INTRODUCTION

1 .4 LIMITATIONS OF THE STUDY

 Time has played a biggest constraint that the research could not be carried
out comprehensively as the duration of the study was only 4 months.

 As the research contains the Secondary data for making a financial

analysis the accuracy and reliability of the analysis depends on reliability
of figures derived from financial statements.

 The sample size for collecting the primary data was meager as it includes
only 100 respondents, hence the conclusion would not be a universal one.

 Personal biases and prejudices of the customers may also affect the study.

Inspite of the limitations, the study was effective in analyzing the

performance of HDFC bank in bancassurance with specific reference to life
insurance.

25
 INDUSTRY PROFILE

Banks are among the main participants of the financial system in India.
Banks in India can be categorized into non-scheduled banks and scheduled
banks. Scheduled banks constitute of commercial banks and co-operative banks.
In terms of ownership, commercial banks can be further grouped into nationalized
banks, the State Bank of India and its group banks, regional rural banks and
private sector banks (the old/ new domestic and foreign).

During the first phase of financial reforms, there was a nationalization of

14 major banks in 1969. This crucial step led to a shift from Class banking to
Mass banking. Since then the growth of the banking industry in India has been
a continuous process. It has become an important tool to facilitate the
development of the Indian economy.

During the second phase of reforms, in the early 1990s, the then
Narasimha Rao government embarked on a policy of liberalisation and gave
licences to a small number of private banks, which came to be known as New
Generation tech-savvy banks, which included banks such as UTI Bank(now re-
named as Axis Bank) (the first of such new generation banks to be set up), HDFC
Bank andICICI Bank. This move, along with the rapid growth in the economy of
India, kickstarted the banking sector in India, which has seen rapid growth with
strong contribution from private banks and foreign banks.

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public

sector banks (that is with the Government of India holding a stake), 29 private
banks (these do not have government stake; they may be publicly listed and
traded on stock exchanges) and 31 foreign banks. They have a combined network
of over 53,000 branches and 17,000 ATMs. According to a report by ICRA
Limited, a rating agency, the public sector banks hold over 75 percent of total
assets of the banking industry, with the private and foreign banks holding 18.2%
and 6.5% respectively. There are 70324 bank offices in India and each bank
office serves around 16000 people. It’s a huge banking infrastructure and
among best banking network in world.

Current scenario:

As far as the present scenario is concerned the banking industry is in a

transition phase. The Public Sector Banks, which are the mainstay of the Indian
Banking system account, are unfortunately burdened with excessive Non
Performing assets massive manpower and lack of modern technology. while on
the other hand the private sector banks are consolidating themselves through
mergers and acquisitions.

On the other hand the Private Sector Banks in India are witnessing
immense progress They have pioneered Internet banking, mobile banking, phone
banking, ATMs. etc., They are forging ahead and rewriting the traditional banking
business model by way of their sheer innovation and service.

The banks today are more market driven and market responsive. The
top concern in the mind of every bank's CEO is increasing or at least
maintaining the market share in every line of business against the backdrop of
heightened competition. With the entry of new players and multiple channels,
customers have become more discerning and less "loyal" to banks. This makes
it imperative that banks provide best possible products and services to ensure
customer satisfaction. To address the challenge of retention of customers, there
have been active efforts in the banking circles to switch over to customer-
centric business model. The success of such a model depends upon the approach
adopted by banks with respect to customer data management and customer
relationship management.
 There has been an increase in the bank focus on retail segment with the
economic slow down. Retail banking has become the new mantra for banking
industry. Banks are now realizing that one of their best assets for building
profitable customer relationships especially in a developing country like India is
the branch. Branches are in fact a key channel for customer retention and profit
growth in rural and semi-urban set up.. Branches could also be used to inform and
educate customers about other, more efficient channels, to advise on and sell new
financial instruments like consumer loans, insurance products, mutual fund
products, etc.

Thus, all the above led to the practice of bancassurance. The Reserve
Bank of India being the regulatory authority of the banking system, with the
reorganization of the need for banks to diversify their activities at the right time,
permitted them to enter into insurance sector as well. It has issued a set of
detailed guidelines setting out various ways for a bank in India to enter into
insurance sector.

IRDA has also felt the necessity of introducing an additional channel of

distribution, which is the Bancassurance to reach out more people. It started
picking up after Insurance Regulatory and Development Authority (IRDA) passed
a notification in October 2002 on 'Corporate Agency' regulations.

