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Bancassurance applied @ sbi project report mba finance

Bancassurance applied @ sbi project report mba finance

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    Bancassurance  applied @ sbi project report mba finance Bancassurance applied @ sbi project report mba finance Document Transcript

    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA INDEXSl.No. CONTENT PAGE NO 1 Executive summary 1 2 Research Methodology 4 3 Company Profile 7 4 Introduction to the Topic 21 5 Analysis 70 6 Observations 100 7 Suggestions 102 8 Conclusion 103 9 Reference 105 10 Annexure 106BABASAB PATIL Page 1
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA EXECUTIVE SUMMARYThe banking and insurance industry have changed rapidly in the changing andchallenging economic environment through out the world. In the competitive andliberalized environment everyone is trying to do better than others and consequentlysurvival of the fittest has come into effect. Insurance companies are also to becompetitive by cutting cost and serving in a better way to the customers. Now the timehas come to choose and adopt appropriate distribution channel through which theinsurance companies can get the maximum benefit and serve customers in manifoldedways. Multi channel distribution and marketing of insurance products will be the smartstrategy to continue to play an important role in distribution, alternative channels likecorporate agents brokers and bancassurance will play a greater role in distribution.One of the more recent examples of financial diversification is ‘bancassurance’, the termgiven to the distribution of insurance products through branches or other distributionchannels of the banks. The concept that originated in France, now constitutes thedominant model in a number of European and other countries and the same is fastcatching up in India as well.SBI Life Insurance Company, a joint venture between SBI and Cardif S.A., a leading lifeinsurance company of France, is a predominant player in bancassurance. This projectreport gives an idea about “A study on Bancassurance at State Bank of India, Goavesbranch, Belgaum.” In this project report an effort has been made to understand theconcept of Bancassurance and its practical applicability at State Bank of India, Belgaum.The study also includes various aspects like which model of bancassurance is applied inState Bank of India, the various individual and group insurance products which aremarketed through SBI, the benefits of Bancassurance to the bank, RBI and IRDAguidelines on bancassurance and the evaluation of the future prospects of bancassurancein SBI. examples of ionBABASAB PATIL Page 2
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIABut there are challenges, the most common challenges to success of bancassurance arepoor manpower management, lack of a sales culture within the bank, insufficient productpromotions, failure to integrate marketing plans, marginal database expertise, poor saleschannel linkages, inadequate incentives, resistance to change, negative attitude towardsinsurance and unwieldy marketing strategy. Even insurers and banks that seem ideallysuited for a bancassurance partnership can run into problems during implementation. Onemore important obstacle in development of bancassurance in India has been a set ofregulatory barriers. Some of these have recently been cleared with the passage of theInsurance (Amendment) Act, 2002. Particularly with reference to SBI, bancassurance isgaining acceptance gradually. Bank is converging towards a model of global retailfinancial institution offering a wide array of products creating a one stop-shop wheremortgages, savings, pensions and insurance products will be available.Observations: 1) The joint venture model of bancassurance is applied in SBI. SBI Life is the joint venture between SBI and Cardif life insurance company of France. SBI provides network, Cardiff provides technology. 2) Bancassurance is beneficial for the banks, because i. The chances of loan becoming Non performing assets will be reduced as it gives security to the loan amount. ii. It reduces the risk of loans becoming debt loans to the bank. iii. It helps the bank by increasing the skills of the employees. iv. It increases the total other income of the bank. 3) The proportion of total miscellaneous income in total income has been increased after the branch took up the activity of cross selling. 4) Major portion of the employees have not been given any training for cross selling. 5) Out of 30 bank employees, 73.3% employees are involved in the activity of bancassurance. 6) Out of 22 employees who are involved in the activity of cross selling, 90.9% employees opine that it is increasing their skills.BABASAB PATIL Page 3
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA 7) Cross selling is advantageous to the bank as when two customer accounts are compared i.e. one who has taken bancassurance with another customer who has not taken bancassurance, the bank is more benefited incase of customer who has taken bancassurance.Suggestions: 1) Training should be given to all the employees of the branch with respect to cross selling. 2) Banks have witnessed a decline in margins in their core lending business due to falling interest rates. Insurance distribution helps to increase the fee based earnings of banks to a considerable extent. So the bank employees should try to increase the total other income of the bank by doing cross selling. 3) Bank employees who are involved in bancassurance should be given full knowledge of the target customers. 4) In order to attract more policy holders, the bank employees and insurance agents should promptly attend to the enquiries of policyholders. 5) Bank should try to facilitate online and internet payments towards insurance products.Conclusion:With reference to SBI, bancassurance is gaining acceptance gradually. Bank isconverging towards a model of global retail financial institution offering a wide array ofproducts creating a one stop-shop where mortgages, savings, pensions and insuranceproducts will be available. Some of the regulatory issues need to be addressedcomprehensively and sorted out particularly with respect to competition and marketstructure problems. Given these changes, bancassurance and collaboration between banksand insurers has a long way to go in India.BABASAB PATIL Page 4
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA RESEARCH METHODOLOGYObjectives of the Study: 1. To understand the concept of Bancassurance and its practical applicability at State Bank of India, Belgaum. 2. To know which model of Bancassurance is applied in State Bank of India. 3. To study the various individual and group insurance products which are marketed through State Bank of India. 4. To find out the benefits of Bancassurance to the bank. 5. To study the Reserve Bank of India (RBI) and Insurance Regulatory Development Authority (IRDA) guidelines on Bancassurance. 6. To evaluate the future prospects of Bancassurance in State Bank of India.Statement of the problem:Globally, cross selling is a major component of the business of banks. In India too, it iscatching up fast with several of the banks. SBI is the leading bank among all nationalizedbanks having largest banking network in the country, also has made headway in sellingthe insurance products along with the banking products. Cross selling would help thebanks by boosting their fee income. So there is a scope to study how the concept ofbancassurance has been applied in State Bank of India.Scope of the Project: • The study is limited to State Bank of India, Goaves Branch, Belgaum. • The study will be conducted on the basis of past three year’s performance of the bank.Limitations of the study:Detailed information is not provided by the bank staff because of the privacy policy ofthe bank.BABASAB PATIL Page 5
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAData collection method:  Primary data is collected through; • Observation • Discussion with the bank manager and bank employees. • Filling up of the questionnaire from the bank staff.  Secondary data is gathered through; • The financial statements of the bank. • From various books, websites, magazines, bank brochures etc.  Tools used for analysis: • MS Excel • Graphs and charts • SPSSNeed for the study:  Squeeze on margins of fund based revenue has taken place in the banks now. Growing disintermediation by corporate borrowers, better inventory practices that have reined in working capital needs and a liberalized external borrowing regime coupled with dwindling international rates have eaten fund incomes of the bank. Banks have felt a need to offset these through growing fee incomes particularly from retail side. So there is a need to study how the bank is trying to increase its fee based revenue.  Staff retention and motivation is another big challenge for the banks now. While the opportunities in other sectors are increasing, to retain the employees, bank must provide diversification in the work. So there is a need to study how the bank is using the activity of bancassurance to motivate the employees to remain in the bank.  Universal Banking- approach to provide all financial products under one roof; is another need for the study. It is nothing but integration of the financial servicesBABASAB PATIL Page 6
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA industry in terms of banking, insurance and securities business. The banks have been looking towards bancassurance, a mechanism of distribution of insurance products through a bank’s network, as a step towards universal banking. Moreover, hawking of insurance products by banks is seen as a logical step for expanding their business and improving the bottom line.  Optimum utilization of infrastructure and resources to maximize revenue has also created the need for the study. It is necessary to study how the bank is optimally utilizing the resources and infrastructure through the activity of bancassurance.  Customer retention in the face of competition is very difficult for the banks. If the bank provides any additional services along with the usual banking services then only it can survive in the era of competition. So there is a need to study how the bancassurance is helping the bank to retain its customers.BABASAB PATIL Page 7
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA COMPANY PROFILEOverview of Indian Banking structure:Banking structure as of 31st Mar 2004 is depicted in the following chart:The growth of Indian banking business can be summed up in the following six phases:No Period Phases1 1900 to 1949 Births and deaths of many private banks.2 1949 & 1969 Laying of solid and sound foundation; enactment of Banking Companies Regulation Act 1949.3 1969 to 1985 Branching out phase, nationalization of 19 private banks, lead bank scheme.4 1985 to 1991 Consolidation phase, weaknesses and defects of mass branch banking were investigated by various committees.5 1991 to 2004 Reforms and strengthening. First dose of reforms with Sri. M. Narasimham Committee report in 1991. consequently there were series of reforms in SLR, CRR, new norms of assets classification, NPAs and its provisioning, Basel I capital adequacy norms and other prudential norms, permission for entry of new generation of private sector banks, deregulation of interest, risk based management, adoption of computer technology, setting up of debt recovery tribunal, and passage of securitization and reconstruction of financial assets and enforcement of Security Interest Act (SARFAESI) 2002.6 2004 to date Integration and consolidation phase. BoB absorbed South Gujarath Local area Bank Ltd in June 2004, GBT merged with OBC in August 2004, merger of SBI & its subsidiaries, UBI & BOI are proposed. Even RRBs are merging. In Sept 2005 all RRBs sponsored by Syndicate bank in Karnataka are merged into Karnataka Grameen Vikas Bank. So also Punjab National Bank sponsored RRBs in Punjab. Preparing for Basel II from Jan 2006.Overview of Indian Insurance IndustryIndian insurance business is divided into four classes: 1) Life insurance 2)Fire insurance3)Marine insurance 4)Miscellaneous insurance. The life insurance business is confinedBABASAB PATIL Page 8
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAto life insurers and non life insurance businesses can be done by general insurers only, asno composites are permitted as per law.In the last five decades, insurance sector in India has come full circle, from opencompetitive market to full nationalization and now back to liberalized market where bothprivate and public sector companies have level playing ground.A bird’s-eye view of insurance sector reformsNo Date Reforms1 September Incorporation of LIC and merger of 245 private life insurers, 1956 nationalized in Jan 1956.2 January 1972 Nationalization of general insurance (106 private insurers) January 1973 Incorporation of GIC (General Insurance Corporation) January 1974 Formation of four subsidiaries of GIC to take over 106 insurers.3 April 1993 Malhotra committee on insurance sector reforms and deregulation set up.4 January 1994 Malhotra committee submits report to the finance minister.5 December IRDA Bill introduced in Parliament & referred to the standing 1996 committee.6 August 1997 IRDA is withdrawn following opposition to foreign participation7 November Government of India clears greater autonomy to LIC and GIC. 19978 June 1998 Union budget announces opening up of insurance sector9 January 1999 Notification of IRDA as a statutory authority10 October 1999 Approval of IRDA bill by the cabinet with FDI limited to 26%11 February 2000 Insurance bill presented in the budget session12 October 2000 Private insurance companies are backMalhotra committee, appointed by the Government of India for conducting a study oninsurance, in its report in 1994 stated that only 22% of the Indian population is insured. Ithas also pointed out that the Indian insurance business is under developed due to statemonopoly and lack of aggressive marketing of insurance policies. With setting up ofIRDA in Jan 1999, the insurance industry has been opened up, with a restriction of 26%on foreign ownership to Indian insurers and there has been tremendous amount oftransformation. Till April 2000, it was Life Insurance Corporation of India and GeneralCorporation of India with its four subsidiaries that operated in a monopoly position of lifeBABASAB PATIL Page 9
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAand general insurance business, respectively. From October 2000, private players startedinvading this sector. As of March 2004, the number of private players in the lifeinsurance sector has been thirteen. The traditional stronghold of LIC is now theplayground of these new players. With effect from Dec 2000, GIC started to operate as anational re-insurer. GIC’s four subsidiaries are de-linked and made as independentinsurance companies. As of Mar 2004, eight private companies, ECGC (Export CreditGuarantee Corporation Ltd) and Agricultural Insurance Company of India Ltd (AIC) areoperating in general insurance besides erstwhile subsidiaries of GIC.Evolution of State Bank of India:The origin of the State Bank of India goes back to the first decade of the nineteenthcentury with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Threeyears later the bank received its charter and was re-designed as the Bank of Bengal(2January 1809). A unique institution, it was the first joint-stock bank of British Indiasponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and theBank of Madras (1 July 1843) followed the Bank of Bengal. These three banks remainedat the apex of modern banking in India till their amalgamation as the Imperial Bank ofIndia on 27 January 1921.Primarily Anglo-Indian creations, the three presidency banks came into existence eitheras a result of the compulsions of imperial finance or by the felt needs of local Europeancommerce and were not imposed from outside in an arbitrary manner to modernizeIndias economy. Their evolution was, however, shaped by ideas culled from similardevelopments in Europe and England, and was influenced by changes occurring in thestructure of both the local trading environment and those in the relations of the Indianeconomy to the economy of Europe and the global economic framework.BABASAB PATIL Page 10
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA Bank of Bengal H.O.EstablishmentThe establishment of the Bank of Bengal marked the advent of limited liability, joint-stock banking in India. So was the associated innovation in banking, viz. the decision toallow the Bank of Bengal to issue notes, which would be accepted for payment of publicrevenues within a restricted geographical area. This right of note issue was very valuablenot only for the Bank of Bengal but also its two siblings, the Banks of Bombay andMadras. It meant an accretion to the capital of the banks, a capital on which theproprietors did not have to pay any interest. The concept of deposit banking was also aninnovation because the practice of accepting money for safekeeping (and in some cases,even investment on behalf of the clients) by the indigenous bankers had not spread as ageneral habit in most parts of India. But, for a long time, and especially up to the timethat the three presidency banks had a right of note issue, bank notes and governmentbalances made up the bulk of the investible resources of the banks.The three banks were governed by royal charters, which were revised from time to time.Each charter provided for a share capital, four-fifth of which were privately subscribedand the rest owned by the provincial government. The members of the board of directors,which managed the affairs of each bank, were mostly proprietary directors representingthe large European managing agency houses in India. The rest were governmentnominees, invariably civil servants, one of whom was elected as the president of theboard.BABASAB PATIL Page 11
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA Group photograph of Central Board (1921)BusinessThe business of the banks was initially confined to discounting of bills of exchange orother negotiable private securities, keeping cash accounts and receiving deposits andissuing and circulating cash notes. Loans were restricted to Rs.1 lakh and the period ofaccommodation confined to three months only. The security for such loans was publicsecurities, commonly called Companys Paper, bullion, treasure, plate, jewels, or goodsnot of a perishable nature and no interest could be charged beyond a rate of twelve percent. Loans against goods like opium, indigo, salt woolens, cotton, cotton piece goods,mule twist and silk goods were also granted but such finance by way of cash creditsgained momentum only from the third decade of the nineteenth century. All commodities,including tea, sugar and jute, which began to be financed later, were either pledged orhypothecated to the bank. Demand promissory notes were signed by the borrower infavor of the guarantor, which was in turn endorsed to the bank. Lending against shares ofthe banks or on the mortgage of houses, land or other real property was, however,forbidden.Indians were the principal borrowers against deposit of Companys paper, while thebusiness of discounts on private as well as salary bills was almost the exclusivemonopoly of individuals Europeans and their partnership firms. But the main function ofthe three banks, as far as the government was concerned, was to help the latter raise loansfrom time to time and also provide a degree of stability to the prices of governmentsecurities.BABASAB PATIL Page 12
