see information technology as an enabler.
&omplete integration of branch network involves huge investments for
creating IT and communication infrastructure. The IT culture is unfortunately
missing completely in all of the future collaborators i.e. banks, -I& E 7I&.
@lementary IT re?uirement like networking (7!' is not in place even in the
head?uarters of these institutions, when the need today is of :ide !rea
'etwork (:!' and Nast !rea 'etwork (N!'. Internet connection is not
available even to the managers of operating offices.
Lo2 Sa8i#+" Rate Though we have a huge market for insurance policies,
the middle class who constitutes the bulk of this market is today burdened,
first by inflationary pressures on their pockets and then by the ta* net. The
ability to save is very nominal.
La&3 O$ A++re""i8e Sale" C%lt%re Insurance is never bought, it has to be
sold.J It simply implies that insurance selling needs an aggressive sales
culture, which bank employees in India are yet to be familiari,ed with as
much as they are with counter;based selling.
Trai#i#+ I""%e" To undertake the distribution of the insurer<s products on
as;is;where;is bases, the bank employees have to undergo certain minimum
period of training , followed by a test and get themselves licensed. Cor bank
employees, especially in public sector banks, having a hi+her a+e 6ro$ile, it
becomes an onerous task.
C%lt%ral Di$$ere#&e" There may be differences in the way of thinking and
business approaches of bankers and managers of insurance companies. These
differences can create a communication and implementation problem in
bancassurance operations. Banks are traditionally I(ema#(-(ri8e#
organi,ations with a reactive selling philosophy4 Insurance organi,ations are
usually I#ee(-(ri8e#J and have an aggressive selling philosophy
""
Bancassurance In India
O,,ORTUNITIES
!lthough banks and insurance companies are yet to e*change their wedding
rings, Bancassurance is already in some form in India. Banks are selling personal
accident and baggage insurance for its credit card members, issued mortgage linked
insurance products like fire, motor or cattle insurance to their customers and
establishing face to face relationship with their customers by leveraging their
e*isting capabilities.
The O66ort%#itie" For Ba#&a""%ra#&e Ca# Be Di"&%""e( A" Belo2
In a country of 1 Billio# 6eo6le, sky is the limit for insurance products. !fter
discounting the population below poverty line the middle market segment is the
second largest in the world after &hina. The insurance companies worldwide
are eyeing on this, why not tap this market ourselves.
There is a vast untapped potential waiting to be mined particularly for li$e
i#"%ra#&e 6ro(%&t". There are more than GAA (illion lives waiting to be given
a life cover.
There are about )AA (illion households waiting to be approached for a
ho%"ehol(erH" i#"%ra#&e policy.
(illions of people traveling in and out of India can be tapped for O8er"ea"
Me(i&laim and Tra8el I#"%ra#&e policies.
In urban and metro areas, where affluent customers clamor for many services
like lockers and safe deposit systems, there is a good opportunity to market
many property related general insurance policies like $ire i#"%ra#&e@ '%r+lar5
i#"%ra#&e a#( me(i-&are i#"%ra#&e.
&ommercial entities and corporates en.oying various banking facilities may be