Legal Requirements: 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. Each of the regulators has given out detailed guidelines for
banks getting into insurance sector. Highlights of the guidelines are reproduced
below:

RBI guideline for banks entering into insurance sector provides three options for
banks. They are:
  Joint ventures will be allowed for financially strong banks wishing to
undertake insurance business with risk participation;
 For banks which are not eligible for this joint-venture option, an
investment option of up to 10% of the net worth of the bank or Rs.50
crores, whichever is lower, is available;
 Finally, any commercial bank will be allowed to undertake insurance
business as agent of insurance companies. This will be on a fee basis with
no-risk participation.

The Insurance Regulatory and Development Authority (IRDA) guidelines for the
bancassurance are:

 Each bank that sells insurance must have a chief insurance executive to
handle all the insurance activities.
 All the people involved in selling should under-go mandatory training at
an institute accredited by IRDA and pass the examination conducted by
the authority.
 Commercial banks, including cooperative banks and regional rural banks,
may become corporate agents for one insurance company.

 Banks cannot become insurance brokers.

Currently there has been an increase in the number of tie-ups with banks and
insurance companies. Some of the models practiced by the banks in India are I)
Referral model ii) Corporate agency model iii) Insurance as a fully integrated
model etc.,
 TABLE 1.1: SOME OF THE BANCASSURANCE TIE-UPS IN INDIA
Insurance Company Bank
Bank of Rajasthan, Andhra Bank, Bank of Muscat,
Birla Sun Life Insurance Co. Ltd. Development Credit Bank, Deutsche Bank and Catholic
Syrian Bank
Dabur CGU Life Insurance Canara Bank, Lakshmi Vilas Bank, American Express
Company Pvt. Ltd Bank and ABN AMRO Bank
HDFC Standard Life Insurance Co. HDFC bank, Union Bank of India, Indian bank, saraswat
Ltd. bank.
Lord Krishna Bank, ICICI Bank, Bank of India,
ICICI Prudential Life Insurance Co
Citibank, Allahabad Bank, Federal Bank, South Indian
Ltd.
Bank, and Punjab and Maharashtra Co-operative Bank.
Corporation Bank, Indian Overseas Bank, Centurion
Bank, Satara District Central Co-operative Bank, Janata
Life Insurance Corporation of India
Urban Co-operative Bank, Yeotmal Mahila Sahkari
Bank, Vijaya Bank, Oriental Bank of commerce.
Met Life India Insurance Co. Ltd. Karnataka Bank, Dhanalakshmi Bank and J&K Bank
SBI Life Insurance Company Ltd. State Bank of India
Bajaj Allianz General Insurance Co.
Karur Vysya Bank and Lord Krishna Bank
Ltd.
Royal Sundaram General Insurance Standard Chartered Bank, ABN AMRO Bank, Citibank,
Company Amex and Repco Bank.
United India Insurance Co. Ltd. South Indian Bank

Thus, the present day banks are more diversified than ever before. They
cannot restrict themselves to traditional banking. As bancassurance prospects in
India are brighter that banks in India can make use of the situation to gain
profitable business venture.

COMPANY PROFILE

About HDFC BANK:

 HDFC bank was incorporated in August 1994 in the name of 'HDFC
Bank Limited', with its registered office in Mumbai, India. The Housing
Development Finance Corporation Limited (HDFC) was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a
bank in the private sector, as part of the RBI's liberalization of the Indian Banking
Industry in 1994.It commenced operations as a Scheduled Commercial Bank on
16th January 1995. The bank has grown consistently and is now amongst the
leading players in the industry.

In a milestone transaction in the Indian banking industry, Times

Bank Limited (another new private sector bank promoted by Bennett, Coleman &
Co./Times Group) was merged with HDFC Bank Ltd., effective February 26,
2000. The acquisition added significant value to HDFC Bank in terms of
increased branch network, expanded geographic reach, enhanced customer base,
skilled manpower and the opportunity to cross-sell and leverage alternative
delivery channels. The Bank at present has an enviable network of over 746
branches spread over 329 cities across India. All branches are linked on an online
real-time basis. Customers in over 120 locations are also serviced through
Telephone Banking. The Bank's expansion plans take into account the need to
have a presence in all major industrial and commercial centers where its corporate
customers are located as well as the need to build a strong retail customer base for
both deposits and loan products. The Bank also has a network of about over1647-
networked ATMs across these cities. Moreover, all domestic and international
Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express
Credit/Charge cardholders can access HDFC Bank’s ATM network.