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA Old Bank of BengalMajor change in the conditionsA major change in the conditions of operation of the Banks of Bengal, Bombay andMadras occurred after 1860. With the passing of the Paper Currency Act of 1861, theright of note issue of the presidency banks was abolished and the Government of Indiaassumed from 1 March 1862 the sole power of issuing paper currency within BritishIndia. The task of management and circulation of the new currency notes was conferredon the presidency banks and the Government undertook to transfer the Treasury balancesto the banks at places where the banks would open branches. None of the three banks hadtill then any branches (except the sole attempt and that too a short-lived one by the Bankof Bengal at Mirzapore in 1839) although the charters had given them such authority. Butas soon as the three presidency bands were assured of the free use of governmentTreasury balances at places where they would open branches, they embarked on branchexpansion at a rapid pace. By 1876, the branches, agencies and sub agencies of the threepresidency banks covered most of the major parts and many of the inland trade centers inIndia. While the Bank of Bengal had eighteen branches including its head office, seasonalbranches and sub agencies, the Banks of Bombay and Madras had fifteen each.BABASAB PATIL Page 13
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA Bank of Madras Note Dated 1861 for Rs.10Presidency Banks ActThe presidency Banks Act, which came into operation on 1 May 1876, brought the threepresidency banks under a common statute with similar restrictions on business. Theproprietary connection of the Government was, however, terminated, though the bankscontinued to hold charge of the public debt offices in the three presidency towns, and thecustody of a part of the government balances. The Act also stipulated the creation ofReserve Treasuries at Calcutta, Bombay and Madras into which sums above the specifiedminimum balances promised to the presidency banks at only their head offices were to belodged. The Government could lend to the presidency banks from such ReserveTreasuries but the latter could look upon them more as a favor than as a right. Bank of MadrasIndia witnessed rapid commercialization in the last quarter of the nineteenth century as itsrailway network expanded to cover all the major regions of the country. New irrigationnetworks in Madras, Punjab and Sind accelerated the process of conversion ofsubsistence crops into cash crops, a portion of which found its way into the foreignmarkets. Tea and coffee plantations transformed large areas of the eastern Terais, the hillsof Assam and the Nilgiris into regions of estate agriculture par excellence. All theseresulted in the expansion of Indias international trade more than six-fold. The threepresidency banks were both beneficiaries and promoters of this commercializationprocess as they became involved in the financing of practically every trading,manufacturing and mining activity in the sub-continent. While the Banks of Bengal andBABASAB PATIL Page 14
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIABombay were engaged in the financing of large modern manufacturing industries, theBank of Madras went into the financing of large modern manufacturing industries; theBank of Madras went into the financing of small-scale industries in a way which had noparallel elsewhere. But the three banks were rigorously excluded from any businessinvolving foreign exchange. Not only was such business considered risky for these banks,which held government deposits, it was also feared that these banks enjoying governmentpatronage would offer unfair competition to the exchange banks which had by thenarrived in India. This exclusion continued till the creation of the RBI in 1935. Bank of Bombay Presidency Banks of BengalThe presidency Banks of Bengal, Bombay and Madras with their 70 branches weremerged in 1921 to form the Imperial Bank of India. The triad had been transformed into amonolith and a giant among Indian commercial banks had emerged. The new bank tookon the triple role of a commercial bank, a bankers bank and a banker to the government.But this creation was preceded by years of deliberations on the need for a State Bank ofIndia. What eventually emerged was a half-way house combining the functions of acommercial bank and a quasi-central bank. The establishment of the Reserve Banksimultaneously saw important amendments being made to the constitution of the ImperialBank converting it into a purely commercial bank. The earlier restrictions on its businesswere removed and the bank was permitted to undertake foreign exchange business andexecutor and trustee business for the first time.Imperial BankThe Imperial Bank during the three and a half decades of its existence recorded animpressive growth in terms of offices, reserves, deposits, investments and advances, theincreases in some cases amounting to more than six-fold. The financial status andBABASAB PATIL Page 15
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAsecurity inherited from its forerunners no doubt provided a firm and durable platform.But the lofty traditions of banking which the Imperial Bank consistently maintained andthe high standard of integrity it observed in its operations inspired confidence in itsdepositors that no other bank in India could perhaps then equal. All these enabled theImperial Bank to acquire a pre-eminent position in the Indian banking industry and alsosecure a vital place in the countrys economic life. Stamp of Imperial Bank of IndiaWhen India attained freedom, the Imperial Bank had a capital base (including reserves)of Rs.11.85 Crores, deposits and advances of Rs.275.14 Crores and Rs.72.94 Croresrespectively and a network of 172 branches and more than 200 sub offices extending allover the country.First Five Year PlanIn 1951, when the First Five Year Plan was launched, the development of rural India wasgiven the highest priority. The commercial banks of the country including the ImperialBank of India had till then confined their operations to the urban sector and were notequipped to respond to the emergent needs of economic regeneration of the rural areas. Inorder, therefore, to serve the economy in general and the rural sector in particular, the AllIndia Rural Credit Survey Committee recommended the creation of a state-partnered andstate-sponsored bank by taking over the Imperial Bank of India, and integrating with it,BABASAB PATIL Page 16
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAthe former state-owned or state-associate banks. An act was accordingly passed inParliament in May 1955 and the State Bank of India was constituted on 1 July 1955.More than a quarter of the resources of the Indian banking system thus passed under thedirect control of the State. Later, the State Bank of India (Subsidiary Banks) Act waspassed in 1959, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries (later named Associates).The State Bank of India was thus born with a new sense of social purpose aided by the480 offices comprising branches, sub offices and three Local Head Offices inherited fromthe Imperial Bank. The concept of banking as mere repositories of the communityssavings and lenders to creditworthy parties was soon to give way to the concept ofpurposeful banking sub serving the growing and diversified financial needs of plannedeconomic development. The State Bank of India was destined to act as the pacesetter inthis respect and lead the Indian banking system into the exciting field of nationaldevelopment. State Bank of India is proud to announce it having received the"TECHNOLOGY AWARD 2005" by The Banker, London.Associate Banks: State Bank of India has the following seven Associate Banks (ABs)with controlling interest ranging from 75% to 100%. 1. State Bank of Bikaner and Jaipur (SBBJ) 2. State Bank of Hyderabad (SBH) 3. State Bank of Indore (SBIr) 4. State Bank of Mysore (SBM) 5. State Bank of Patiala (SBP) 6. State Bank of Saurashtra (SBS) 7. State Bank of Travancore (SBT)The seven ABs have a combined network of 4596 branches in India which are fullycomputerized and 1070 ATMs networked with SBI ATMs, providing value addedservices to clientele. The ABs recorded an impressive performance during 2003-04. Thecombined net profit of these banks increased by 38% over the previous year to reachBABASAB PATIL Page 17
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIARs.1938 Crores. Deposits and advances grew by 20% and 22%, respectively, during theyear. Three of the ABs viz. SBIr, SBP and SBS achieved NIL Net NPA status while thecombined Net NPA ratio of all ABs was at 0.84% as on 31st March 2004.The Bank is actively involved since 1973 in non-profit activity called CommunityServices Banking. All branches and administrative offices throughout the countrysponsor and participate in large number of welfare activities and social causes. Theirbusiness is more than banking because they touch the lives of people anywhere in manyways. Their commitment to nation-building is complete & comprehensive.Board of Directors:Central Board of State Bank of India (As on 8th October 2007) Sl.No. Name of Director Sec. of SBI Act, 1955 Shri O.P. Bhatt 1. 19(a) Chairman Shri T.S. Bhattacharya 2. 19 (b) MD & GE (CB) Shri S.K. Bhattacharyya 3. 19(b) MD & CC&RO 4. Shri Suman Kumar Bery 19(c) 5. Dr. Ashok Jhunjhunwala 19(c)BABASAB PATIL Page 18
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA 6. Shri Ananta Chandra Kalita 19(ca) 7. Shri Amar Pal 19(cb) 8. Shri Piyush Goyal 19(d) 9. Dr. Deva Nand Balodhi 19(d) 10. Prof. Mohd. Salahuddin Ansari 19(d) 11. Shri Vinod Rai 19(e) 12. Smt. Shyamala Gopinath 19(f)SBI Goaves branch, Belgaum started on 30th November, 1998. It has three divisions:- • Personal branch division: The main work of this division is to lend personal loans, car loans, housing loans etc. Nine employees are working in this division. • Commercial branch division: It lends commercial advances above Rs.25 lakhs. Currently, 18 employees are working in this division. • Retail Asset Credit Processing Cell: It carries out loan processing and follow up. The total workforce in this division is twenty three.Insurance Market in India - A Quick look:With the progress of reforms, Insurance market has been flooded with a number ofplayers. As at end-March 2006, among the life insurers, there were 151 companies inprivate sector and Life Insurance Corporation of India (LIC) was the solitary publicsector company. As regarding the present size of the insurance market in India, it is statedthat India accounts not even one per cent of the global insurance market. However,studies have pointed out that India’s insurance market is expected to grow rapidly in thenext 10 years. Mathur (2004) for instance, stated that in spite of significant growth of lifeinsurance business through the outstanding efforts of LIC, only 25 to 26% of insurablepopulation in India has been insured. In terms of ‘insurance penetration ratio (defined asratio of insurance premium to GDP), a key indicator of the spread of insurance coverageand insurance culture, India compares poorly by international standards. The penetrationratio was less than one per cent in 1990s and it improved to 4.8% by end-March 2006. Asagainst this, a Survey Report of Swiss Re revealed that the penetration ratio as at end-BABASAB PATIL Page 19
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAMarch 2006, in respect of some of the European countries, viz., UK and Switzerland at16.5% and 11.0%. In Asia, Taiwan and South Korea had registered their respective ratioof as high as 14.5% and 11.1%. Insurance Penetration ratio for the World was placed at7.5% far greater than that of India. Thus in a country with more than 1.2 billionpopulation, the poor penetration ratio indicates that a vast majority of population remainoutside the reach of the insurance, especially in rural and semi-urban areas, in the contextof the absence of social security schemes. This clearly suggests the presence of vastpotential for tapping the insurance market particularly by widening the distributionchannels. This is where the strategy of bancassurance could possibly become morerelevant.The banking and insurance industry have changed rapidly in the changing andchallenging economic environment throughout the world. Insurance companies are alsoto be competitive by cutting cost and serving in a better way to the customers. Now thetime has come to choose and adopt appropriate distribution channel through which theinsurance companies can get the maximum benefit and serve. The intermediaries in theinsurance business and the distribution channels used by carriers will perhaps be thestrongest drivers of growth in this sector. Multi channel distribution and marketing ofinsurance products will be the smart strategy of continue to play an important role indistribution, alternative channels like corporate agents brokers and Bancassurance willplay a greater role in distribution. The time has come for the industry to gradually movefrom traditional individual agents towards new distribution channels with a paradigmshift in creating awareness and not just selling products.The game is old but the rules are new and still developing. However despite of itsteaming one billion population, India still has a low insurance penetration of 1.95 percent,51st in the world. Despite the fact that India boosts a saving rate around 25 percent, lessthan 5% is spent on insurance. To streamline the saving into insurance, bancassurance isthe best channel to tackle four challenges facing the industry:- product innovation,distribution, customer service and investments. In the age of stiff competition no one isready to loose its own possession.BABASAB PATIL Page 20
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA INTRODUCTION TO BANCASSURANCEThough much ado was made about bancassurance, an alternate channel to hawk riskproducts through banks, the channel is yet to pick up pace as of today. Most of theinsurance companies have already tied up with banks to explore the potential of thechannel that has been a success story in Europe and legislations are also in place.Bancassurance primarily banks on the relationship the customer has developed over aperiod of time with the bank. And pushing risk products through banks is a cost-effectiveaffair for an insurance company compared to the agent route, while, for banks,considering the falling interest rates, fee based income coming in at a minimum cost ismore than welcome.The strategy for using the established, entrenched distribution network for one product tomarket other new products has long existed in the consumer goods sector. Thus thenetworks for soaps and detergents have been used by companies to distribute newlylaunched food products, the distribution channel for Rados has been used to markettelevisions and so on. Of course, the basic premise for this kind of cross selling is the factBABASAB PATIL Page 21
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAthat companies keep diversifying their product portfolios, using established ‘incumbent’networks to promote and distribute new product lines. Banks, too, have in the recent pastadopted this strategy both in India as well as internationally. They have moved awayfrom the classical model of deposit taking and credit disbursal through their branchnetworks and have begun to offer a wide range of products and services like securitybroking facilities and mutual funds. This is the phenomenon of ‘universal banking’ thatbuilds on the principle of leveraging existing networks to broaden portfolio offerings.Change in regulatory regimes has also facilitated this diversification.Growing disintermediation by corporate borrowers (direct borrowings by firms from thedebt market for both working capital and term loans), better inventory practices that havereined in working capital needs and a liberalized external borrowing regime coupled withdwindling international rates have all eaten into ‘fund incomes’ of banks. In short, themargins or spreads that banks make between the cost of funds (deposits plus borrowings)and the returns on funds (interest earnings on loans).Banks have felt the need to offset these through growing fee incomes particularly fromthe retail side. To target the retail segment, banks have felt the need to offer a morediversified product range to appeal to a diverse range of risk profiles. On the other hand,stand-alone financial product providers (NBCs, mutual funds etc.) have faced cripplingdistribution costs that in the face of growing competition, they have not been able to passon as ‘load’ on this product. Thus as far as banks and other financial services providersare concerned, there has been a ‘double coincidence’ of needs that has led them tocollaborate either through direct equity participation or ownership by banks or strategicalliances.SBI Life Insurance Company a predominant player in bancassurance is positive about thechannel bringing about a transformation in the way insurance has been sold so far. Thecompany is banking heavily on bancassurance and plans to explore the potential of StateBank of India’s 9000 plus branches spread across the country and also its 4000 plusassociate banks - one of the reasons why SBI Life Insurance is not laying much emphasison increasing its agent force from the present 3000.BABASAB PATIL Page 22
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAThe company plans to appoint Certified Insurance Facilitators (CIFs) in a phased mannerat its branches. For now around 320 CIFs, one from each of its bank branches have beenidentified for the purpose in addition to setting up insurance counters at its bankingoutlets. The number is expected to go up to 500. ‘Out of our present business of aroundRs.150-200 crore bancassurance has brought in 50 percent while corporate agency andthe agent channel have contributed about 10 percent and 40 percent respectively’, saysPradeep Pandey, Head, PR, SBI Life Insurance Company. The company aims atacquiring 75 percent of the total business through bancassurance and the balance throughthe other channels by 2007.Definition of Bancassurance:Bancassurance symbolizes the convergence of banking and insurance. It is the provisionof insurance and banking products and services through a common distribution channelor to a common client base. The term has its origins in France and involves distributionof insurance products through a banks branch network. While bancassurance hasdeveloped into a tremendous success story in Europe, it is a relatively new concept inAustralia and Asia.Most new insurers have entered into memoranda of understanding with banks to use theirbranches as outlets for marketing standard products. State Bank of India, Vysya Bank andJ&K Bank already have joint ventures in life insurance. Vijaya Bank and Punjab NationalBank are in the midst of finalizing life and non-life ventures.Bancassurance, known as Alfinanze and most popular in Europe is the simplest way ofdistribution of insurance products through a bank distribution channel. It is basicallyselling insurance products and services by leveraging the vast customer base of a bankand fulfill the banking and insurance needs of the customers at the same time. It takes thevarious forms depending upon the demography, economic and legislative climate of thecountry, while demographic climate will determine the kinds of insurance products,economic climate will determine the trends in terms of turnover, market shares etc,BABASAB PATIL Page 23
