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It is a project on Impact of FDI in Indian Life Insurance sector

It is a project on Impact of FDI in Indian Life Insurance sector

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Fdi santu Fdi santu Document Transcript

  • A PROJECT REPORTOnSTUDY ONFDI IN THE LIFE INSURANCE SECTORININDIASubmitted in the partial fulfilment of the requirement for theaward of the degreeOfMaster of Business AdministrationSubmitted bySANTHOSH GOLLARoll.No.121411672032ST.JOSEPHS PG COLLEGE(Affiliated to Osmania University)1
  • KING KOTI ROAD, Hyderabad-500029 (2011-2013)DECLARATIONI hereby declare that this project report titled “A STUDY ONFDI IN THE LIFE INSURANCE SECTOR IN INDIA " submittedby me to the Department of Business Management, St.Josephs PGCollege, kingkoti Road, Hyderabad, is a bonafide work undertakenby me and it is not submitted to any other University orInstitution for the award of any degree, diploma/certificate ofpublished any time before.Name and address of the studentSanthosh Golla,H.No.2-2-1103/9/1/A, 3rdfloor, Signature of the studentB.V.Bhagyamma House,Sanjeevaiah nagar, Nallakunta,Hyderabad- 500049.ACKNOWLEDGEMENT2
  • I sincerely express my deep and heartful gratitude to Dr.V.K.Swamyprincipal, and director Professor MallaReddy of St.Josephs PGCollege, Hyderabad for their guidance and valuable suggestions forsuccessful completion of project.I am very grateful to the entire management faculty in particular to MrsR.Anitha HOD for inspiration and timely support in successfulcompletion of this project work.I am deeply indebted to Mrs.Danam Tressa associate professor forher valuable guidance throughout the course.I also express my heartful regards to my parents, brother, and to all myfriends for their co-operation and constant source of inspiration.( SanthoshGolla)3
  • ABSTRACTIndia is the third most attractive foreign direct investment destination inthe world. The Indian insurance companies offer a comprehensive rangeof insurance plans. Due to the growing demand for insurance, more andmore insurance companies are now emerging in the Indian insurancesector. This study on FDI IN THE LIFE INSURANCE SECTOR IN INDIAis undertaken with the objectives to Study the pattern of FDI in LifeInsurance Sector, to study the current trend in Insurance sector& thechallenges in the sector, to study the Effect of FDI on 3 Indian LifeInsurance Sector and to study the benefits of FDI in insurance sector.Secondary data is collected and is analysed using the descriptivestatistics. It was concluded that already about Rs33,000 crore has beeninvested as capital and a further Rs50,000-60,000 crore is requiredbefore companies actually breakeven and start making profits. A well-developed and evolved insurance sector is a boon for economicdevelopment as it provides long-term funds for infrastructuredevelopment at the same time strengthening the risk taking ability of thecountry. Nearly 80% of the Indian population is without life, health andnon-life insurance. The insurance sector in India is a colossal one and isgrowing at a rate of 15-20%. Together with banking services, insuranceservices add about 7% to the country’s Gross domestic product (GDP).Hence FDI in insurance sectors is very much required for developingcountry like India.4
  • TABLE OF CONTENTS5CHAPTER NO PARTICULARS PAGE NOLIST OF TABLESI INTRODUCTION 1-5II REVIEW OF LITREATURE 6-27III PROFILE OF THE COMPANY 28-36IV DATA ANALYSIS AND INTERPRETATION 37-43V CONCLUSIONS AND SUGGESTIONS 44-45BIBLIOGRAPHY
  • LIST OF TABLES6
  • LIST OF GRAPHS7SL.NO TOPICS PAGE NO1. Top life Insurance Policies in India 37-382 Market Share Of Life InsuranceCompanies392 Equity Capital of ICICI PrudentialLife Insurance from 2007-12403 Equity Capital of HDFC StandardLife Insurance from 2007-12414 Equity Capital of SBI Life Insurancefrom 2007-12425 COMPARISION OF CAPITAL OFTHREE COMPANIES436 COMPARISION OF FDI’s OF THREECOMPANIES43
  • 8SLNO TOPICS PAGENO1 Market Share Of Life Insurance Companies 392 Equity Capital of ICICI Prudential Life Insurancefrom 2007-12403 Equity Capital of HDFC Standard Life Insurancefrom 2007-12414 Equity Capital of SBI Life Insurance from 2007-12 425 COMPARISION OF CAPITAL OF THREE COMPANIES 436 COMPARISION OF FDI’s OF THREE COMPANIES 42
  • CHAPTER-IINTRODUCTION9