Vision:
To build a World-Class Indian Bank.
 Mission:

Use Enabling Technology to provide value added products and

services to customers. The objective is to build sound customer franchises across
distinct businesses so as to be the preferred provider of banking services for target
retail and wholesale customer segments, and to achieve healthy growth in
profitability, consistent with the bank’s risk appetite. The bank is committed to
maintain the highest level of ethical standards, professional integrity, corporate
governance and regulatory compliance.
Values:

HDFC Bank’s business philosophy is based on four core values –

 Operational Excellence

 Customer Focus

 Product Leadership

 People

Capital:

The authorized capital of HDFC Bank is Rs.450 crore (Rs.4.5 billion).

The paid-up capital is Rs.311.9 crore (Rs.3.1 billion). The HDFC Group holds
22.1% of the bank's equity and about 19.4% of the equity is held by the ADS
Depository (in respect of the bank's American Depository Shares (ADS)
Issue). Roughly 31.3% of the equity is held by Foreign Institutional Investors
(FIIs) and the bank has about 190,000 shareholders. The shares are listed on
the Stock Exchange, Mumbai and the National Stock Exchange. The bank's
American Depository Shares are listed on the New York Stock Exchange
(NYSE) under the symbol "HDB".

Management:
 Mr. Jadish Capoor took over as the bank's Chairman in July 2001. Prior
to this, Mr. Capoor was a Deputy Governor of the Reserve Bank of India. The
Managing Director, Mr. Aditya Puri, has been a professional banker for over
25 years, and before joining HDFC Bank in 1994 was heading Citibank's
operations in Malaysia

The Bank's Board of Directors is composed of eminent individuals with

a wealth of experience in public policy, administration, industry and
commercial banking. Senior executives representing HDFC are also on the
Board. Senior banking professionals with substantial experience in India
and abroad head various businesses and functions and report to the
Managing Director. Given the professional expertise of the management team
and the overall focus on recruiting and retaining the best talent in the industry,
the bank believes that its people are a significant competitive strength.

Awards received: The bank has received many awards to its credit, 'Best
Local Bank in India - 2003' by Finance Asia, 'Best Domestic Bank in India
Region' in The Asset Triple A Country Awards 2003. Apart from this, the bank
has rated 'Best Bank in India in 2003' by Business Today, 'Best Bank in the
Private Sector' for the year 2003 in the Outlook Express Awards, 'Best New
Private Sector Bank 2003' by the Financial Express in the FE-Ernst &
Young Best Bank's survey 2003. It was also figured in the 'Best Under a
Billion, 200 Best Small Companies for 2003' by Forbes Global. For use of
information technology the bank was awarded with 'Best IT user in
Banking' at the IT User Awards 2003 conferred by Economictimes.com
&Nasscom. The bank has also been poured by several awards during the FY
2005-06, which includes one received from ‘Business Today’, which rated the
bank as ‘Best Bank in India’. Asia money awards selected the Bank as 'Best
Domestic Commercial Bank', 'Best Domestic Provider for Local Currency
Products' and 'Best Cash Management Bank-India'. Hong Kong-based Finance
Asia Magazine selected the Bank as 'Best Bank in India'. The Asset Magazine
 named the Bank 'Best Cash Management Bank' and 'Best Trade Finance
Bank' in India, in 2006. The Economic Times - Avaya Global Connect
Customer Responsiveness Awards 2005 named the Bank 'Most Customer
Responsive Company - Banking and Financial Services'. The Bank has also
been named 'Best Domestic Bank in India' in The Asset Triple A Country
Awards 2005. During 2006-07, the Bank was selected as the 'Best Bank in
India' by the Business Today Magazine for the Fourth consecutive year.
Forbes magazine named the Bank as 'One of Asia Pacific's Best 50
companies'. The Bank was named as the 'Best Listed Bank of India' by the
Business world magazine. The Bank was named as the 'Best Listed Bank of
India' by the Businessworld magazine. The Bank was selected as the Best
Domestic Bank at The Asset Magazine's Triple A Country Awards.

Business Areas:

The bank has three key business areas:

1. Wholesale Banking Services: Here, the bank’s target market is primarily

large, blue chip companies and to a lesser extent, emerging mid-sized corporate.
For these corporates, HDFC bank provide a wide range of services, including
working capital finance, trade services, transactional services, cash
management, etc. They are a leading provider of structured solutions, which
combine cash management services with vendor and distributor finance, for
facilitating superior supply chain management for our corporate customers. They
are also recognized as a leading provider of cash management and
transactional banking solutions to mutual funds, stock exchange members and
banks.

2. Retail Banking Services: The objective of the Retail Bank is to provide the
target market customers a full range of financial products and banking
services, giving the customer a one-stop window for all his/her banking
requirements. The products are backed by world-class service and delivered to