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAlegislative climate will decide the periphery within which bancassurance has to operate.The motive behind the Bancassurance also differs. For banks it just acts as a means ofproduct diversification and additional fee income; for insurance company it acts as a toolfor increasing their market penetration and premium turnover and for customer it acts as abonanza in terms of reduced price, high quality products and delivery to doorsteps. Soevery body is a winner here.While banks and insurance companies stand to gain, what impact does it have on theretail customer? Retail saving choices are getting increasingly complex internationallyand Idea is no exception. There is growing need for more diverse instruments andavenues of investment. This coupled with need of integrated financial ‘one stop shops’ toreduce the transaction costs associated with diversification. Globally, insurance productsare a major internment savings and this is likely to be the case in India as well asinsurance penetration gathers steam. The issue of building brand equity is critical for newentrants into the insurance market. However, tying up with a bank might provide counter-productive if this objective is to be achieved. A number of surveys in the Europeanmarket have shown, for instance, that in bancassurance partnerships, it is the bank’srather than the insurers brand that dominates and insurance brands often get stifled.Why insurers are turning to banks?One of the key factors is that banks continue to command the highest trust among Indiansavers and investors and of the total pool of financial savings of households, 3 per cent(the largest share) goes to bank deposits (RBI annual Report 2002).For any providers of new financial products, banks are the fastest and most ‘trusted’channel to reach households. Besides, the bank branch network of 62000 is virtuallyimpossible to replicate and would be indispensable in penetrating newer markets such asrural markets. Bancassurance also leads to a significant lowering of distribution costs forinsurers.Worlds perspective:-BABASAB PATIL Page 24
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAIf we are looking around the world then we can see that European countries are doingbetter than others where hardly 20% of us banks are selling insurance in 1998 against70% to 90% in many European countries. Market penetration of bancassurance in newlife business in Europe ranges between 30 % in UK to nearly 70% in France. Almost100% banks in France are selling insurance products. In 1991 Nationale Nederlanden ofNetherlands merged with Post Bank, the banking subsidiary of the post office to createthe ING group a new dimension to the bancassurance is harnessing the databank of thepost office as well. CNP, the largest independent insurance company in France hasdeveloped its products distribution through post offices. The merger of Winterthur, thelargest swiss insurance company, with Credit suisse and Citibank with Travelers grouphave resulted in some of the largest financial conglomerates in the world. Despite thephenomenal success of bancassurance in Europe, properly and casualty products have notmade much inroads. In Spain, Belgium, Germany and France more than 50% of all newlife premium is generated by bancassurance. A recent study try Boston consulting Groupand Bank Administrative Institute in USA claims that if bank made a major commitmentto insurance and a more narrowly targeted commitment to investors within 5 years theycould increase retail revenues by nearly 50%. Banks existing infrastructure enables themto operate at expense level that is 30% to 50% lower than those of traditional insurers.Bancassurance in India SWOT analysis:-Although banks and insurance companies are yet to exchange their wedding ringsbancassurance is already in some form in India. Banks are selling personal accident andbaggage insurance for its credit card members, issued mortgage linked insurance productslike fire, motor or cattle insurance to their customers and establishing face to facerelationship with their customers by leveraging their existing capabilities. In order toimplement the bancassurance model in India a lot of steps should be taken-a) High capital investment in the infrastructural development particularly in IT and TeleCommunications will have to be required.b) A call centre will have to be created.c) Top professionals will have to be hired.d) R& D cell will have to be created to generate new ideas and products.BABASAB PATIL Page 25
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAA SWOT analysis is done on bancassurance in the context of India.Strengths:-In a country like India of one billion people where sky is the limit. There is a vastuntapped potentials waiting for life insurance products. There are more than 900 millionlives waiting for life cover, 200 million house hold waiting for household insurancepolicy. Millions of people traveling in and out of India are waiting for overseasmediclaim and Travel insurance policies whole world is eyeing on the second largestmiddle class segment after China to tap. Other than this there is a huge pull of skilledprofessionals to relocate the bancassurance venture to provide new product through R&Dlast of all, LIC & GIC have large branch network facility to implement bancassurancemodel very effectively.Weaknesses:-In the case of rapid growth of Information Technology banks and insurance companiesare still lacking its implementation. Though it is awakening but it is too late and too little.In the age of Wide Area Net-work (WAN) and Vast Area Network (VAN), simple LANhas not yet been introduced even in the head-quarters. They are over burdened with theinflationary pressure and tax exemption for all insurance products will inspire thecustomers (though it is done partially) to be insured. Another one is inflexibility of theproducts, i.e. they are not tailor-made to the requirements of the customer.Opportunities:-Though not at the same level, banks data base in India is enormous and has to bedissected variously and various homogeneous groups are chummed out in order toposition bancassurance products. With a good IT structure they can really do wonders.Appropriate atmosphere and political conscientious have to be built up for liberalizationand if it is done then RBI or IRDA should have no hesitation in allowing the marriage ofbanking and insurance sectors to take place. Merger and Acquisition or setting up of jointventure is necessary in this direction.BABASAB PATIL Page 26
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAThreats:-Success of bancassurance venture requires change in approach, thinking and work cultureon the part of everybody involved. In India there is always a tendency to restrict anychange whether its impact becomes favorable or not. So there should be a clearvehemence. Sometimes non-response from the target customers becomes possible threatas it was found in USA in 1980s and failed. US banks have turned their attention (sincelate 1990s) towards life insurance. Again the investors in the capital may turn their facein case the rate of return on capital falls short of the existing return on capital. So thereturn from bancassurance must at least match those returns. Also unholy alliance is notallowed to take place as there will be fierce competition in the market resulting in lowerprice.Bancassurance in State Bank of India Perspective:-SBI Life insurance, a joint venture between State Bank of India, the largest bank in thecountry and Cardif insurance company of France. Cardif has launched eight products sofar incorporating certain features that are introduced for the first time in the country. SBI-Life is banking on the bancassurance model on the strength of the SBI Groups 10000plus bank branches and its vast customer base. In addition it is also tapping other bankscorporate agents and the traditional agency route to penetrate the insurance market SBILife is planning to introduce more novel and user friendly products to cater to therequirements of the consumers in different segments.There are so many insurance products launched so far. Among them sanjeevan in June,2001 (single premium policy for VRS retirees), ‘Sukhjeban (guaranteed returns forallage groups), Scholar (for childrens higher education combining insurance cover forparents and guardians), Swarna ganga (premium is refunded in the form of savingelement with life cover and without obligation medical examination), Super Suraksha(For all deposit holders initially at SBI) are to name a few. Other challenging newproducts are ready to come into the market to cover under the pension product, theunorganized population such as, self employed professionals, Small traders, artisans,contract labors and house hold helpers. SBI has the largest banking network in theBABASAB PATIL Page 27
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAcounty. The bank is looking for business from every customer segment of the bank ruraland urban segments, upper, middle and lower income segments / groups and corporatesegment. Besides own channel, they are planning to distribute products through otherinterested banking channels. Cardif, ‘SBI-Lifes JV partner, has hand on experience withvarious banks around the world. In France, it is selling insurance products through BNPParibas network of banks, the largest bank of the country and 35% of banks retailbanking profit comes from distributing insurance products. SBI has customers in SolapurDistrict of Maharashtra with huge response. It is expected that 2/3 rd of the premiumincome in expected to come by way of bancassurance and the rest from the traditionalagency channel as well as ties up with corporate agents (Sundaram Finance). SBI has alsointroduced group insurance to some well managed corporate staffs. Premiums paid bycorporates on behalf of their employees qualify as a deductible expense and employeesare not taxed, when employees pay premiums on a saving linked group insurancescheme, the monthly contribution qualifies for section 88 tax rebate and the final maturitysum received is also tax-free. Technology is an integral part of this operation. Cardiffprovided the technology required. Cardiffs PMS software has been successfullyimplemented in 24 countries. It modified the software, engaging TCS to suit ourrequirements.BANCASSURANCE MODELSAccording to one school of thought, the bancassurance models are classified in thefollowing way;I. Structural Classification:a) Referral Model:Banks intending not to take risk could adopt ‘referral model’ wherein they merely partwith their client data base for business lead for commission. The actual transaction withthe prospective client in referral model is done by the staff of the insurance companyeither at the premise of the bank or elsewhere. Referral model is nothing but a simplearrangement, wherein the bank, while controlling access to the clients data base, partswith only the business leads to the agents/ sales staff of insurance company for a ‘referralBABASAB PATIL Page 28
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAfee’ or commission for every business lead that was passed on. In fact a number of banksin India have already resorted to this strategy to begin with. This model would be suitablefor almost all types of banks including the RRBs /cooperative banks and evencooperative societies both in rural and urban. There is greater scope in the medium termfor this model. For, banks to begin with resorts to this model and then move on to theother models.b) Corporate Agency:The other form of non-risk participatory distribution channel is that of ‘corporateagency’, wherein the bank staff is trained to appraise and sell the products to thecustomers. Here the bank as an institution acts as corporate agent for the insuranceproducts for a fee/ commission. This seems to be more viable and appropriate for most ofthe mid-sized banks in India as also the rate of commission would be relatively higherthan the referral arrangement. This, however, is prone to reputational risk of themarketing bank. There are also practical difficulties in the form of professionalknowledge about the insurance products. Besides, resistance from staff to handle totallynew service/product could not be ruled out. This could, however, be overcome byintensive training to chosen staff packaged with proper incentives in the banks coupledwith selling of simple insurance products in the initial stage. This model is best suited formajority of banks including some major urban cooperative banks because neither there issharing of risk nor does it require huge investment in the form of infrastructure and yetcould be a good source of income. Bajaj Allianz stated to have established a growth of325 per cent during April-September 2004, mainly due to bancassurance strategy andaround 40% of its new premiums business (Economic Times, October 8, 2004).Interestingly, even in a developed country like US, banks stated to have preferred tofocus on the distribution channel akin to corporate agency rather than underwritingbusiness. Several major US banks including Wells Fargo, Wachovia and BB &T built alarge distribution network by acquiring insurance brokerage business. This model ofbancassurance worked well in the US, because consumers generally prefer to purchasepolicies through broker banks that offer a wide range of products from competinginsurers.BABASAB PATIL Page 29
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAc) Insurance as Fully Integrated Financial Service/ Joint ventures:Apart from the above two, the fully integrated financial service involves much morecomprehensive and intricate relationship between insurer and bank, where the bankfunctions as fully universal in its operation and selling of insurance products is just onemore function within. Where banks will have a counter within sell/ market the insuranceproducts as an internal part of its rest of the activities. This includes banks having whollyowned insurance subsidiaries with or without foreign participation. In Indian case, ICICIbank and HDFC banks in private sector and State Bank of India in the public sector,have already taken a lead in resorting to this type of bancassurance model and haveacquired sizeable share in the insurance market, also made a big stride within a short spanof time. The great advantage of this strategy being that the bank could make use of its fullpotential to reap the benefit of synergy and therefore the economies of scope. This maybe suitable to relatively larger banks with sound financials and has better infrastructure.Internationally, the fully integrated bancassurance have demonstrated superiorperformance. Even if the banking company forms as a subsidiary and insurance companybeing a holding company, this could be classified under this category, so long as the bankis selling the insurance products along side the usual banking services. As per the extantregulation of insurance sector the foreign insurance company could enter the Indianinsurance market only in the form of joint venture, therefore, this type of bancassuranceseems to have emerged out of necessity in India to an extent. There is great scope forfurther growth both in life and non-life insurance segments as GOI is reported have beenactively considering to increase the FDI’s participation to the up to 49 per cent.II. Product-based Classification:i) Stand-alone Insurance Products:In this case bancassurance involves marketing of the insurance products through eitherreferral arrangement or corporate agency without mixing the insurance products with anyof the banks’ own products/services. Insurance is sold as one more item in the menu ofproducts offered to the bank’s customer, however, the products of banks and insurancewill have their respective brands too, e.g., Karur Vysya Bank Ltd selling of life insuranceBABASAB PATIL Page 30
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAproducts of Birla Sun Insurance or non-life insurance products of Bajaj Allianz GeneralInsurance Company.ii) Blend of Insurance with Bank Products:With the financial integration both within the country and globally, insurance isincreasingly being viewed not just as a ‘stand alone’ product but as an important item ona menu of financial products that helps consumers to blend and create a portfolio offinancial assets, manage their financial risks and plan for their financial security and wellbeing. This strategy aims at blending of insurance products as a ‘value addition’ whilepromoting its own products. Thus, banks could sell the insurance products without anyadditional efforts. In most times, giving insurance cover at a nominal premium/ fee orsometimes without explicit premium does act as an added attraction to sell the bank’sown products, e.g. credit card, housing loans, education loans, etc. Many banks in India,in recent years, has been aggressively marketing credit and debit card business, whereasthe cardholders get the ‘insurance cover’ for a nominal fee or (implicitly included in theannual fee) free from explicit charges/ premium. Similarly the home loans / vehicle loans,etc., have also been packaged with the insurance cover as an additional incentive.According to another school of thought, there are four models of bancassurance.They are as follows: • Distribution alliance between an insurance company and a bank. • Joint venture between a bank and an insurance company. • Merger between a bank and an insurance company. • Bank builds and sells its own insurance products.The second model is applied in SBI. SBI Life Insurance Company, a joint venturebetween SBI and Cardif S.A., a leading life insurance company in France, is apredominant player in bancassurance. Cardif is a wholly owned subsidiary of BNPParibas, which is the Euro zone’s leading bank. BNP Paribas is one of the oldest foreignbanks with a presence in India dating back to 1860. Cardif has been a pioneer in the art ofselling insurance products through commercial banks in France and in 34 other countries.SBI has contributed about 67% of Rs.601 Cr. Premium income of SBI Life in 2004-05.BABASAB PATIL Page 31
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAINDIVIDUAL PRODUCTSThese insurance products are marketed by Certified Insurance Facilitators. Some of theindividual products which are marketed through SBI are;Horizon II:SBI Life’s HORIZON II is a unique, non participating Unit Linked Insurance Plan inIndian Insurance Industry, where you need not to be a financial market expert. This planoffers the flexibility of Unit Linked Plan along with Automatic Asset Allocation whichprovides relatively higher returns on your money where as increasing death benefitsprovides higher security to your family. It is a unique, non-participating Unit LinkedInsurance Plan.Key features: • Twin benefit of insurance cover and market linked returns. • Hassle-free investment management of funds from inception to maturity. • Automatic Asset Allocation of funds. • Automatic rebalancing of funds at yearly intervals, free of cost. • Higher protection, to meet your family financial needs. • Automatic cover continuance. • Liquidity option after 3 years. • Facility to top up your investment kitty. • Tax benefit as per section 80C and 10(10D) of income tax act. • 15 days free look period from the date on which you receive the policy document.BABASAB PATIL Page 32
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAHow does it work?As per the Plan and Term chosen by us , SBI Life will invest the net premium amountinto each of the funds mentioned. The number of Units of each fund will be allocated iscalculated as:No. of Units Fund(x) = Net Investment in Fund(x) NAV of Fund(x)A unit of each Fund has its own price called the Net asset Value (NAV). The NAV ofeach Fund is calculated on a daily basis with the following formula:NAV= {Market Value of Investment + Current Assets - Current Liabilities & Provisions} No of Units outstandingBenefits: • Hassle Free Investment Management • Maturity Benefits: At the end of the term the customer will get the fund value. • Increasing Death Benefit: For all in forced policies, in case of death after completion of age 7 your nominee will receive Fund Value + Sum Assured otherwise fund value is payable.What is the policy term?Minimum years: 10, Maximum years: 40Who can buy this product?The people who are in good health and in the age group of 0 to 60 years. Maximum ageat Maturity is 70 years.What is the sum assured?Decide the amount you can put aside to be invested in Horizon II every year. Life CoverSum Assured(Fixed) will be (Term / 2) x AP where, AP = Annualized Premium.Unit Plus II:BABASAB PATIL Page 33