advised to opt for >Ke5 ,er"o#! insurance to cover their downside risk.
Banks in their normal course of functions lend finance in the form of loans for
cars, or for buying a house to clients. They can &ro"" "ell insurance products
and combine it as a package.
"3
Bancassurance In India
In most cases of corporate accounts, banks take up the activity of salary
disbursement of employees, and offering personal loan facilities. %ere, gives an
opportunity to provide insurance cover as well
Th%"@ The Ma0or O66ort%#itie" I# Ba#&a""%ra#&e Ca# Be 1otte( A" Follo2"
/. Fi#a#&e a#( Re6a5me#t ,ro(%&t" These products help in covering the loss
to the financial Institutes, who grant loans and credit to the individuals, in case
of disability or death of the borrower. The products that fall in this category
are &redit insurance, )verdraft Insurance and &apital Repayment Insurance.
". De6o"itor!" ,ro(%&t" These products offer insurance coverage to the
depositor based on the bank balance in his account. $epositor<s products
includes $epositors Insurance, Bank Saving =lan, =ure Investment =roducts
3. Sim6le Sta#(ar(iCe( ,a&3a+e ,ro(%&t" These products provide combined
risk cover and cost less to customers if brought individually. These are sold
)ver;The;&ounter by the banks. These include -roup =olicies.
2. Other ,ro(%&t" $epending on the age group and economic status, other
suitable policies can be recommended such as +
:hole 7ife
!ccident and Sickness
%ospitali,ation
=ension
@ndowment
Bnit;7inked
Term Insurance
Camily Income Benefit
:aiver;of;premium benefit
=ermanent Total $isability Benefit
Income Replacement Benefit
"2
Bancassurance In India
THREATS
No#-Re"6o#"e From The Tar+et *ro%6" !nother possible threat may
come from non;response from the target customers. This happened in USA in
1GIA" after the enactment of St -ermaine !ct. ! rush of .oint ventures took
place between banks and insurance companies and all these failed due to the
non;response from the target customers.
H%ma# Re"o%r&e Challe#+e" Success in bancassurance venture re?uires a
change in mindset. Though we have a large talent pool, the inability to sell
comple* insurance products on the part of bank professionals and their
reluctance to learn can be severe setback. There has to be a change in the
thinking, approach and work culture.
I#ter$ere#&e /ith Ba#3!" ,ro(%&t" Insurance in India is perceived more as
a "a8i#+" o6tio# than providing risk cover. %ence, there is a feeling among
bank employees that it could eat into the sales of regular bank saving
products. !lso, selling of investment cum risk oriented products through
banks may adversely affect the FD 6ort$olio of the bank.
O66o"i#+ Ri"3 Ma#a+eme#t C%lt%re" The downside of mi*ing banking
and insurance activities is likely to result in a clash between opposing risk
management cultures i.e. in banking, risk management is dominated by
concerns about asset ?uality, while the principal source of concern in
insurance is behavior of liabilities. -iven such different management
approaches, coming together of banking and insurance may increase
operational risk at both the establishments.
Re6%tatio#al Co#ta+io# There would be a problem of Re6%tatio#al
Co#ta+io#! i.e. loss of market confidence towards one in a conglomerate
leading to loss of confidence on the other because of identical brand
recognition, similar management and consolidated financial reporting etc.