  • CHAPTER IINTRODUCTION1.1. IntroductionIndia is the third most attractive foreign direct investment destination in the world.The Indian insurance companies offer a comprehensive range of insurance plans.Due to the growing demand for insurance, more and more insurance companies arenow emerging in the Indian insurance sector. In fact, FDI provides a win – winsituation to the host and the home countries. Both countries are directly interested ininviting FDI, because they benefit a lot from such type of investment.India is among the most promising emerging insurance markets in the world. So thegovernment decided to move ahead with its proposal to hike foreign investmentceiling in the insurance sector to 49% from the present 26%. A decision in thisregard was taken by the Union Cabinet headed by Prime Minister Manmohan Singh."The benefit of this amendment will go to the private sector insurance companieswhich require huge amount of capital and that capital will be facilitated withincrease in FDI to 49%" finance minister P Chidambaram told reporters. Theminister also clarified that state-run insurance companies will remain in the publicsector.With the Cabinet approving the proposal, the Insurance Laws (Amendment) Bill islikely to be taken up by Parliament for passage in the forthcoming Winter Session.The bill introduced in RajyaSabha in December 2008 proposes to increase theforeign direct investment (FDI) limit in the insurance sector to 49 per cent.10
  • Every company already has 26% FDI. So if you raise the capital from 26% to 49%,then there is headroom for them to bring in more capital. The estimated capitalrequirement in insurance sector is about $5-6 billion in the immediate futureThe penetration ratio in life insurance sector is 4.4% and 0.76% in the non-lifesegment, meaning a vast majority of the population does not have insurance at all.While the Cabinet last week approved an amendment to the Insurance Laws(Amendment) Bill, 2008, to raise the foreign direct investment (FDI) in the sectorfrom 26% to 49%, the proposal needs to be cleared by Parliament.Insurance Providers in India• LIC is a leading Insurance company in India followed by• ICICI Pru and• HDFC Standard Life.The other companies like• Birla Sun life,• Bharti Axa,• Bajaj Allianz, Tata – AIG,• Kotak,• Max New york,• SBI Life, Reliance Life etc also provides insurance solutions to the clients.1.2 Need for the Study• It is important to know the different source of capital, as well as a source ofadvanced and developed technologies that are involved in FDI. It isimportant to know the investors who bring along best global practices of11
  • management, FDI’s influence in increasing employment , how FDI helps inpromoting international trade and to understand the reasons how the hostcountry undergoes development with FDI.1.3 OBJECTIVES OF THE STUDY1. To Study what is FDI& types, methods of FDI.2. To study the current trend in Insurance sector& the challenges in the sector.3. To study the Effect of FDI on 3 Indian Life Insurance Sector.4. To study the benefits of FDI in insurance sector.5. To study, how the FDIs are helping the organisations in their operations.1.4 RESEARCH METHODOLOGYRESEARCH DESIGNIt provides a plan of the study, which include statement of the problem, need forstudy, review of the previous studies, objectives, definition of concepts, scope,methodology, sample design, sources of data, tool and techniques for datacollection, limitations and an overview of chapter scheme1.4.1 SCOPE OF THE STUDYThe present study is carried to know the following aspects. The study aims tounderstand the fundamental analysis and its impact on insurance sector. This study12
  • will provide the relevant information about the economy, industry, and differentcompanies in life insurance sector.The study is undertaken with an intention to study FDI in insurance sector and tofind the problems in insurance sector and performance of insurance sector.1.4.2. SOURCES OF DATASECONDARY DATASecondary data refers to those data that has already been collected and analyzed bysomeone else. In other words secondary data is the information that already existssomewhere having been collected for another purpose.Secondary data is collected through• Published data• Journals• web sources1.4.3 TOOLS & TECHNIQUESDescriptive tools like tables, percentage analysis and graphs are used to analyse thedata13
  • 1.5 STRUCTURE OF THE STUDYThe study is arranged in a logical pattern.• Chapter I consists of INTRODUCTION (need for study/significance of theproject, objectives, hypotheses, methodology – scope, sample design,sources of information, tools and techniques of analysis).• Chapter II consists of the LITERATURE REVIEW(relevant theoretical andempirical background of the problem)• Chapter III consists of THE COMPANY PROFILE• Chapter IV consists of DATA PRESENTATION, ANALYSIS andINTERPRETATION based on the collected data from various Primary andsecondary sources.• Chapter V consists of FINDINGS AND CONCLUSIONS along withSUGGESTIONS and LIMITATIONS and is concluded with• BIBLIOGRAPHY and the ANNEXURES14