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAUnit Plus II Plans are an attempt to meet all your financial & insurance needs through asingle non participating product. The customers can use it the way they like. What’s moreyou get market linked returns which in the long term has always proved to give betterreturns than traditional savings products. This is a non-participating individual unit linkedproduct. People who are in good health and in the age group of 0 to 65 can opt for theseplans.Key features: • Unmatched Flexibility to match your changing requirement • Choice of 4 investment funds: You can change the allocation percentage when you want, 4 switches free per annum i.e. equity, bond, growth and balanced funds. • Choice of term : Limited term or whole lifeHow does it work?SBI Life Unit Plus II Plans: 2 plans depending on your premium mode:1. Single Premium Mode: Unit Plus II Single2. Regular Premium Mode: Unit Plus II RegularDecide the investment amount:Frequency Minimum Premium Maximum PremiumSingle Rs.40, 000 No LimitRegular Rs.24, 000 p.a. No LimitLife Cover: It depends upon the total amount you have decided to invest.Single Minimum Sum Assured Maximum Sum AssuredPremium 125%of single premiumSingle 625% of single premium amount amountRegular Minimum Sum Maximum Sum AssuredPremium AssuredBABASAB PATIL Page 34
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIATerm = 5 to 10 5 times annual Depends on the age*years premium amountTerm 11 years Term/2 x Annual Depends on the age*and above PremiumWhole Life (70 - Age at entry)/2 x No LimitTerm Annual Premium*= Maximum Sum Assured MultiplicatorAge Band Factor0 to 40 50 Times Of Annualized Premium41 to 50 40 Times Of Annualized Premium51 to 60 25 Times Of Annualized Premium61 to 65 20 Times Of Annualized PremiumBenefits:  Maturity Benefit: At maturity, the Fund Value as on that date is paid in full.  Death Benefit: In the unfortunate event of the death • Before or the age 7 years: Fund Value is payable to the nominee. • After attaining age 7 and before 65th birthday, the beneficiary will receive higher of Fund Value or Sum Assured less Partial Withdrawals within the last 12 calendar months. • If death occurs after age 65, the beneficiary will receive the higher of the Fund Value or Sum Assured less all the Partial Withdrawals made in the last 12 calendar months before attaining the age of 65+all withdrawals made after attaining the age of 65 will be set off against the Sum Assured excluding partial withdrawals from Top Up Amount.Horizon II pension:Horizon II Pension is a safe and a hassle free way to get high returns! Horizon II Pensioncomes with the unique feature of Automatic Asset Allocation by means of which youtruly, don’t need to be an expert to grow your money! This is a Unit Linked PensionBABASAB PATIL Page 35
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAproduct. If you are in the age group of 18 to 60(age as on last birthday) you can opt forHorizon II pension plan.Key features: • Horizon II Pension is the most simple unit linked pension plan; all you need to do is:  Choose your retirement date, the plan option and the regular premium amount.  Based on the plan option and the term opted, SBI Life will invest your money in three different funds viz., Equity Pension Fund, Bond Pension Fund and Money Market Pension Fund.  The funds are invested keeping in mind the term opted for and your money is invested in safer funds as your policy approaches maturity. • Available with two options: pure pension and pension cum life cover. • No medical required to enroll for Pure Pension • No premium allocation charges from year 11 onwards. • Save tax u/s 80 CCC (1) of IT Act. • Investment Plans available:  Plan A - Dynamic Plan: Here a higher proportion of your money is invested in equity. It is ideal for longer period of terms.  Plan B - Growth Plan: Here, the investment in equity automatically decreases more rapidly as the funds are put into less risky options. This leads to more balanced approach, hence lower volatility coupled with good returns in long run.Benefits:Retirement Benefit: At vesting age you get a choice to withdraw up to one third of thefund value in lump sum-tax free as per the current tax law. The remaining amount has tobe used by Annuity from either SBI life or from any other Annuity provider.BABASAB PATIL Page 36
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIADeath Benefit:  Death during the term of policy  Option I Pure Pension - Fund value is payable to nominee.  Option II Pension with Life Cover - Fund value plus sum assured after deducting any mortality charges due but not paid during policy year in which death occurs.  Death after Vesting age: Death Benefit depends upon the annuity option chosen.What is the policy term?Term = Vesting age - Age atMin Maxentry 10 Years 52 YearsNote: Vesting Age = 50 years to 70 years (age as on last birthday)What is the sum assured?For Pure Pension Plan – NilFor pension cum life cover plan- Age Group 18-35 Age Group 36-45 Age Group 46-60 5 times annualizedMin 5 times annualized premium premium 1.2 LakhsMax 10 Lakhs 5 LakhsUnit plus II pension:Unit Plus II Pension plan makes sure that you have regular income after you retire andalso helps you to maintain your standard of living. This is a unit linked pension planwherein the policyholder chooses an investment period from 5 to 52 years for a vestingage between 50 to 70 years. You can choose to pay either single premium or pay regularpremium for the entire policy term. Your contributions are invested into 4 fund options asper your choice. This is a non participating Unit Linked Pension product.BABASAB PATIL Page 37
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAKey features: • Choice to invest & control four different funds as per your risk appetite. • Flexibility to choose between two options: pure pension and pension cum life cover. • No medical required for Pure Pension, automatic acceptance facility. • Flexibility to increase regular contribution. • Top up payments: any amount, anytime. • 15 days free look period.How does it work? • Choose your vesting age: Any age between 50 years - 70 years. • Choose plan option  Option I Pure Pension Plan (For age group 18-65)  Option II Pension Plan with life cover (For age group 18-60)In case you have opted for option II, your sum assured will be as mentioned belowFor single premium mode:Age at entry Sum Assured18-35 125 % of single premium subject to maximum SA of Rs. 10 lacs36-45 125 % of single premium subject to maximum SA of Rs. 5lacs46-60 125 % of single premium subject to maximum SA of Rs. 1.2 lacsFor regular premium mode:Age at entry Sum Assured18-35 5 or 10 times first annualized premium subject to maximum SA of Rs.10 LakhsBABASAB PATIL Page 38
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA36-45 5 or 10 times first annualized premium subject to maximum SA of Rs.5 Lakhs46-60 Rs.1.2 lakhsBenefits:Death Benefit: • During accumulation phase: If you opt for option I: Pure Pension Plan. Fund value will be paid in lump sum to nominee. If you opt for option I: Pure Pension Plan with life cover. The higher of fund value or sum assured will be paid in lump sum to nominee. Guaranteed additions by way of free allocation of units to increase your retirement kitty. • On Vesting: Its your income; you decide how it works for you. You have choice and flexibility. You can take up to one third of the fund value in lump sum. • During Annuity Phase: Balance amount has to be used to purchase annuity. The rate at which the amount at vesting date will be converted to an annuity is not guaranteed and will be based on the prevailing immediate annuity rates under the relevant annuity option at the vesting date. • Tax benefit: Save tax u/s 80 CCC (1) of IT Act.What is the policy term?Term = Vesting Age - Age at Entry Minimum Years Maximum Years 5 Years 52 YearsWho can buy this product?BABASAB PATIL Page 39
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAIf you are in the age group of 18 to 65 you can opt for Unit Plus II pension plan withoutlife cover. For Unit Plus II pension plan with life cover it should be between 18-60 years.Lifelong pension:Life expectancy is improving rapidly. People live longer. You cannot work throughoutyour life. You will have to retire from work. In the post retirement period you have lot oftime for yourself. You would like to do things you have not done while you wereworking. You need to have a comprehensive plan to meet your post retirement financialneeds ensuring complete peace of mind. This is a Pension product. If you are in the agegroup of 18 years (age as on last birthday) to 65 years (age as on last birthday) you canopt for pure pension plan. For Pension cum Life Cover, it is 18 years (age as on lastbirthday) to 60 years (age as on last birthday).Key features: • A maximum of Rs.1,00,000 p.a. paid as a contribution on a pension plan is fully deductible from the taxable income (within the max. ceiling Rs.1 lakh ) • Minimum Guaranteed returns of 4% p.a. (compounded annually) on your Personal Pension Account (till 31st March 2010) + Vested bonus. • It helps to accumulate enough savings to meet the old age needs and look for a reliable and enduring pension payment. • It is an extremely flexible plan:  Choice of the contribution amount you want depending on your premium paying capacity.  You may exercise the Top-up facility whenever by paying additional amount to increase your retirement kitty, irrespective of contribution payment mode.  Convenient Contribution payment mode monthly, quarterly, half-yearly, yearly and single contribution is also available.  Choice of the choosing your own retirement age.BABASAB PATIL Page 40
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA  Postponing/ Preponing to a convenient date, the decision for receiving the Pension Benefits.  Contribution holiday available from year 4 onwards.  The total/balance amount (after withdrawal from PPA, if any) can be utilized in seeking immediate annuity. • Free to choose annuity from either SBI Life or other insurance companies. • At Vesting Age you have multiple choices of Pension/ Annuity options including Joint Life Time Annuity. • On maturity you have a choice to withdraw up to 33% from your Personal Pension Account in a lump sum. This withdrawal amount is tax-free as per the current fiscal law. • Helps you to utilize all alternatives of tax savings today and also plan for a worry free tomorrow. • In “Pension cum Life Cover” plan, you have the facility of Automatic Cover Maintenance, which ensures that the cover remains in force even when you miss the premium payments. This facility is available after the first three years of the term. • In “Pension cum Life Cover” plan, the life cover acceptance is based on a simple medical questionnaire without any Medical examination • Rebates for Annual, Semi- Annual mode of premium and on high Contribution amount. Enjoy financial independence when you retire. • 15 days Free Look Period from the date on which you receive the policy documents.How does it work?Here you pay your contributions for a selected term (accumulation period). Yourcontribution net of administration charges in your Personal Pension Account with aguaranteed rate of 4% (compounded) per annum till March 2010 depending on thefinancial market, additional vested bonus may be declared from the age to start receivingpensions and also have the flexibility in the choice of annuity options and provider.BABASAB PATIL Page 41
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIASwadhan:Life has its uncertainties and risks. All that you are interested in is how best to afford asecure future for your loved one. We wish for a low premium insurance policy that notonly provides security to our loved ones but also returns back the premium paid. Its aTraditional Term Assurance Policy with refund of part/total basic premium paid at theend of the term to the policyholder.Key features: • Protection at affordable premium. • Guaranteed refund of basic premium paid on Survival at the end of the term, depending upon the term of the policy. • 5% rebate for Female lives • Rebate on High Sum Assured • Flexible benefit premium paying mode • Free look period of 15 daysHow does it work?You can take a cover ranging from 5-10 years. In the unfortunate event of death, thenominee would receive the entire sum assured as a lump sum payment. If you survive theentire term, you would be eligible to a refund of premiums depending upon the term ofpolicy. For example, if your policy is for 5 years, youd be eligible for refund of 50% ofthe total premiums paid; for 6 years, the refund would be 60%, and so on. Hence, ifyouve taken a policy for 10 years, youd receive 100% of your premiums back as refund.Benefits:Maturity benefit: If you survive for the entire term of the plan, you would be eligible to arefund of the premiums depending upon the term of the policy.BABASAB PATIL Page 42
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA %age of Basic Term Premium refunded 5 years 50% 6 years 60% 7 years 70% 8 years 80% 9 years 90% 10 years 100%Death benefit: In the event of claim, your nominee would receive full Sum AssuredWhat is the policy term?Minimum Years Maximum Years5 years 10 yearsWhat is the sum assured?Minimum Rs.3,00,000 (in multiple of Rs.10,000)Maximum Rs.1 CroreShield:We want our family to have all the good things in life. Life is full of uncertainties andrisk. To ensure that these uncertainties do not shatter the dreams you have for yourfamily. Shield is a traditional pure risk policy (with no maturity benefits) that offers you aBABASAB PATIL Page 43
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAsubstantial life cover at a very low cost. It is one of the most preferred individualinsurance products.Key features: • It offers you life insurance cover at the lowest cost for a selected term. • It is available in 3 options to suit your requirement. • Level Premium throughout the chosen term with increasing Sum Assured, depending on the option chosen. • Tax benefit u/s 80 C and 10 (10 D) of IT Act • Attractive rebate for Female lives. • Attractive Rebates are offered for Annual / Semi- Annual mode of Premium payment and High Sum Assured. • Convenient premium payment options: Single and Multiple premium payment. • 15 days Free Look Period from the date on which you receive the policy documents.How does it work?Under this product, you can opt for gradual increase of cover @ 5% every year or forsubstantial increase of cover @ 50% for every five years. Under both the options, youpay the same amount of premium throughout the entire term of the policy. If you opt foran increasing cover now you wouldnt require a fresh policy later. This will avoid thehassles of taking another insurance policy, paying more premiums and meeting themedical requirements of the insurer. We recommend that you should choose either of thefollowing options. • Sum Assured Increases by 5% Per Annum • Sum Assured Increases by 50% Every 5 YearsBenefits:BABASAB PATIL Page 44
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA • Death Benefit: Depending on the cover chosen, the nominee will receive the sum assured under this policy • Maturity Benefit: No survival benefit available at the end of the term. • Other Optional Benefits:  Accidental Death and Accidental Total Permanent Disability Rider: In case of death due to an accident, the nominee gets the Sum Assured under this rider. If the policyholder is involved in an accident, resulting in Total Permanent Disability, he/she will get Sum Assured under this rider in 10 equal annual installments; He/she will exit from all the rider covers thereafter, but continue to be covered for basic cover on receipt of further premium due, if any.  Premium Waiver Benefit Rider: Under this rider the policy holder need not pay future premiums for the base product, if he/she suffers from Total and Permanent Disability due to an accident after the rider is opted for.What is the policy term?Minimum Years Maximum Years5 years 25 yearsWhat is the sum assured?Range of Sum Sum Assured Increases by Sum Assured Increases by LevelAssured 5% Per Annum 50% Every 5 Years CoverMinimum Sum Rs.3 lakhs Rs.3 lakhs Rs.3 lakhsAssuredMaximum Sum Rs.10 Crores Rs.8 Crores Rs.25Assured CroresKeyman:BABASAB PATIL Page 45
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAKeyman is a key member or staff of the organization who is a major contributor to itsgrowth and profit and whose absence may affect the continuity of the business. KeymanInsurance is taken by the Company on the life of the key member or staff. The mainobjective of Keyman Insurance is to compensate for the financial losses sufferedfollowing the death of key member or staff of the organization. The aim is to indemnifythe company of these losses and to allow business continuity. All premiums paid forsecuring a Keyman life insurance policy are treated as business expenditure u/s 37 (1).Shield plan is available for the purpose of Keyman insurance. It is a pure term insurancePlan.Purpose of keyman: It protects the organization against any of the following losses; • The loss of customers or sales. • The loss of day -to -day specialized skills. • The cost of recruiting and training the suitable replacement. • Delay or cancellation of any business project that keyman was associated with. • The loss of opportunity for future explanation. • Recall of existing loan guaranteed by the keyman.Tax benefits: Companies may claim the premium paid under Keyman insurance as abusiness expenses under section 37(1) of the income tax act. As per the finance bill 1996,the amount received under a Keyman insurance policy will not exempt from tax underSection 10(10D) of income tax act. The proceeds of policy will be treated as incomeunder section 28(vi) of income tax act.In the event of the policy being assigned to the Keyman, the proceeds of the policyincluding bonus will be treated as "Profit in the Lieu of Salary" under section 17 (clause17) of Income Tax Act.Who can buy this product?Organizations buy this product to protect the organization against the cost caused by thedeath of key member of organization.BABASAB PATIL Page 46
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAWhat is the sum assured?Minimum Maximum should be lower of10,00,000 5 times the average net profit of the company for past 3 years 3 times the average gross profit of the company for last 3 yearsSudarshan:Sudarshan is an Endowment Policy designed to provide savings and protection to youand your family. You can save regularly for the future. Thus at the end of the plan, youwill receive a substantial amount of savings along with the accumulated bonusesdeclared. At the same time, your family will be protected for death risk for the full SumAssured. It is a traditional endowment plan i.e. saving - cum protection product.Key features: • It offers you the option of tailoring your policy according to your requirement and needs, by opting for various extra covers (Riders) that are offered. • This is a unique product that offers you an innovative cover (plan B) which helps you to protect your savings against the financial consequences of inflation with constant premium for the entire duration of the plan. • It gives you protection against unfortunate terminal or dreaded illness. • It is an insurance plan which could also act as a hedging instrument. • With this plan you can plan your childrens future education, marriage expenses or even your own retirement - in a most flexible manner.How does it work?• Fixed Sum Assured Plan: Allows you to build a regular saving plan that gives you asecure amount at the end of a fixed period plus a bonus. In the unfortunate event of deathbefore maturity, the nominee would stand to receive the Sum assured and the bonusaccrued till that date.BABASAB PATIL Page 47