"8
Bancassurance In India
DISTRIBUTION CHANNEL

A*ENTS

Insurance &ompany appoints agent to sell their product they are also known
as financial consultant. They give face to face publicity. This C& reaches directly to
individual to sell the companies policies. They help to improve the financial security
of the individual on behalf of the company.
BANKS

It is the new marketing strategy started since last " years. Insurance
companies has tie ups with various banks to sell their products which is known as
Bancassurance. It helps in creating high network clients. It creates awareness
amongst various customers of the banks.
COR,ORATE A*ENTS

They are appointed by insurance company to sell the policies to corporate
clients. They are also known as brokers.
"1
A+e#t"
:FC;
Ba#3"
:Ba#&a""%ra#&e
;
Cor6orate a+e#t"
:Bro3er";
Di"tri'%tio# &ha##el"
Bancassurance In India
INDIAN SCENARIO
Immediately after the opening up of the Indian insurance sector from the
hold of the government insurance companies, the activity has fueled up. :hat
remained as a strong hold for the government owned insurance companies is
immediately under threat. In less than one year, private insurance companies are
eager to board the bandwagon of Bancassurance. @yeing the lucrative market of
insurance in India ma.ority of banks from both public and private sector are forming
alliances with either the sector insurance companies or with new private insurers to
take advantage of huge untapped potential.
Some O$ The Ba#&a""%ra#&e Tie-%6" i# I#(ia Are
LIFE INSURANCE
COM,ANY
BANKIN* ,ARTNER
%$C& Standard 7ife Insurance &o. 7td. Bnion Bank )f India, Indian Bank, %$C&
Bank.
I&I&I =rudential 7ife Insurance &o 7td. 7ord Orishna Bank, I&I&I Bank, Bank of
India, &itibank, !llahabad Bank, Cederal
Bank, South Indian Bank, and =un.ab and
(aharashtra &o;operative Bank
Birla Sun 7ife Insurance &o. 7td. Bank of Ra.asthan, !ndhra Bank, Bank of
(uscat, $evelopment &redit Bank,
$eutsche Bank and &atholic Syrian Bank,
Oarur Nysya Bank 7td
SBI 7ife (et 7ife India Insurance &o.
7td.
SBI, B'= =aribas
Oarnataka Bank, $hanalakshmi Bank and
AEO Bank
!NIN! life Insurance &anara Bank, 7akshmi Nilas Bank,
!merican @*press Bank and !B' !(R)
Bank
"9
Bancassurance In India
NON-LIFE INSURANCE
COM,ANY
BANKIN* ,ARTNER
Ba.a. !llian, -eneral Insurance &o.
7td.
Oarur Nysya Bank and 7ord Orishna Bank,
=un.ab E Sind Bank
'ational Insurance &o. 7td. &ity Bnion Bank, Ni.aya Bank
Royal Sundaram -eneral Insurance
&ompany
Standard &hartered Bank, !B' !(R)
Bank, &itibank, !me* and Repco Bank.
Bnited India Insurance &o. 7td. South Indian Bank, =un.ab 'ational Bank,
!ndhra Bank, $hanalakshmi Bank, Indian
Bank
'ew India !ssurance &o 7td. Bnion Bank )f India, SBI, &orporation
Bank, and Bnited :estern Bank.
"6
Bancassurance In India
THE FUTURE OF BANCASSURANCE
!lthough Bancassurance ventures in 7atin !merica and !sia have
followed different paths, they share the same ob.ectives and re?uirements
for success. !ll recogni,e the value of the bank<s customer base.
Bancassurance will eventually take hold in the BS. The ob.ectives
announced when Bank )ne ac?uired Purich Insurance )peration point to
bancassurance as a fundamental reason behind the ac?uisition.
@*periences in both 7atin !merica and !sia may prove valuable to banks
and insurers entering into Bancassurance ventures in the BS and
elsewhere.
India has already more than "## million middle class population
coupled with vast banking network with largest depositors base, there is
greater scope for use of bancassurance. In emerging markets, new entrants
have successfully employed bancassurance to compete with incumbent
companies.
"0
Bancassurance In India
SCO,E FOR BANCASSURANCE IN INDIA
By now, it has become clear that as economy grows it not only
demands stronger and lively financial sector but also necessitates to
provide with more sophisticated and variety of financial and banking
products and services. Orueger ("##2 pointed out that the history of the
'orth !merica is a case in reference of one of financial growth and
deepening in tandem with economic growth. !s India is being considered
one of the developing countries among the @merging market economies,
financial sector has also developed much vibrant with the financial
reforms.
Significantly, Indian financial system has recorded an average
growth of over 6.8 per cent for the last four years, with macroeconomic
and financial stability (RBI, "##1 and indications are that it may grow
at even improved rate in the near future provided there is good
monsoon. @*perience also showed that economic growth had
powerfully supported the e*pansion of middle income class in most of
the !sian countries, and now it is the turn of India. @*perience reveals
that at the early growing stage of the economy the primary financial
needs are met by the banking system and thereafter as the economy
moves on to advanced pedestal, the need for the other non;banking
financial products including insurance, derivatives, etc., were strongly
felt. (oreover, as India has already more than "## million middle class
populations coupled with vast banking network with largest depositor<s
base, there is larger scope for use of Bancassurance. Cor instance as at
end (arch "##8, there were more than 211 lakh bank accounts with
scheduled commercial banks. It is worth being noted that, Swiss Re
("##" in its study on !sia pointed out that bancassurance penetration
is e*pected to tangibly increase in !sia over ne*t 8 years and this has
been greatly proved.
3#
Bancassurance In India
FUESTIONNAIRS
:1; /HAT IS BANCASSURANCEJ
A#"7 Bancassurance is the distribution of insurance products through a bank5s own
distribution channels. Bancassurance offers convenience, risk diversion and financial
advisory services with the availability of different product ranges for its bank clients
according to their needs.