  • CHAPTER-2REVIEW OF LITERATUREForeign direct investmentFDI is a direct investment by a corporation in a commercial venture inanother country. A key to separating this action from involvement in other venturesin a foreign country is that the business enterprise operates completely outside theeconomy of the corporation’s home country. The investing corporation must control10 percent or more of the voting power of the new venture. According to history theUnited States was the leader in the FDI activity dating back as far as the end ofWorld War II. Businesses from other nations have taken up the flag of FDI, includingmany who were not in a financial position to do so just a few years ago. The practicehas grown significantly in the last couple of decades, to the point that FDI hasgenerated quite a bit of opposition from groups such as labour unions. Theseorganizations have expressed concern that investing at such a level in another countryeliminates jobs. Legislation was introduced in the early1970s that would have put anend to the tax incentives of FDI. But members of the Nixon administration, Congressand business interests rallied to make sure that this attack on their expansion planswas not successful. One key to understanding FDI is to get a mental picture of theglobal scale of corporations able to make such investment. A carefully planned FDIcan provide a huge new market for the company, perhaps introducing products and15
  • services to an area where they have never been available. Not only that, but such aninvestment may also be more profitable if construction costs and labour costs are lessin the host country. The definition of FDI originally meant that the investingcorporation gained a significant number of shares(10 percent or more) of the newventure. In recent years, however, companies have been able to make a foreign directinvestment that is actually long-term management control as opposed to directinvestment in buildings and equipment.FDI growth has been a key factor in the“international” nature of business that many are familiar with in the 21st century.This growth has been facilitated by changes in regulations both in the originatingcountry and in the country where the new installation is to be built. Corporationsfrom some of the countries that lead the world’s economy have found fertile soil forFDI in nations where commercial development was limited, if it existed at all. Thedollars invested in such developing-country projects increased 40 times over in lessthan 30 years. The financial strength of the investing corporations has sometimesmeant failure for smaller competitors in the target country. One of the reasons is thatforeign direct investment in buildings and equipment still accounts for a vast majorityof FDI activity. Corporations from the originating country gain a significant financialfoothold in the host country. Even with this factor, host countries may welcome FDIbecause of the positive impact it has on the smaller economy.Foreign direct investment (FDI) is a measure of foreign ownership ofproductive assets, such as factories, mines and land. Increasing foreign investmentcan be used as one measure of growing economic globalization. Figure below showsnet inflows of foreign direct investment as a percentage of gross domestic products(GDP). The largest flows of foreign investment occur between the industrializedcountries (North America, Western Europe and Japan).But flows to non-industrialized countries are increasing sharply. Foreign direct investment (FDI) refersto long term participation by country A into country B.It usually involvesparticipation in management, joint-venture, transfer of technology and expertise.There are two types of FDI: inward foreign direct investment and outward foreigndirect investment, resulting in a net FDI inflow (positive or negative) .Foreign directinvestment reflects the objective of obtaining a lasting interest by a resident entity inone economy (‘‘direct investor’’) in an entity resident in an economy other than thatof the investor (‘‘direct investment enterprise’’).The lasting interest implies the16
  • existence of a long-term relationship between the direct investor and the enterpriseand a significant degree of influence on the management of the enterprise. Directinvestment involves both the initial transaction between the two entities and allsubsequent capital transactions between them and among affiliated enterprises, bothincorporated and unincorporated.Foreign direct investment (FDI) is direct investment into production in acountry by a company in another country, either by buying a company in the targetcountry or by expanding operations of an existing business in that country. Foreigndirect investment is done for many reasons including to take advantage of cheaperwages, special investment privileges such as tax exemptions offered by the country asan incentive to gain tariff-free access to the markets of the country or the region.Foreign direct investment is in contrast to portfolio investment which is a passiveinvestment in the securities of another country such as stocks and bonds.As a part of the national accounts of a country, and in regard to the nationalincome equation Y=C+I+G+(X-M), I is investment plus foreign investment, FDIrefers to the net inflows of investment (inflow minus outflow) to acquire a lastingmanagement interest (10 percent or more of voting stock) in an enterprise operatingin an economy other than that of the investor. It is the sum of equity capital, otherlong-term capital, and short-term capital as shown the balance of payments. It usuallyinvolves