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA• Increasing Sum Assured Plan - the COLA Option: The Cost Of Living Adjustment(COLA) option is so called because it serves as an automatic hedge against inflation. Itallows you to increase the Sum Assured automatically by paying an additional premiumcompared to the Fixed Sum Assured Plan. Moreover, the life cover also automaticallyincreases during the period as added protection to the family.Benefits:Maturity Benefit: Depending upon the plan option chosen:•Fixed Sum Assured (Plan A) Basic Sum Assured along with Vested Bonus is payable•Increasing Sum Assured (Plan B) Increased Sum Assured @ 5% p.a. along with VestedBonus is payableDeath Benefit: In the unfortunate event of death of the Life Assured, depending upon theplan option chosen:•Fixed Sum Assured (Plan A) The Sum Assured along with Vested Bonus is payable toyour nominee.•Increasing Sum Assured (Plan B) Increased Sum Assured @ 5% p.a along with VestedBonus is payable to your nominee.What is the sum assured?Minimum MaximumRs.25,000 Rs.1 Crore Scholar II:As a caring parent you would always want your child to get the very best. Is there a wayto protect your children against life’s risks? Is there a way to make tomorrow safe forthem? Therefore this is the time when careful financial planning can help you fulfill theaspirations that you have for your children’s. SCHOLAR II is designed to protect yourchild’s future educational needs. It is a traditional participating plan. Anyone between 18BABASAB PATIL Page 48
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAto 60 years of age(as on last birthday) with a child between 0 to 15 years can buy thisproduct.Key features: • Twin benefit of saving for your childs education and securing a bright future despite the uncertainties of life. • Full risk cover throughout the policy term irrespective of payment of survival benefits installments. • Option to receive the installments in lump sum at the due date of first installment of Survival benefit. • Attractive rebate for Female lives and High Sum Assured. • 15 days Free Look Period.Benefits:Guaranteed payment at regular intervals. When the child attains 18 years of age, theparent has an option of:Receiving the Sum Assured in 4 installments:Age Guaranteed Benefit Payment18 years 25 % of Sum Assured19 years 25 % of Sum Assured20years 25 % of Sum Assured21 years 25 % of Sum Assured + Vested Bonus * Receiving the Survival Benefits in asingle installment along with the Vested Bonus (Policy terminates thereafter). Vestedbonus is the total amount of bonus accrued till date, under the policy.Death Benefit: In the event of unfortunate incident of your early death during the term ofthe plan, your child’s future remains secured in 3 ways:BABASAB PATIL Page 49
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA  Child future educational needs: 25% of Sum Assured is payable in 4 equal installments when the child attains the age 18 years to 21 years. This ensures the childs higher educational needs are met.  Immediate Payment: The nominee receives the Sum Assured along with the bonus declared until that date.  All future basic premiums need not be paid: Ensuring that your family is not financially burdened in your absence.Tax Benefits: Tax benefit u/s 80 C and 10 (10 D) of IT Act. Premiums paid for CriticalIllness Benefit qualify for tax exemption under Sec 80D.What is the policy term?The premium payment term depends on the age of the child and ends when the childattains the age 18 years. You are covered till the child attains the age 21 years.What is the sum assured?Minimum MaximumRs.500000 Rs.1 CroreSetubandhan:A unique Life Insurance bond that helps you, the NRI living abroad, build a bridgebetween you and your dear ones back in India. It’s a traditional Investment - cum - LifeInsurance opportunity.Key features: • Guaranteed 5% annual returns(Simple) on your investment with benefit of Single Premium payment. • Savings-cum-Protection plan for two terms of 5 or 10 years.BABASAB PATIL Page 50
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA • Optional Critical Illness cover against six major ailments like heart attack, cancer etc. • Facility of repatriation at prevailing exchange rates. • Optional life insurance cover for dependents up to Rs.10 lakhs with return of premium. • 15 days look period.How does it work?Setubandhan is an insurance bond for subscription by NRIs as well as by domesticresidents in India. It is a life insurance policy that helps to build a bridge between you asthe NRI living abroad and your dear ones back home in India.Benefits: • Base Policy for NRIs: Guaranteed 5% annual additions(Simple) on Sum Assured with benefit of Single Premium payment In the event of death, the Sum Assured as increased by the annual addition on the date of death will become payable. Upon survival, the Sum Assured with total additions during the period will be payable. • Optional Life Cover for Dependant: Term insurance cover for a dependant living in India, subject to a minimum sum assured of Rs.3 lakhs and maximum Rs.10 Lakhs. Premiums are payable annually. `Dependant’ will mean spouse, and parents not above the age of 55 at the time of entry. Term insurance premium will be refundable at the end of the term upon survival of the life covered (Swadhan). Full refund of premium for a 10-year term and 50% for a 5-year term.What is the sum assured?Minimum Sum Assured: Rs.3 lakhsMaximum Sum Assured: Rs.1 CroreBABASAB PATIL Page 51
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIASanjeevan supreme:Life is all about change and with rising costs and economic instability, you may not besure about your future incomes. You need a product that offers you a life cover for theterm of your choice + At the same time does not burden you with liability to paypremiums for the entire term + Cash inflow at regular intervals. It is a Traditional SavingPlan with added advantage of life cover and guaranteed cash inflow at regular intervals.Key features: • The plan has a number of money back options specially suited to your needs. • The cover is available at competitive premium rates. • It has guaranteed cash inflows which can meet your various financial obligations.How does it work?SBI Life Money Back is a saving plan with added advantage of life cover and cash inflowat regular intervals. This plan is designed for individuals who want to plan for variousfinancial obligations at specified times in life. Keeping your convenience in mind, wehave designed four plan options: for 10, 15, 20 or 25 years.BABASAB PATIL Page 52
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIATerm of Premium Growth/Deferment Money Back Total Term of Thethe Plan Payment Term Period Period Policy(2+3+4) Plan A 6 Years 4 Years 5 years @ 20% 15 years Sum Assured p.a. Plan B 6 Years 4 Years 10 years @ 10% 20 years Sum Assured p.a. Plan C 10 Years 5 Years 5 years @ 20% 20 years Sum Assured p.a. Plan D 10 Years 5 Years 10 years @ 10% 25 years Sum Assured p.a.Benefits: • You can pay off all premiums over a short period of time and be free from paying premiums for the rest of the policy term, while enjoying all the benefits for the entire policy term. • Enjoy the benefits of bonus additions for the entire term of the policy. • Convenient premium payment options: Single and Multiple premium payment. • Maturity Benefit: At the end of the growth period, you would receive guaranteed payout in 5 years or 10 years, depending on the plan option chosen by you. The bonuses declared by the company get accumulated for the entire term of the plan and you would receive total bonus along with the final installment of Survival benefit. • Death Benefit: In the unfortunate event of death during the term of the plan, the nominee would receive sum assured + vested bonuses, besides receiving of the survival benefit already paid.Exclusions applicable to the Basic cover: Suicide within the first year.What is the sum assured?BABASAB PATIL Page 53
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAMinimum MaximumRs.50,000 (and multiples of Rs.10,000 Rs.5 Crore.thereafter)GROUP PRODUCTSThese products are marketed by branches even without Certified Insurance Facilitators.Some of the group insurance products are as follows;CapAssure Gratuity Scheme:BABASAB PATIL Page 54
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAIt is a Non-Participating yearly renewable traditional Group Gratuity Scheme. Under thisscheme, the contributions paid continue to accumulate on traditional platform ofinvestments and at the end of the financial year; an investment income earned on yourcontributions is credited to your gratuity fund account.Key features: • Capital Guarantee on Fund Under Management • Unique Pooling Fund Advantage: Get higher returns based on aggregated value of all your non-Linked funds • Additional Funding up to 3% to absorb exit penalty charged by the previous insurer • Flexibility to transfer partially your fund from this scheme to our Unit Linked ‘SBI Life Golden Gratuity’ scheme! • No Suicide Exclusion clause for basic life cover • Additional benefit for your employee through Group Accidental Death and Permanent Disability riderBenefits: • On Retirement/ Resignation/ Termination: Higher of accrued gratuity benefits payable as per scheme rules or the Gratuity Act. • On occurrence of Total Permanent Disability (TPD): Higher of accrued gratuity benefits payable as per scheme rules or the Gratuity Act + Rider Sum Assured, if any, in case of TPD due to accident, will be payable to the employee. • On an unfortunate Death: Higher of accrued gratuity benefits payable as per scheme rules or the Gratuity Act + Basic Sum Assured as opted for by the master policy holder + Rider Sum Assured, if any, in case of death due to accident. However, maximum benefit under Accidental Death & Total Permanent Disability (AD&TPD) rider will be limited to lower of basic sum assured or Rs.5 Lakhs.BABASAB PATIL Page 55
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAGrace period: A grace period of 30 days will be allowed for payment of life coverpremium. However, if death occurs during the grace period, the death claim shall becomepayable subject to the receipt of the due and unpaid risk premium or renewal riskpremium for the entire group from the Master Policyholder. In case of non-receipt of therisk/rider premium within a grace period of 30 days, the life cover/rider would lapse.Revival Period: Life Cover can be revived within two years from the first due but unpaidpremium, subject to payment of risk premium for the future.Tax Benefits: • For Employer: The initial and Annual contributions made through an approved Gratuity trust can be claimed as business expenditure as per the provisions under section 36 (1) (v) of the Income Tax Act, 1961 subject to maximum limit of 8.33% of annual salary in respect of each member. Income of investments is exempt from tax under section 10(25) (iv) of the Act. • For Employee: Gratuity benefits are tax free up to Rs.3, 50,000 u/s 10(10) in the hands of employee.  Gratuity payment may be bettered by employer – over and above Rs. 3, 50,000 taxable. (However, in this case the tax free limit as per above will not change.)  The contribution made by the employer is not included in the value of taxable perquisites in the hands of the employee.  Any death benefit under the Group Term Insurance is tax-exempt under section 10 (10D) of the Income Tax Act, 1961CapAssure superannuation scheme:It is a Non-Participating yearly renewable traditional group superannuation scheme. Theobject of this scheme is to ensure that the underlying fund is accumulated in such amanner so that the fund will be sufficient to purchase an expected amount of annuity toan employee upon his retirement / to the legal heir in the event of an unfortunate deathduring service. The scheme would also entitle the employee for some benefit, defined asBABASAB PATIL Page 56
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAper the scheme rules, on his resignation, retirement, permanent total disability whilst inservice, death whilst in service. Hence, SBI Life provides CapAssure SuperannuationScheme – a scheme that not only guarantees your capital but also offers you the benefit ofadditional funding and many more added benefits. There are two types of schemes:defined benefit scheme and defined contribution scheme.Key features: • Capital Guarantee on Fund Under Management • Unique Pooling Fund Advantage: Get higher returns based on aggregated value of all your non-Linked funds. • Additional Funding upto 3% to absorb exit penalty charged by the previous insurer • No Suicide Exclusion clause for basic life cover • Additional benefit for your employee through our Group Accidental Death and Permanent Disability RiderBenefits: • For defined benefit scheme:  On Retirement/ Resignation/ Termination: The employee receives either the defined Pension or its equivalent in Purchase Price as per the Scheme Rules.  On occurrence of Total Permanent Disability (TPD): The employee receives either the defined Pension or its equivalent in Purchase Price as per the Scheme Rules, + Rider Sum Assured, if any, in case of TPD is due to an accident.  On an unfortunate Death: The employee receives either defined Pension amount or its equivalent in Purchase Price as per the Scheme Rules, + Basic Sum Assured as opted for by the master policy holder + Rider Sum Assured, if any, in case death is due to accident. • For defined contribution scheme:BABASAB PATIL Page 57
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA  On Retirement/ Resignation/ Termination: The accumulated amount may be used to purchase an immediate annuity from SBI Life or any other insurer. Or The employee may also choose to transfer his accumulated fund to the approved superannuation fund of the new employer. Or The funds may be allowed to accumulate till superannuation of the employee. In case of unfortunate event of death during this period, the accumulated amount will be utilized to provide pension to the legal nominee.  On occurrence of Total Permanent Disability (TPD): The member receives the accumulated amount to his/her credit + Rider Sum Assured, if any, in case of TPD is due to an accident.  On an unfortunate Death: The accumulated amount to the credit of the member + the Basic Sum Assured as opted for by the master policy holder + Rider Sum Assured, if any, in case death due to accident. However, maximum benefit under Accidental Death & Total Permanent Disability (AD&TPD) rider will be limited to lower of basic sum assured or Rs.5 Lakhs.Grace period: A grace period of 30 days will be allowed for payment of life coverpremium. However, if death occurs during the grace period, the death claim shall becomepayable subject to the receipt of the due and unpaid risk premium or renewal riskpremium for the entire group from the Master Policyholder. In case of non-receipt of therisk/rider premium within a grace period of 30 days, the life cover/rider would lapse.Revival Period: Life Cover can be revived within two years from the first due but unpaidpremium, subject to payment of risk premium for the future. Revival will be treated asper underwriting rules at that time.Tax benefits:Benefits to employers: • The Employer will have a better chance of retaining the service of efficient and experienced staff. Better employee morale will lead to grater efficiency and productivity.BABASAB PATIL Page 58
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA • Annual Contribution by the employer to an approved superannuation fund in respect of any particular employee will be treated as expenditure to the company, However if the contribution exceeds Rs.1,00,000/- FBT is payable. (In accordance with Income Tax Rules, 87 & 88) • Any income received by the trustees on behalf of an approved superannuation fund is exempted (Section 10 (25) (iii) of the Income Tax Act, 1961).Benefits to Employees: • Payment of contribution towards an approved superannuation fund is eligible for deduction, subject to a maximum of Rs.1,00,000 (Section 80 C of the Income Tax Act, 1961). • Commuted value i.e. commuted part of the pension (maximum up to 1/3 of the pension in case where gratuity is received or 1/2 of the pension incase gratuity is not received), is tax free on death or retirement or attainment of vesting age. • Employer’s contribution will not be treated as perks in the hands of the employee. (as per provision 17(2)(v)) • Uncommuted Pension will be treated as salaried income and taxed accordingly.CapAssure Leave Encashment Scheme (CA-LE):It is a Non-Participating yearly renewable traditional group leave encashment scheme.Under this scheme, the contributions paid continue to accumulate on traditional platformof investments and at the end of the financial year; an investment income earned on yourcontributions is credited to your CA-LE fund account.Key features: • Capital Guarantee on Fund Under Management • Unique Pooling Fund Advantage: Get higher returns based on aggregated value of all your non-Linked funds • Additional Funding upto 3% to absorb exit penalty charged by the previous insurerBABASAB PATIL Page 59
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA • No Suicide Exclusion clause for basic life cover • Additional benefit for your employee through our Group Accidental Death and Permanent Disability RiderBenefits: • On Retirement/ Resignation/ Termination: Accrued Leave Encashment benefits as per scheme rules. • On occurrence of Total Permanent Disability (TPD): Accrued Leave Encashment benefit as per scheme rules + Rider Sum Assured, if any, in case of TPD is due to an accident. • On an unfortunate Death: Accrued Leave Encashment Benefit, as per scheme rules will be payable + Basic Sum Assured as opted for by the master policy holder + Rider Sum Assured, if any, in case death due to accident. However, maximum benefit under Accidental Death & Total Permanent Disability (AD&TPD) rider will be limited to lower of basic sum assured or Rs.5 Lakhs.Grace Period: A grace period of 30 days will be allowed for payment of life coverpremium. In case of non-receipt of the risk/rider premium within a grace period of 30days, the life cover/rider would lapse. However, the accumulation of the fund will becontinued without life cover/rider and the Leave Encashment claims will be settledsubject to the availability of funds.Revival Period: Life Cover can be revived within two years from the first due but unpaidpremium, subject to payment of risk premium for the future.Tax Benefits: • The cash equivalent of the leave Encashment Benefit as and when paid by the employer is deductible from his income under section 43B (f) of the Income Tax Act. • For the Employee the leave encashment benefit is taxable under section 15 of the Income Tax Act.BABASAB PATIL Page 60
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAHome loan insurance:It gives complete protection to housing loan borrowers. It insures the borrower’s lifeduring loan repayment period to the extent of entire outstanding to make his family freeof loan liability. SBI Life settles loan as per original EMI schedule directly with bank. Itis one of the most popular group insurance products.Any HL borrowers of SB group with age group between 18 to 60 can avail this product.Single premium for entire term of policy, valid for entire period of loan (max age 71 orlast date of repayment whichever is earlier). No burden on the family incase ofunfortunate death of the borrower, simplified claim settlement process. Tax benefit u/s 80C of IT Act is available.Group immediate annuity:SBI Life Insurance introduces “Group Immediate Annuity” Plan for employers, whowant their existing annuity liability to be totally/partially managed by SBI Life. Buy outof pension liabilities is a method by which the employer transfers the risk of running adefined pension scheme completely to SBI Life Insurance Company. In this way thedeferred benefits of the employees are protected and the employer also gets rid of the riskof the pension scheme running into deficits in the future.Key features: • One Annuity Option: Life annuity payable at a constant rate through out the life time of annuitant. There is no death benefit under this option. • Options to choose the periodicity of your annuity: Employees can choose the periodicity of the annuity depending upon the needs. The options available are Annual, Half yearly, Quarterly, and Monthly. • Annuity rates guaranteed for life: Attractive annuity rates due to group effect Annuity rates decided at the time of entry are guaranteed for the rest of life for the given purchase price.BABASAB PATIL Page 61