:); HO/ DOES BANCASSURANCE /ORKJ
A#"7 The success of Bancassurance has been limited to life insurance mostly,
primarily because of the matching of banking products with the personal financial
needs of individuals and families.
:9; /HAT ARE THE CHALLEN*ES FACE BY THE BANKSJ
A#"7 =rivate sector insurance firms are finding Hchange management< in the public
sector, a ma.or challenge.
:=; /HAT ARE THE ,RODUCT OFFERS BY BANKJ
A#"7 =roduct offered by bank are as follows+
(/ SBI 7ife Q Bnit =lus &hild =lan
(" SBI 7ife Q 7ifelong pensions
(3 SBI 7ife Q Swadhan
(2 SBI 7ife Q !nnuity
:D; /HAT IS THE MAIN MOTI.E OF ,OLICYHOLDRS FOR TAKIN* AN
INSURANCE ,OLICYJ
A#"7 There was mi*ed response from the customer. The reason like saving ,
security, brand image of bank, brand image of insurance.
:E; DO YOU THINK BANCASSURANCE HAS A *OOD FUTUREJ
A#"7 Res. Bancassurance has a good future because there is an immense potential
for the insurance industry in India.
:K; /HY SHOULD BANKS ENTER INSURANCEJ
A#"7 There are several reasons why banks should seriously consider
Bancassurance, the most important of which is increased Ret%r# o# A""et" :ROA; .
)ne of the best ways to increase R)!, assuming a constant asset base, is through
fee income. Banks that effectively &ro""-"ell $i#a#&ial 6ro(%&t" can leverage their
distribution and processing capabilities for profitable operating e*pense ratios.
3/
Bancassurance In India
CONCLUSION
In India the bancassurance model is still in its #a"&e#t "ta+e", but
the tremendous growth and acceptability in the last three years reflects
+ree# 6a"t%re i# $%t%re7 :ith almost half of the population likely to be
in the H2a+e ear#erH 'ra&3et '5 )A1A, there is every reason to be
o6timi"ti& that bancassurance in India will play a long inning.
$uring the pro.ect, I came to know the role that Bancassurance
plays in the Banking E Insurance sector. Before I started this pro.ect, I
only had a brief idea of this concept, but during my pro.ect due to
interaction with several Bankers and Insurers, I reali,ed what this concept
actually meant. !lso interaction with several customers made me reali,e
the present position of Bancassurance. . I can now firmly and proudly say
that every ob.ective that I had laid in mind for this =ro.ect is met to its
fullest e*tent.
I am also confident that though Bancassurance is not being utili,ed
to its full potential, it surely has a bright future. :e are at the threshold of
a significant change in the way insurance in the country is poised to be in
the days to come and we would be catalysts of this change, as Insurance
Sector will take greater leaps in near future. Bancassurance will definitely
play a defining role as an alternative distribution channel and will &ha#+e
the 2a5 i#"%ra#&e i" "ol( i# I#(ia. Riding the wave of convergence,
banks will ideally be positioned to capture consumer data and hence,
provide the best of services to the customers.
The bridge has been reached and many are beginning to walk those
cautious steps across it. Bancassurance in India has .ust taken a flying
start. It has a long way to goMM after all The SKY IS THE LIMIT L
3"
Bancassurance In India
BIBLIO*RA,HY
2227ir(a7&om
2227h($&i#"%ra#&e7&om
I#"%ra#&e C%"tomer Ser8i&e M K7B7S K%mar7

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