participation in management, joint-venture, transfer of technology andexpertise. There are two types of FDI: inward and outward, resulting in a net FDIinflow (positive or negative) and "stock of foreign direct investment", which is thecumulative number for a given period. Direct investment excludes investmentthrough purchase of shares. FDI is one example of international factor movements.Country attractivenessThere are multiple factors determining host country attractiveness in the eyesof large foreign direct institutional investors, notably pension funds and sovereignwealth funds. Research conducted by the World Pensions Council (WPC) suggeststhat perceived legal/political stability over time and medium-term economic growthdynamics constitute the two main determinants.17
  • Some development economists believe that a sizeable part of WesternEurope has now fallen behind the most dynamic amongst Asia’s emerging nations,notably because the latter adopted policies more propitious to long-term investments:“Successful countries such as Singapore, Indonesia and South Korea still rememberthe harsh adjustment mechanisms imposed abruptly upon them by the IMF andWorld Bank during the 1997-1998 ‘Asian Crisis’ What they have achieved in the past10 years is all the more remarkable: they have quietly abandoned the “Washingtonconsensus” [the dominant Neoclassical perspective] by investing massively ininfrastructure projects: this pragmatic approach proved to be very successful.”Foreign direct investment in IndiaStarting from a baseline of less than $1 billion in 1990, a recent UNCTADsurvey projected India as the second most important FDI destination (after China) fortransnational corporations during 2010–2012. As per the data, the sectors thatattracted higher inflows were services, telecommunication, construction activities andcomputer software and hardware. Mauritius, Singapore, US and UK were among theleading sources of FDI. According to Ernst & Young, FDI in India in 2010 was $44.8billion and in 2011 experienced an increase of 13% to $50.8 billion. India has seen aneightfold increase in its FDI in March 2012. India disallowed overseas corporatebodies (OCB) to invest in India.Portfolio investmentInvestment that does not involve obtaining a degree of control in a company.18
  • Foreign Direct InvestmentPurchase of physical assets or a significant amount of the ownership (stock) of acompany in another country to gain a measure of management control.•Foreign Direct Investment– when a firm invests directly in production or otherfacilities, over which it has effective control, in a foreign country.•Manufacturing FDI requires the establishment of production facilities.•Service FDI requires building service facilities or an investment foothold via capitalcontributions or building office facilities.•Foreign subsidiaries– overseas units or entities.•Host country– the country in which a foreign subsidiary operates.•Flow of FDI– the amount of FDI undertaken over a given time.•Stock of FDI– total accumulated value of foreign-owned assets.•Outflows/Inflows of FDI– the flow of FDI out of or into a country.•Foreign Portfolio Investment– the investment by individuals, firms, or public bodiesin foreign financial instruments. Stocks, bonds, other forms of debt differs from FDI,which is the investment in physical assets.MethodsThe foreign direct investor may acquire voting power of an enterprise in an economythrough any of the following methods:• by incorporating a wholly owned subsidiary or company• by acquiring shares in an associated enterprise• through a merger or an acquisition of an unrelated enterprise• participating in an equity joint venture with another investor or enterprise19
  • Foreign direct investment incentives may take the following forms:• low corporate tax and individual income tax rates• tax holidays• other types of tax concessions• preferential tariffs• special economic zones• EPZ – Export Processing Zones• Bonded Warehouses• Maquiladoras• investment financial subsidies• soft loan or loan guarantees• free land or land subsidies• relocation & expatriation• infrastructure subsidies• R&D support• derogation from regulations (usually for very large projects)Entry ModeThe manner in which a firm chooses to enter a foreign market through FDI.–International franchising–Branches–Contractual alliances20
  • –Equity joint ventures–Wholly foreign-owned subsidiariesInvestment approaches:–Greenfield investment (building a new facility)–Cross-border mergers–Cross-border acquisitions–Sharing existing facilitiesTypes of Foreign Direct Investment:An Overview FDIs can be broadly classified into two types:1 Outward FDIs2 Inward FDIs21