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA • Eligibility criteria Employees with in age group of 40 years (as on last birthday) to 80 years (as on last birthday) are eligible to this plan. • Minimum group size: 25 members • The minimum annuity amount shall be Rs. 6000 per year.SBI life golden gratuity:SBI Life presents “SBI Life - Golden Gratuity”-- a yearly renewable unit linked groupgratuity plan. SBI Life - Golden Gratuity is backed by SBI Life’s strong investment teamwhich provides an opportunity for higher market linked returns on corpus made by PastService Liability payment as Initial Contribution and Current Year Liability as AnnualContribution. Along with managing your gratuity fund a life cover on your employee’slife protect their family financially in case of unfortunate event.Key features: • Eligibility: Entry Age: Minimum age 18 years completed for both Gratuity benefit and Life cover. Maximum age 64 years for Life cover and for Gratuity Benefit Retirement age as per the scheme rules less one year. • Annual Contribution can be minimum Rs.50,000/- in multiple of Rs.100/-. • Sum Assured has to be minimum Rs.1,000/- . • Minimum Group Size should be 10 members. • Premium Payment option: The initial contribution can be paid in lump sum or in installments not exceeding five years. The Contributions can be paid annually, half yearly, quarterly or monthly as preferred by the Master Policyholder. Only Annual Mode is allowed for payment of risk premium.Switching Facility: You have the flexibility of switching between our various funds atany time. We allow four switches free of cost every policy year. The minimum amount ofswitch will be Rs.10,000 unless the 100% of units in a fund are switched to another fund.Contribution Redirection: The contributions can be redirected for investments into a fundof your choice and need not adhere to the initial investment pattern. You can do fourBABASAB PATIL Page 62
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAtimes contribution redirection in a policy year free of cost. This facility is available fromsecond policy year onwards.Revival period: Revival period of 5 years is available. The policy can be revived bypaying contributions determined as per revised valuation and the life cover premium. Thelife cover will be effective from the date of revival.Grace Period: A grace period of 30 days reckoned from the day following the Date ofCommencement /Renewal Date will be allowed for payment of life cover premium.Suicide Exclusion: If the Life Assured commits Suicide, whether sane or insane, withinone year from the Date of Commencement of Risk under the Policy, the Assurance on theLife of the deceased shall be void.Sampoorn Suraksha:It is a yearly renewable group term insurance plan which provides life cover atcomparatively lower premium than individual insurance to the groups who are engaged inthe similar kind of activities. It is available for both Formal and Informal Groups. Formalgroups like employee-employer relationship and informal groups like credit life groups,depositors groups, professional groups, affinity groups etc. can be covered under thisplan. Formal Groups can also use this plan to provide life cover with the retirementbenefit schemes available with us.Key features: • Wider age coverage: Sampoorn Suraksha provides wide age coverage starting from 16 years till the age of 70 years for informal group and 80 years for formal groups. • Conversion Option: Members of Formal group have an option to convert their group life cover into an individual life cover without medical underwriting.BABASAB PATIL Page 63
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA • Experience Rating Option: At the end of each policy year, we will investigate the claims experience for the group. Profit/ Loss of the experience will be adjusted against the premium due for the next policy year. • Spouse Cover Option: This option is available for members of the Formal groups. • Premium mode: Premiums can be paid in Yearly / Half-Yearly / Quarterly / Monthly modes for Formal groups. For Informal groups Yearly / Half-Yearly modes are available • Settlement Option: Master Policy holder may opt to pay the claim benefit to the nominee of the deceased member over the period of 5 years in Monthly, Quarterly, Half-yearly or Yearly installments.Minimum Sum Assured: Rs.1000/-Grace Period: A grace period of 30 days is available for all premium modes. For Monthlymode it is 15 days. For Formal groups, if death claim arises during the grace period theclaim will be paid subject to claim investigation and rules after deduction of due andunpaid premium subject to renewal of master policy. For Informal groups, if death claimarises during the grace period the claim will be paid subject to claim investigation andrules after deduction of due and unpaid future premium for the individual member.Reinstatement of Policy: At the end of the one-year term, the master policy can berenewed. If the master policy is not renewed within the grace period the policy will lapse.The lapsed master policy can be reinstated and the cover will recommence from the dateof reinstatement.Suicide Exclusion: No Suicide exclusion for basic life cover. Suicide clause is applicablefor the Spouse Cover only, in case the option has been availed.Tax benefits: Premium paid by you is considered as part of the business expenses underSection 37 of Income Tax Act, 1961 and is tax deductible. Premium paid by the employeris not treated as a perquisite in the hands of the employee. All claim payments areconsidered as non-taxable receipts and can consequently be considered as tax exemptunder Section 10 (10D) of the Income Tax Act, 1961BABASAB PATIL Page 64
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAGrameen shakti:The purpose of this product is to provide life insurance protection to the weaker sectionsof the society, like people who are funded by Micro Financial Institutions or NGO’s oravail loan from Bank/ Financial institutions through SHG. SHG is a group of rural poorwho have volunteered to organize themselves into a group for eradication of poverty ofmembers. SBI Life has designed ‘Grameen Shakti’ which is a Group Micro insuranceproduct with refund of premiums at maturity.Key features: • Duration of plan: 5 years or 10 years as per the Group Master policy holders choice. • Age at entry: Minimum 18 years age last birthday, Maximum 50 years age last birthday. • Sum assured: Rs.5,000/- to Rs.50,000/- (in multiples of 5,000) as per choice of Master Policyholder. • Requirement from the Group member: Automatic acceptance linked to signature of Membership form that includes Good health declaration and nomination clauseMaturity benefits: Depending on term chosen by the Master Policyholder, on survival ofthe policy term a percentage of total premiums paid would be refunded. 5 years – 50%of premium paid net of service tax, 10 years – 100% of premium paid net of service tax.Death Benefits: First 45 days after the cover start date or after the revival date – No deathclaim will be accepted (inclusive of accidental death). Form 46th day from cover startdate / revival date – Sum assured is payableSurrender value: The surrender value will be payable if at least 3 years premiums havebeen paid and is payable as follows:  For a 5 year term – 35% of (total premiums paid net of service tax less the first year premium)BABASAB PATIL Page 65
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA  For a 10 year term – 65% of (total premiums paid net of service tax less the first year premium)Grace Period: 30 days from the premium payment due date which is common for allGroup Members under the same Master policy.Revival Period: 2 years from the due date of the first unpaid premium and within the termof the cover subject to underwriting decision. All unpaid premiums have to be paid alongwith interest (9%p.a). A new 45 days exclusion period from the revival date will beapplicable.Grameen super suraksha:The purpose of this Product is to provide life cover at low costs to groups ofeconomically weaker sections of Society, like people who are funded by Micro financialInstitutions or NGO’s or avail loan form Bank/ Financial institutions through SHG. SHGis a group of rural poor who have volunteered to organize themselves into a group foreradication of poverty of members. Grameen Super Suraksha is a low cost Group termassurance plan for rural people who can seek life insurance protection without maturitybenefit.Key features: • Duration of plan: 5 years fixed. • Age at entry: Minimum 18 years age last birthday, Maximum 50 years age last birthday. • Sum assured: As per the Minimum / Maximum premium amount and premium mode.Single Premium: 30 times the Single premium amount (exclusive of Service Tax).Regular Premium: 150 times the Yearly premium amount (exclusive of Service Tax).BABASAB PATIL Page 66
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIARequirement from the Group Member: Automatic acceptance linked to signature ofMembership form containing a Good health Declaration and nomination clauseDeath benefits: First 45 days after the cover start date or after the revival date – No deathclaim will be accepted (inclusive of accidental death). From 46th day from the cover startdate / revival date – Sum assured is payable.Grace Period: 30 days from the premium payment due date which is common for alGroup Members under the same Master policy. During the grace period, claim amountless premium amount due is payable.Revival Period: 2 years from the due date of the first unpaid premium and within the termof the cover subject to underwriting decision. All unpaid premiums have to be paid alongwith interest (9%p.a). A new 45 days exclusion period from the revival date will beapplicable.Surrender value: No surrender value as it is a pure term assurance productBENEFITS OF BANCASSURANCE TO THE BANKBancassurance as an important tool in the hands of bankers, insurers and customers tomaximize their benefits at a time. As everybody is a winner in this system, theirrespective benefits are given below:-• From the viewpoint of Bank:-The benefits are many such as;  In a situation of constant asset base the bank can increase Return on Assets (ROA) by increasing their income, by selling insurance products through their own channel. It can cover operating expenses and make operating expenses profitable by leveraging their distribution and processing capabilities.BABASAB PATIL Page 67
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA  Banks enjoy significant brand awareness within their geographical region providing for a lower per lead cost when advertising through print, radio and television. The advantage of a bank over traditional distributors is the lower cost per sales lead made possible by their sizeable loyal customer base.  Banks have extensive experience in marketing to both existing customers and non-customers. They also use technology access multiple communication channels such as statement inserts, direct mail, ATMs, telemarketing etc for the improvement in transaction processing and customer service.  The chances of loan becoming a non performing asset reduce when the loan is provided with insurance.  Cross selling would reduce the risk of loan becoming debt loan, as it will give security to the loan amount.  Productivity of the bank employees increases.  Bancassurance provides an opportunity to the bank staff to harness their skills and adapt to the changing business environment.  By providing customers with both the services under one roof, they can improve overall customer satisfaction resulting in higher customer retention levels.  Increase in return on assets by building fee income through the sale of insurance products.  Banks can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell insurance products.  Banks can cross sell insurance products. E.g.: Term insurance products with loans.For banks, bancassurance would mean a major gain. Since interest rates have been fallingand profit on off take of credit has been low all banks have been able to do is sustainthemselves but not profit much. Enter bancassurance and fee based income throughhawking of risk products would be guaranteed.BABASAB PATIL Page 68
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA ANALYSISTotal income and total miscellaneous income before cross selling for the years 2002,2003 and 2004:Particulars 2002 2003 2004Total income Rs.4967000 Rs.7608000 Rs.10068000Total miscellaneous income Rs.828000 Rs.219000 Rs.317000Total income and total miscellaneous income after cross selling for the years 2005, 2006and 2007:Particulars 2005 2006 2007Total income Rs.17253495.36 Rs.18156082.16 Rs.25481107.46Total miscellaneous income Rs.621000 Rs.903000 Rs.1282000BABASAB PATIL Page 69
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA Graph Showing Trends of Total Income & Total Miscellaneous Income 30000000 25000000 20000000 Amount Total income 15000000 Total miscellaneous income 10000000 5000000 0 2002 2003 2004 2005 2006 2007 Years ⇒ The trend line is showing increase in the total income. It is also showing a small increase in the total miscellaneous income after the branch took up the activity of cross selling.% increase in the total income:Particulars 2003 2004 2005 2006 2007% increase in total income 53.17 32.33 71.36 5.23 40.34% % % % %BABASAB PATIL Page 70
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA Percentage Increase in Total Income 80.00% 71.36% % increase in total income 70.00% 60.00% 53.17% 50.00% 40.34% % increase in total income 40.00% 32.33% 30.00% 20.00% 10.00% 5.23% 0.00% 2003 2004 2005 2006 2007 Years ⇒ The % increase in total income in the year 2006 is low because advances have not been increased as per the expectations.% increase in the total miscellaneous income:Particulars 200 2004 2005 2006 2007 3% increase in total miscellaneous Nil 44.74 95.89 45.41 41.97%Income % % %BABASAB PATIL Page 71
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA Percentage increase in total miscellaneous Income 1.2 % increase in total miscellaneous 95.89% 1 0.8 income % increase in total 0.6 44.74% 45.41% miscellaneous Income 41.97% 0.4 0.2 0 0 2003 2004 2005 2006 2007 Years ⇒ The % increase in total miscellaneous income in the year 2003 is nil because loan growth was not there. ⇒ The % of total miscellaneous income in the year 2006 came down because loan growth was less and the total income has not increased in proportion.% increase in total miscellaneous income to total income:Particulars 2003 2004 2005 2006 2007% increase in total miscellaneous 2.88 3.14 3.59 4.97 5.03%Income to total income % % % %BABASAB PATIL Page 72
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA Percentage increase in total miscellaneous Income to total income 6.00% 4.97% 5.03% % increase in total miscellaneous 5.00% Income to total income 4.00% 3.59% 3.14% % increase in total 2.88% 3.00% miscellaneous Income to total income 2.00% 1.00% 0.00% 2003 2004 2005 2006 2007 Years ⇒ The proportion of total miscellaneous income in total income has been increased after the branch took up the activity of cross selling.Calculation of percentage of commission from cross selling for the past three years2005, 2006, 2007:Total amount of commission for the past three years:Particulars 2005 2006 2007Total Commission Rs.345525.12 Rs.645830.73 Rs.690860.70This commission amount is inclusive of commission from cross selling, commission frommutual funds, commission for selling credit cards etc. For the year 2005, around 45.5% ofthe total amount of commission has come from cross selling. For the year 2006, about49.25% of the total amount of commission has come from cross selling. For the year2007, around 50.95% of the total amount of commission has come from cross selling.Commission from cross selling:Particulars 2005 2006 2007Commission from cross selling 157213.93 318071.63 351993.53BABASAB PATIL Page 73
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA% of commission from cross selling to total income:Particulars 2005 2006 2007Commission from cross selling 157213.93 318071.63 351993.53Total income 17253495.36 18156082.16 25481107.46% of commission from cross 0.91 1.75 1.38selling to total income Percentage of commission from cross selling to total income 2 1.75 % of commission from cross 1.8 1.6 selling to total income 1.38 1.4 1.2 0.91 % of commission from cross 1 selling to total income 0.8 0.6 0.4 0.2 0 2005 2006 2007 Years ⇒ The percentage of commission from cross selling to total income for the year 2005 is 0.91%, for the year 2006 it is 1.75% and for the year 2007 it is 1.38%. ⇒ The contribution of commission from cross selling to the total income is less.% of commission from cross selling to total miscellaneous income:Particulars 2005 2006 2007Commission from cross selling 157213.93 318071.63 351993.53Total miscellaneous income 621000 903000 1282000% of commission from cross 25.32 35.22 27.46selling to total miscellaneousincomeBABASAB PATIL Page 74
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA Percentage of commission from cross selling to total miscellaneous income 40 % of commission from cross 35.22 selling to total miscellaneous 35 30 27.46 25.32 25 % of commission from cross income 20 selling to total miscellaneous income 15 10 5 0 2005 2006 2007 Years ⇒ The percentage of commission from cross selling to total miscellaneous income for the years 2005, 2006 and 2007 are 25.32%, 35.22% and 27.46% respectively. ⇒ The percentage of commission from cross selling to total miscellaneous income is increasing.Cross selling is advantageous to the bank when two customer accounts arecompared i.e. one who has taken bancassurance( loan+ insurance) with anothercustomer who has taken only loan:Here, I have compared the customer who has taken housing term loan plus an insurancepolicy with another customer who has taken only loan on his house.Customer with loan:Loan amount Rs.2958000Annual interest rate 10.75%Loan period in years 20BABASAB PATIL Page 75
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIANumber of payments per year 12Scheduled payment Rs.30030.47Scheduled number of payments 240Actual number of payments 240Total interest Rs.4249313.38Customer with bancassurance:Loan amount Rs.3100000 (2958000+142000)Premium Rs.142000Annual interest rate 10.75%Loan period in years 20Number of payments per year 12Scheduled payment Rs.31472.10 (30030.47+1441.63)Scheduled number of payments 240Actual number of payments 240Total interest Rs.4453303.41(4249313.38+203990.03)The customer who has taken a loan plus insurance of Rs.3100000 for 20 years, would payRs.4453303.41. The customer who has not taken insurance would pay Rs.4249313.38 in20 years. So the net increase in interest payment to the bank is Rs.203990.03(4453303.41-4249313.38).It is not only advantageous to the bank but it is also beneficial to the dependents of thecustomer, if he takes loan with insurance. Because, in the above example, if somethinghappens to that customer who has taken housing term loan, then insurance policy willtake care of that loan. The house will remain to the legal heirs of that customer. But thisbenefit is not available to another customer who has taken only the loan.BABASAB PATIL Page 76
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAIn addition, I have also prepared a questionnaire to the bank employees to know whetherthey are involved in the activity of bancassurance, and to know their opinion about theactivity of cross selling to the given set of questions. The questionnaire has been affixedin the annexure.This questionnaire has been filled up by 30 employees of the bank. Then the collecteddata has been put in SPSS and pie charts have been drawn. 2. Are you involved in the activity of bancassurance? Cumulative Frequency Percent Valid Percent Percent Valid YES 22 73.3 73.3 73.3 NO 8 26.7 26.7 100.0 Total 30 100.0 100.0BABASAB PATIL Page 77
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA NO 8.00 / 26.7% YES 22.00 / 73.3%INTERPRETATION:  Out of total 30 bank employees surveyed, 73.3% employees are involved in the activity of bancassurance and remaining 26.7% employees are not involved in the activity of bancassurance.  It is observed that, major portion of the employees are involved in the activity of bancassurance. 3. Have you been given any training for cross-selling (bancassurance)? Cumulative Frequency Percent Valid Percent Percent Valid YES 8 36.4 36.4 36.4 NO 14 63.6 63.6 100.0 Total 22 100.0 100.0BABASAB PATIL Page 78
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA YES 8.00 / 36.4% NO 14.00 / 63.6%INTERPRETATION:  Out of 22 employees, 36.4% employees have been given training for cross-selling and remaining 63.6% employees have not been given any training for cross-selling.  It is observed that, major portion of the employees have not been given training for cross-selling. 4. Is the activity of bancassurance helping in the diversification of revenue to the bank? Cumulative Frequency Percent Valid Percent Percent Valid YES 21 95.5 95.5 95.5 NO 1 4.5 4.5 100.0 Total 22 100.0 100.0BABASAB PATIL Page 79
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA NO 1.00 / 4.5% YES 21.00 / 95.5%INTERPRETATION:  Out of 22 employees, 95.5% employees told that bancassurance is helping in the diversification of revenue to the bank and remaining 4.5% employees say that it is not helping in the diversification of revenue to the bank  It is observed that, major portion of the employees told that bancassurance is helping in the diversification of revenue to the bank. 5. Do you feel, cross-selling is increasing the customer loyalty to the bank? Cumulative Frequency Percent Valid Percent Percent Valid YES 21 95.5 95.5 95.5 NO 1 4.5 4.5 100.0 Total 22 100.0 100.0BABASAB PATIL Page 80
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA NO 1.00 / 4.5% YES 21.00 / 95.5%INTERPRETATION:  Out of 22 employees, 95.5% employees say that bancassurance is increasing the customer loyalty to the bank and remaining 4.5% employees told that it is not increasing the customer loyalty to the bank.  It is observed that, major portion of the employees told that bancassurance is increasing the customer loyalty to the bank. 6. In your opinion, is cross-selling increasing the total other income of the bank? Cumulative Frequency Percent Valid Percent Percent Valid YES 20 90.9 90.9 90.9 NO 2 9.1 9.1 100.0 Total 22 100.0 100.0BABASAB PATIL Page 81
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA NO 2.00 / 9.1% YES 20.00 / 90.9%INTERPRETATION:  Out of 22 employees, 90.9% employees told that bancassurance is increasing the total other income of the bank and remaining 9.1% employees told that it is not increasing the total other income of the bank.  It is observed that, major portion of the employees told that bancassurance is increasing the total other income of the bank. 7. In your opinion, is this activity (bancassurance), increasing your productivity? Cumulative Frequency Percent Valid Percent Percent Valid YES 20 90.9 90.9 90.9 NO 2 9.1 9.1 100.0 Total 22 100.0 100.0BABASAB PATIL Page 82
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA NO 2.00 / 9.1% YES 20.00 / 90.9%INTERPRETATION:  Out of 22 employees, 90.9% employees told that bancassurance is increasing their productivity and remaining 9.1% employees told that it is not increasing their productivity.  It is observed that, major portion of the employees opine that bancassurance is increasing their productivity. 8. Do you feel, your work content is enriched by the activity of cross-selling? Cumulative Frequency Percent Valid Percent Percent Valid YES 18 81.8 81.8 81.8 NO 4 18.2 18.2 100.0 Total 22 100.0 100.0BABASAB PATIL Page 83
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA NO 4.00 / 18.2% YES 18.00 / 81.8%INTERPRETATION:  Out of 22 employees, 81.8% employees say that their work content is enriched by the activity of bancassurance and remaining 18.2% employees told that work content is not enriched by the activity of bancassurance.  It is observed that, major portion of the employees told that their work content is enriched by the activity of bancassurance.For the last question, i.e. advantages of bancassurance, the employees told the followingthings:-  It will increase the income of the bank a well as the income of the bank staff by providing them the incentive for cross-selling.  No NPA on account of death of the borrower because entire outstanding loan amount will be reimbursed by the insurance company.BABASAB PATIL Page 84
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA  With the existing staff bank can do insurance business also. No extra manpower is required.  The bank staff will be motivated when there is no further scope in their career progression.  Bancassurance will bring in more customers to the bank.I have also discussed with the branch manager about the activity of bancassurance in thebranch. He told the following things:- In Hindwadi branch, the activity of cross selling started in the year 2005.- For the initial two years, the activity was aggressive. But from 2007, takingbancassurance has been made optional for the customers. If the customers are interestedin taking the insurance along with loan, they can take.- For the bank staff, involvement in the activity of bancassurance is optional.- The Certified Insurance Facilitators (CIF) who collects Rs.1 lakh premium, they will begiven 1 gram gold.- The CIF’s who cross Rs.50 lakhs premium, they will be given a chance to travel toSingapore.- The CIF’s who cross Rs.1 Crore premium, they will be given a chance to travel toSingapore with their family for a period of one week.- The CIF’s who reach Rs.5 Crore premium, that branch manager and CIF will be given achance to travel to Singapore.According to him the advantages of bancassurance are: • Bank can become financial supermarket for the customers. • The CIF’s are being recognized for their performance which improves motivational level. • In the age of reduction in remittance business, bancassurance is one way of offsetting the loss of other income. • Bank gets captive customers who are in need of insurance. • The brand name of SBI can be leveraged to get more customers.BABASAB PATIL Page 85
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA• From the view point of Insurer: - Insurance company also gets the benefits, some ofwhich are listed below;  The insurer can increase their volume of business through banking distribution channel and gain better.  It can solve the difficulties arising out of price competition which has driven down the margins and increased the compensation demand of successful agents.  Through agents the insurer can only sell fewer and larger policies to a more up scale client. Mainly middleclass income holders who comprise the bulk of bank customers get very little attention. By using bank channel the insurer can capture much of it’s under served market.  By cutting cost insurers can serve better to the customer in terms lower premium rate and better risk coverage through product diversification.  Insurers can exploit the banks wide network of branches for distribution of products. The penetration of banks branches into the rural areas can be utilized to sell products in those areas.  Customer database like customers financial standing, spending habits, investment and purchase capability can be used to customize products and sell accordingly.  Since banks have already established relationship with customers, conversion ratio of leads to sales is likely to be high. Further service aspect can also be tackled easily.• From the customers view point:-Product innovation and distribution activities are directed towards the satisfaction of theneeds of the customer. Bancassurance model assists customers in terms of reduced price,diversified products quality products, in time and doorstep service.  Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc.  The risk will be reduced for the customer. In case of default, the property will remain to his legal heirs.  Enhanced convenience on the part of the insured.BABASAB PATIL Page 86
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA  Easy accesses for claims, as banks are a regular go.  Customers can get innovative and better product ranges.RBI AND IRDA GUIDELINES ON BANCASSURANCEAs a response to the desire of commercial banks for entering the insurance sector, theReserve Bank of India (RBI) has come out with detailed guidelines on the entry norms ofcommercial banks for diversifying into insurance.According to the RBI norms, there are three options open to banks wanting to enter theinsurance arena. Financially strong banks, subject to eligibility norms, will be permittedto set up joint ventures for undertaking insurance business with risk participation. Themaximum equity contribution such a bank would hold in the joint venture wouldnormally be 50 per cent of the paid-up capital of the insurance company. However, ahigher level of equity contribution may be permitted, subject to divestment of equitywithin the prescribed period. As per present indications, the largest public sector bank,State Bank of India, will be allowed to hold more than 50 per cent of the equity of aninsurance venture, while other public sector banks like Bank of Baroda and CorporationBank can hold up to 50 per cent of the equity.The eligibility criteria for joint venture participation will be as under, as on March 31,2000:* The net worth of the bank should not be less than Rs.500 crores,* The CRAR of the bank should not be less than 10 per cent,* The level of Non Performing Assets (NPAs) should be reasonable,* The bank should have net profit for the last three continuous years,BABASAB PATIL Page 87
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA* The track record of the performance of subsidiaries, if any, of the bank concernedshould be satisfactory.Banks that are not eligible as joint venture participants can make investments up to 10 percent of the net worth of the bank or Rs.50 crores, whichever is lower, in the insurancecompany for providing infrastructure and services support. Such participation shall betreated as an investment and should be without any contingent liability for the bank.Finally, any scheduled commercial bank will be permitted to undertake insurancebusiness as agent of insurance companies on fee basis, without any risk participation.Further, subsidiaries of banks will also be allowed to undertake distribution of insuranceproducts on agency basis. Several public sector banks like Bank of India, Punjab NationalBank and Syndicate Bank have expressed a desire to enter the business of distribution ofinsurance products. Private sector banks such as HDFC Bank and ICICI Bank will beinvolved in insurance selling as their associate companies are involved in promotinginsurance ventures. Foreign banks are also keyed up to become involved in thedistribution of insurance products.The guidelines issued by RBI on bank participation in insurance ventures are quitecomprehensive and make a great deal of sense. There are basically three options availableto banks to enter the insurance sector, namely, • As a promoter, • As a strategic investor and • As a corporate agent for selling insurance policies.It may be added here that the RBI has also come out with detailed guidelines fordiversification into the insurance area in the case of non-banking finance companies(NBFCs). All NBFCs registered with RBI that satisfy the eligibility criteria will bepermitted to set up a joint venture company for undertaking insurance business with riskparticipation. NBFCs like Sundaram Finance, Kotak Mahindra Finance and HDFC havebecome promoters of insurance ventures. Further, any NBFC registered with RBI havingBABASAB PATIL Page 88
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAnet owned funds of Rs.2 crores would be permitted to undertake insurance business asagents of insurance companies on fee basis, without any risk participation.Following the issuance of Government of India Notification dated August 3, 2000,specifying ‘Insurance’ as a permissible form of business that could be undertaken bybanks under Section 6(1)(o) of the Banking Regulation Act, 1949, RBI issued theguidelines on Insurance business for banks. 1) Any scheduled commercial bank would be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation. The subsidiaries of banks will also be allowed to undertake distribution of insurance product on agency basis. 2) Banks which satisfy the eligibility criteria will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. The maximum equity contribution such a bank can hold in the joint venture company will normally be 50 per cent of the paid up capital of the insurance company. On a selective basis the Reserve Bank of India may permit a higher equity contribution by a promoter bank initially, pending divestment of equity within the prescribed period (see Note 1 below). 3) In cases where a foreign partner contributes 26 per cent of the equity with the approval of Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one public sector bank or private sector bank may be allowed to participate in the equity of the insurance joint venture. As such participants will also assume insurance risk, only those banks which satisfy the criteria given in paragraph 2 above, would be eligible. 4) A subsidiary of a bank or of another bank will not normally be allowed to join the insurance company on risk participation basis. Subsidiaries would include bankBABASAB PATIL Page 89
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA subsidiaries undertaking merchant banking, securities, mutual fund, leasing finance, housing finance business, etc. 5) Banks which are not eligible for ‘joint venture’ participant as above, can make investments up to 10% of the net worth of the bank or Rs.50 crore, whichever is lower, in the insurance company for providing infrastructure and services support. Such participation shall be treated as an investment and should be without any contingent liability for the bank. 6) All banks entering into insurance business will be required to obtain prior approval of the Reserve Bank. The Reserve Bank will give permission to banks on case to case basis keeping in view all relevant factors including the position in regard to the level of non-performing assets of the applicant bank so as to ensure that non-performing assets do not pose any future threat to the bank in its present or the proposed line of activity, viz., insurance business. It should be ensured that risks involved in insurance business do not get transferred to the bank and that the banking business does not get contaminated by any risks which may arise from insurance business. There should be ‘arms length’ relationship between the bank and the insurance outfit.Additional Notes: 1. Holding of equity by a promoter bank in an insurance company or participation in any form in insurance business will be subject to compliance with any rules and regulations laid down by the IRDA/Central Government. This will include compliance with Section 6AA of the Insurance Act as amended by the IRDA Act, 1999, for divestment of equity in excess of 26 per cent of the paid up capital within a prescribed period of time. 2. Latest audited balance sheet will be considered for reckoning the eligibility criteria. 3. Banks which make investments under paragraph 5 of the above guidelines, and later qualify for risk participation in insurance business (as per paragraph 2 of theBABASAB PATIL Page 90
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA guidelines) will be eligible to apply to the Reserve Bank for permission to undertake insurance business on risk participation basis.The Insurance Regulatory and Development Authority (IRDA) guidelines for thebancassurance are: 1) Each bank that sells insurance must have a chief insurance executive to handle all the insurance activities. 2) 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. 3) Commercial banks, including cooperative banks and regional rural banks, may become corporate agents for one insurance company. 4) Banks cannot become insurance brokers.Insurance Agency Business/ Referral ArrangementThe banks (includes SCBs and DCCBs) need not obtain prior approval of the RBI forengaging in insurance agency business or referral arrangement without any riskparticipation, subject to the following conditions: i. The bank should comply with the IRDA regulations for acting as ‘composite corporate agent’ or ‘referral arrangement’ with insurance companies. ii. The bank should not adopt any restrictive practice of forcing its customers to go in only for a particular insurance company in respect of assets financed by the bank. The customers should be allowed to exercise their own choice. iii. The bank desirous of entering into referral arrangement, besides complying with IRDA regulations, should also enter into an agreement with the insurance company concerned for allowing use of its premises and making use of the existing infrastructure of the bank. The agreement should be for a period not exceeding three years at the first instance and the bank should have the discretion to renegotiate the terms depending on its satisfaction with the service or replace it by another agreement after the initial period. Thereafter, the bank will be free to sign a longer term contract with the approval of its Board in the case of a privateBABASAB PATIL Page 91
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA sector bank and with the approval of Government of India in respect of a public sector bank. iv. As the participation by a bank’s customer in insurance products is purely on a voluntary basis, it should be stated in all publicity material distributed by the bank in a prominent way. There should be no ’linkage’ either direct or indirect between the provision of banking services offered by the bank to its customers and use of the insurance products. v. The risks, if any, involved in insurance agency/referral arrangement should not get transferred to the business of the bank.FUTURE PROSPECTS OF BANCASSURANCE IN SBIAccording to a recent sigma study, bancassurance is on the rise, particularly in emergingmarkets. Worldwide, insurers have been successfully leveraging bancassurance to gain afoothold in markets with low insurance penetration and a limited variety of distributionchannels.Bancassurance, the provision of insurance services by banks, is an established andgrowing channel for insurance distribution, though its penetration varies across differentmarkets. Europe has the highest bancassurance penetration rate. In Asia, bancassurance isgaining in popularity, particularly in China, where restrictions have been eased. Theresearch shows that social and cultural factors, as well as regulatory considerations andproduct complexity, play a significant role in determining how successful bancassuranceis in a particular market.The outlook for bancassurance remains positive. While development in individualmarkets will continue to depend heavily on each country’s regulatory and businessenvironment, bancassurers could profit from the tendency of governments to privatizehealth care and pension liabilities. In emerging markets, new entrants have successfullyBABASAB PATIL Page 92