  • This classification is based on the types of restrictions imposed, and the variousprerequisites required for these investments.Outward FDI:An outward-bound FDI is backed by the government against all types of associatedrisks. This form of FDI is subject to tax incentives as well as disincentives of variousforms. Risk coverage provided to the domestic industries and subsidies granted tothe local firms stand in the way of outward FDIs, which are also known as directinvestments abroad.Inward FDIs:Different economic factors encourage inward FDIs. These include interest loans, taxbreaks, grants, subsidies, and the removal of restrictions and limitations. Factorsdetrimental to the growth of FDIs include necessities of differential performance andlimitations related with ownership patterns.Other categorizations of FDIOther categorizations of FDI exist as well. Vertical Foreign Direct Investment takesplace when a multinational corporation owns some shares of a foreign enterprise,which supplies input for it or uses the output produced by the MNC.Horizontal foreign direct investments happen when a multinational company carriesout a similar business operation in different nations.•Horizontal FDI – the MNE enters a foreign country to produce the same productsproduct at home.•Conglomerate FDI – the MNE produces products not manufactured at home.•Vertical FDI – the MNE produces intermediate goods either forward or backwardin the supply stream.•Liability of foreignness – the costs of doing business abroad resulting in acompetitive disadvantage.22
  • Advantages of FDI:• Increase investment level and thereby income & employment.• Increase tax revenue of government.• Facilitates transfer of technology.• Encourage managerial revolution through professional management.• Increase exports and reduce import requirements.• Increase competition and break domestic monopolies.• Improves quality and reduces cost of inputsFactors affecting FDIProfitability: Attract where return on investment is higher.Costs of production: Encouraged by lower costs of production like raw materials,labourEconomic Conditions: Market potential, infrastructure, size of population, incomelevel etc.Government policies: Policies like foreign investment, foreign collaboration,remittances, profits, taxation, foreign exchange control, tariffs etc.Political factors: Political stability, nature of important political parties andrelations with other countries.FIIForeign Institutional Investors (FIIs) are allowed to invest in theprimary and secondary capital markets in India through the portfolio investment23
  • scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indiancompanies through the stock exchanges in India.List of companies in which FII investment is allowed up to limits fixed bycompanies as indicated against their names:Amtek Auto Ltd (74%)Advanta India Limited 49%Amtek India Ltd (74%)Ahmednagar Forgings Ltd (74%)Anant Raj Industries Ltd. (40%)ANG Auto Ltd (49%)Apollo Hospitals (74%)Aptech Ltd (74%)Arshiya International Limited (49%)Bombay Rayon Fashions Ltd (40%)HistoryIn the years after the Second World War global FDI was dominated by the UnitedStates, as much of the world recovered from the destruction brought by the conflict.The US accounted for around three-quarters of new FDI (including reinvestedprofits) between 1945 and 1960. Since that time FDI has spread to become a trulyglobal phenomenon, no longer the exclusive preserve of OECD countries.FDI hasgrown in importance in the global economy with FDI stocks now constituting over20 percent of global GDP. Foreign direct investment (FDI) is a measure of foreignownership of productive assets, such as factories, mines and land. Increasing foreigninvestment can be used as one measure of growing economic globalization. Figurebelow shows net inflows of foreign direct investment as a percentage of grossdomestic products (GDP). The largest flows of foreign investment occur betweenthe industrialized countries (North America, Western Europe and Japan). But flowsto non-industrialized countries are increasing sharply.Why is FDI important for any consideration of going global?24
  • The simple answer is that making a direct foreign investment allows companies toaccomplish several tasks:1 .Avoiding foreign government pressure for local production.2. Circumventing trade barriers, hidden and otherwise.3. Making the move from domestic export sales to a locally-based nationalsales office.4. Capability to increase total production capacity.Opportunities for co-production, joint ventures with local partners, jointmarketing arrangements, licensing, etc;A more complete response might address the issue of global businesspartnering in very general terms. While it is nice that many business writers like theexpression, “think globally, act locally”, this often used cliché does not really meanvery much to the average business executive in a small and medium sized company.The phrase does have significant connotations for multinational corporations. Butfor executives in SME’s, it is still just another buzzword. The simple explanation forthis is the difference in perspective between executives of multinational corporationsand small and medium sized companies. Multinational corporations are almostalways concerned with worldwide manufacturing capacity and proximity to majormarkets. Small and medium sized companies tend to be more concerned with sellingtheir products in overseas markets. The advent of the Internet has ushered in a newand very different mindset that tends to focus more on access issues. SME’s inparticular are now focusing on access to markets, access to expertise and most of allaccess to technology.The Strategic Logic Behind FDI•Resources seeking– looking for resources at a lower real cost.•Market seeking– secure market share and sales growth in target foreignmarket.25