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAemployed bancassurance to compete with incumbent companies. Given the currentrelatively low bancassurance penetration in emerging markets, bancassurance will likelysee further significant development in the coming years.SBI Life Insurance is uniquely placed as a pioneer to usher bancassurance into India. Thecompany has been extensively utilizing the SBI Group as a platform for cross-sellinginsurance products along with its numerous banking product packages such as housingloans, personal loans and credit cards. SBI has distinct advantage of having access to over100 million accounts and which provides it a vibrant and largest customer base to buildinsurance selling across every region and economic strata in the country. In 2004, thecompany reported to have become the first company amongst private insurance players tocover 30 lakh lives. Interestingly, in respect of new (life) business bancassurancebusiness channel is even greater than the size of direct business by the insurers at 2.17 percent. Even in respect of LIC around 1.25 per cent of the new business is throughbancassurance. This speaks for itself the rate at which the bancassurance becoming animportant channel of distribution of insurance products in India.There are future prospects for bancassurance because the Indian insurance sector hasplenty of growth opportunities for the private insurers to capitalize on. A recent surveyconducted by the Max New York-NCAER India Financial Protection pointed out that inspite of the awareness about life insurance among Indians, close to 78%, the penetrationlevels remained unimpressive. The survey also indicated that more than half of thepopulation (51%) preferred to keep their surplus in bank deposits, while 36% of thepopulation was comfortable in keeping their deposits at home. Only 2% of the Indianpopulation invested their savings in buying life insurance policies. Apart from thesereasons, there are other reasons for future growth which are mentioned below; • Integration of the financial service industry in terms of banking, securities business and insurance is a growing worldwide phenomenon. The Universal Banking is evolving on these lines in India. • Banks are the key pillars of India’s financial system. Public have immense faith in banks. People have trust in SBI.BABASAB PATIL Page 93
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA • SBI enjoys considerable goodwill and access in the rural regions. • SBI is having enormous retail customer base. • Banks world over have realized that offering value-added services such as insurance, helps to meet client expectations. – Competition in the Personal Financial Services area is getting `hot’ in India. – Banks seek to retain customer loyalty by offering them a vastly expanded and more sophisticated range of products. • Insurance distribution helps to increase the fee-based earnings of the bank to a considerable extent. – Insurance activities contribute significantly to banks’ total domestic retail revenues. • Fee-based selling helps to enhance the levels of staff productivity in the bank. – This is vitally important to bring higher motivation levels in the bank. • Bank can put its energy into the `small-commission customers’ that insurance agents would tend to avoid. – Banks’ entry in distribution helps to enlarge the insurance customer base rapidly. This helps to popularize insurance as an important financial protection product. • Bank can play a major role in developing a viable healthcare programme in India. – Only 2.5 million people have access to healthcare facilities. There is a growing demand for healthcare products which banks can distribute (and facilitate administration).Emerging TrendsThough bancassurance has traditionally targeted the mass market, bancassurers havebegun to finely segment the market, which has resulted in tailor-made products for eachsegment. The quest for additional growth and the desire to market to specific clientsegments has in turn led bancassurers to shift away from using a standardized, singlechannel sales approach to adopting a multiple channel distribution strategy. Thebancassurers are also beginning to focus exclusively on distribution.BABASAB PATIL Page 94
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAIn some markets, face-to-face contact is preferred, which tends to favor bancassurancedevelopment. Nevertheless, SBI is thinking to start direct marketing and Internet bankingas tools to distribute insurance products. New and emerging channels are becomingincreasingly competitive, due to the tangible cost benefits embedded in product pricing orthrough the appeal of convenience and innovation.Finally, the marketing of more complex products has also gained ground in somecountries, alongside a more dedicated focus on niche client segments and the distributionof non-life products. The drive for product diversification arises as bancassurers realizethat over-reliance on certain products may lead to undue volatility in business income.Nevertheless, bancassurers have shown a willingness to expand their product range toinclude products beyond those related to bank products.Strategic ChallengesThese developments are expected to challenge traditional bancassurers in the followingways:-- Creating an environment of top level involvement of bank management.- Bringing relevance, motivation and skill development at the operating level at bankbranches.- Resolving possible conflicts of interest between the bank and the insurer.- Setting up distribution procedures consistent with the manual systems in the banks.- Establishing credible service level agreements between the bank and the insurer.- Increasing sales of non-life products, to the extent those risks are retained by the banks,require sophisticated products and risk management.- Banks will have to be prepared for possible disruptions to client relations arising frommore frequent non-life insurance claims.Currently, 21 branches of SBI are engaged in selling the products of SBI Life. With avast network of 65,000 branches, the bank is planning to sell its products through at least100 branches by the year-end. To successfully adopt the bancassurance model, SBI LifeBABASAB PATIL Page 95
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAwould initiate the process of training the bank staff for the Certified Insurance Officersprogramme covering a training of 100 hours on insurance. The new product portfolioincludes pure endowment, critical illness, pension product, housing loan mortgage andalso life insurance linked to Kisan Credit Cards.Issues to be tackled  The difference in working style and culture of the banks and insurance sector needs greater appreciation. Insurance is a ‘business of solicitation’ unlike a typical banking service, it requires great drive to ‘sell/ market the insurance products. It should, however, be recognized that ‘bancassurance’ is not simply about selling insurance but about changing the mindset of a bank.  Moreover, in India since the majority of the banking sector is in public sector and which has been widely disparaged for the lethargic attitude and poor quality of customer service, it needs to refurbish the blemished image. There are also glitches in the system of bancassurance strategy in the form of ‘conflict of interests’, as some of the products offered by the banks, viz., ‘term deposits’ and other products which are mainly aimed at long term savings/ investments can be very similar to that of the insurance products. Banks could as well feel apprehension about the possibility of substitution effect between its own products and insurance products and more so, as a number of insurance products in India come with an added attraction of tax incentives.  In case the Bancassurance is fully integrated with that of the banking institution, it is suitable only for larger banks; however, it has other allied issues such as putting in place ‘proper risk management techniques’ relating to the insurance business, etc.  As there is a great deal of difference in the approaches of ‘selling of insurance products’ and the usual banking services- thorough understanding of the insuranceBABASAB PATIL Page 96
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA products by the bank staff coupled with extra devotion of time on each customer explaining in detail of each product’s intricacies is a prerequisite. Moreover, insurance products have become increasingly complex over a period of time, due to improvisation over the existing products as well as due to constant innovation of new products, emanating from the excessive competition adding to even more difficulties in comprehension of the products and marketing by the bank staff. These can result in resistance to change and leading to problems relating to industrial relations.  Unlike, the banking service, there is no guarantee for insurance products that all efforts that a bank staff spends in explaining to a customer would clinch the deal due to the very nature of the insurance products. This frustration of the bank staff has the danger of spill over effect even on their regular banking business.  Bankers in India are extremely naïve in insurance products as there were no occasions in the past for the bankers to deal in insurance products; therefore they require strong motivation of both monetary and non monetary incentives.Given the roles and diverse skills brought by the banks and insurers to a Bancassurancetie up, it is expected that road to a successful alliance would not be an easy task. Somemore issues that are to be addressed are: 1. The tie-ups need to develop innovative products and services rather than depend on the traditional methods. The kinds of products the banks would be allowed to sell are another major issue. For instance, a complex unit-linked life insurance product is better sold through brokers or agents, while a standard term product or simple products like auto insurance, home loan and accident insurance cover can be handled by bank branches. 2. There needs to be clarity on the operational activities of the bancassurance i.e., who will do the branding, will the insurance company prefer to place a person atBABASAB PATIL Page 97
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA the bank branch, or will the bank branch train and put up one of its own people, remuneration of these people. 3. Even though the banks are in personal contact with their clients, a high degree of proactive marketing and skill is required to sell the insurance products. This can be addressed through proper training. 4. There are hazards of direct competition to conventional banking products. Bank personnel may become resistant to sell insurance products since they might think they would become redundant if savings were diverted from banks to their insurance subsidiaries.With the financial reforms and technological revolution embracing the financial system,there has been a great deal of flexibility in the mind set of people to accept change. Theabove outlined problems need not, however, deter the banking sector to embark onbancassurance as any form of resistance from the bank employees could be tackled bydevising an appropriate incentive system commensurate with intensive training to thefrontline bank staff.Factors that appear to be critical for the success of bancassurance: 1. Strategies consistent with the banks vision, knowledge of target customers needs, defined sales process for introducing insurance services, simple yet complete product offerings, strong service delivery mechanism, quality administration, synchronized planning across all business lines and subsidiaries, complete integration of insurance with other bank products and services, extensive and high-quality training, sales management tracking system for reporting on agents time and results of bank referrals and relevant and flexible database systems. 2. Another point is the handling of customers. With customer awareness levels increasing, they are demanding greater convenience in financial services. 3. The emergence of remote distribution channels, such as PC banking and Internet- banking, would hamper the distribution of insurance products through banks.BABASAB PATIL Page 98
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA 4. The emergence of newer distribution channels seeking a market share in the network.OBSERVATIONS 1) Bancassurance is the process of selling insurance products through a bank’s network. 2) The joint venture model of bancassurance is applied in SBI. SBI Life is the joint venture between SBI and Cardif life insurance company of France. SBI provides network, Cardiff provides technology. 3) There are various individual and group insurance products marketed through SBI targeting different groups of customers. 4) Bancassurance is beneficial for the banks, because i. It helps the bank by increasing the skills of the employees. ii. It reduces the risk of loan becoming debt loan for the bank.BABASAB PATIL Page 99
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA iii. Non performing assets will be reduced as it gives security to the loan amount. iv. It increases the total other income of the bank. 5) As per the trend line, the total income has increased after the branch took up the activity of cross selling and also there is an increase in the total miscellaneous income. 6) The proportion of total miscellaneous income in total income has been increased after the branch took up the activity of cross selling. 7) The % increase in total income in the year 2006 is low because advances have not been increased as per expectations. 8) The contribution of commission from cross selling to the total income is less. 9) The percentage of commission from cross selling to total miscellaneous income is increasing. 10) Major portion of the employees have not been given any training for cross selling. 11) Out of 30 employees, 73.3% employees are involved in the activity of bancassurance. 12) Out of 22 employees who are involved in the activity of cross selling, 90.9% employees opine that it is increasing their skills. 13) Cross selling is advantageous to the bank, when two customer accounts are compared i.e. one who has taken bancassurance with another customer who has not taken bancassurance; the bank is more benefited incase of customer who has taken bancassurance. 14) SBI is following RBI and IRDA guidelines. 15) The extensive presence of bank branches, the strong growth of insurance demand in the rural regions and closeness of the bank staff with the customers will aid bancassurance to grow in the future. 16) As per IRDA annual report 2005-06, SBI Life Insurance Company has 4413 urban Life Insurance agents and 699 rural Life Insurance agents. 17) Most of the customers who have taken bancassurance are above 35 years of age.BABASAB PATIL Page 100
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIASUGGESTIONS 1) Training should be given to all the employees of the branch with respect to cross selling. 2) Banks have witnessed a decline in margins in their core lending business due to falling interest rates. Insurance distribution helps to increase the fee based earnings of banks to a considerable extent. So the bank employees should try to increase the total other income of the bank by doing cross selling. 3) Bank employees should be motivated to take the training by specifying the commission amount which they are going to get after cross selling. 4) Bank employees who are involved in bancassurance should be given full knowledge of the target customers.BABASAB PATIL Page 101
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA 5) They should also be given training regarding all product offerings with the quality service delivery and administration. 6) Bank should try to facilitate online and internet payments towards insurance products. 7) In order to attract more policy holders, the bank employees and insurance agents should promptly attend to the enquiries of policyholders. 8) All the policyholders who came under tax bracket should be provided with the necessary documents for claiming the tax concession. 9) Bank staff should make an effort to educate the public about the social security provided by the insurance policies. 10) SBI Life awareness campaign can be organized in rural and semi urban areas in order to encourage small entrepreneurs to purchase life insurance policies. 11) In order to encourage low age groups to take life insurance policies, SBI Life may come forward with novel and innovative schemes at a low premium.CONCLUSIONWith huge untapped market, insurance sector is likely to witness a lot of activity - be itproduct innovation or distribution channel mix. Bancassurance, the emerging distributionchannel for the insurers, will have a large impact on Indian financial services industry.Traditional methods of distributing financial services would be challenged andinnovative, customized products would emerge.Banks will bring in customer database, leverage their name recognition and reputation atboth local and regional levels, make use of the personal contact with their clients, which anew entrant cannot, as they are new to the industry. In customer point of view, a plethoraof products would be available to him. More customized products would come intoexistence and that too all within hands reach. Success of the bancassurance would mostlyBABASAB PATIL Page 102
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAdepend on how well insurers and banks understand each others businesses and seize theopportunities presented, weeding out differences that are likely to crop up.Bancassurance has developed its form gradually where banks at first do not carry risksand distribute insurance products for a fee and product development is left to insurancecompany. But gradually banks have assumed risks regarding distribution assuming fullresponsibility. But the proper implementation of bancassurance is still facing someproblems such as, poor manpower with in the banks, detachment of branch manager,insufficient product promotion, managerial database expertise, inadequate incentives,negative attitude towards insurance etc. In order to get the full benefit of it the followingsteps should be taken:-i) Service delivery mechanism should be strengthened.ii) Knowledge of target customer needs should be developed.iii) Extensive and high quality training should be ensured.iv) Strategies consistent with the banks vision should be developed.v) Banks data base system should be made flexible to cope with the change.So observing the progress in India, particularly with reference to SBI, bancassurance isgaining acceptance gradually. Bank is converging towards a model of global retailfinancial institution offering a wide array of products creating a one stop-shop wheremortgages, savings, pensions and insurance products will be available.There are costs associated with setting up a successful bancassurance network. Theproper training of bank personnel to understand and market insurance schemes is vital tothe success of these ventures. There is also a need to invest extensively in IT and othersupport systems that would provide an integrated ‘back-end’ for banking and insuranceservices. Regulatory issues need to be addressed comprehensively and sorted outparticularly with respect to competition and market structure problems. Given thesechanges, bancassurance and collaboration between banks and insurers has a long way togo in India.BABASAB PATIL Page 103
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIAREFERENCES • N.D.Kapoor, Elements of Mercantile Law, Law of Insurance, Page Number 425-443. • Websites:  www.statebankofindia.com  www.sbilife.co.in  www.rbi.org.in  www.irda.gov.in  www.google.com • Articles:BABASAB PATIL Page 104
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA  Bancassurance in India – Janardhan G Naik  SBI Life: The new insurance behemoth – Vidyut Kumar T  Bancassurance – Abheek Barua  Bancassurance: The most challenging insurance Distribution channel with Special reference to SBI - Amitesh Chowdhury W ANNEXURE Questionnaire to bank staff 1. Personal Data: Name: Designation: 2. Are you involved in the activity of bancassurance? Yes [ ] No [ ] (If answer is ‘Yes’, then go to the next question. If answer is ‘No’, then thank you.) 3. Have you been given any training for cross-selling (bancassurance)? Yes [ ] No [ ]BABASAB PATIL Page 105
    • BANCASSURANCE HAS BEEN APPLIED IN STATE BANK OF INDIA 4. Is the activity of bancassurance helping in the diversification of revenue to the bank? Yes [ ] No [ ] 5. Do you feel, cross-selling is increasing the customer loyalty to the bank? Yes [ ] No [ ] 6. In your opinion, is cross-selling increasing the total other income of the bank? Yes [ ] No [ ] 7. In your opinion, is this activity (bancassurance), increasing your productivity? Yes [ ] No [ ] 8. Do you feel, your work content is enriched by the activity of cross-selling? Yes [ ] No [ ] 9. According to you, the advantages/benefits of bancassurance are:- • • Thank youBABASAB PATIL Page 106