  • •Efficiency seeking– seeks to establish efficient structure through usefulfactors, cultures, policies, or markets.•Strategic asset seeking–seeks to acquire assets in foreign firms that promotecorporate long-term objectives.Enhancing Efficiency from Location Advantages•Location advantages- defined as the benefits arising from a host country’scomparative advantages.- Better access to resources–Lower real cost from operating in a host country–Labour cost differentials–Transportation costs, tariff and non-tariff barriers– Governmental policiesImproving Performance from Structural Discrepancies•Structural discrepancies are the differences in industry structure attributesbetween home and host countries. Examples include areas where:–Competition is less intense–Products are in different stages of their life cycle–Market demand is unsaturated–There are differences in market sophisticationIncreasing Return from Ownership Advantages•Ownership Advantages come from the application of proprietary tangible andintangible assets in the host country.–Reputation, brand image, distribution channels–Technological expertise, organizational skills, experience26
  • •Core competence– skills within the firm that competitors cannot easily imitate ormatch.Ensuring Growth from Organizational Learning•MNEs exposed to multiple stimuli, developing:–Diversity capabilities–Broader learning opportunities•Exposed to:–New markets–New practices–New ideas–New cultures–New competitionThe Impact of FDI on the Host CountryEmployment–Firms attempt to capitalize on abundant and inexpensive labour.–Host countries seek to have firms develop labour skills and sophistication.–Host countries often feel like “least desirable” jobs are transplanted fromhome countries.–Home countries often face the loss of employment as jobs move.FDI Impact on Domestic Enterprises–Foreign invested companies are likely more productive than localcompetitors.27
  • –The result is uneven competition in the short run, and competency buildingefforts in the longer term.–It is likely that FDI developed enterprises will gradually develop localsupporting industries, supplier relationships in the host country.Investment Risks in IndiaSovereign RiskIndia is an effervescent parliamentary democracy since its political freedomfrom British rule more than50 years ago. The country does not face any real threat ofa serious revolutionary movement which might lead to a collapse of state machinery.Sovereign risk in India is hence nil for both "foreign direct investment" and "foreignportfolio investment." Many Industrial and Business houses have restrainedthemselves from investing in the North-Eastern part of the country due to unstableconditions. Nonetheless investing in these parts is lucrative due to the rich mineralreserves here and high level of literacy. Kashmir on the northern tip is a militancyaffected area and hence investment in the state of Kashmir are restricted by lawPolitical RiskIndia has enjoyed successive years of elected representative government atthe Union as well as federal level. India suffered political instability for a few yearsin the sense there was no single party which won clear majority and hence it led tothe formation of coalition governments. However, political stability has firmlyreturned since the general elections in 1999, with strong and healthy coalitiongovernments emerging. Nonetheless, political instability did not change Indiasbright economic course though it delayed certain decisions relating to the economy.Economic liberalization which mostly interested foreign investors has been acceptedas essential by all political parties including the Communist Party of India Thoughthere are bleak chances of political instability in the future, even if such a situationarises the economic policy of India would hardly be affected.. Being a strongdemocratic nation the chances of an army coup or foreign dictatorship are minimal.Hence, political risk in India is practically absent.28
  • Commercial RiskCommercial risk exists in any business ventures of a country. Not each andevery product or service is profitably accepted in the market. Hence it is advisable tostudy the demand / supply condition for a particular product or service beforemaking any major investment. In India one can avail the facilities of a large numberof market research firms in exchange for a professional fee to study the state ofdemand /supply for any product. As it is, entering the consumer market involvessome kind of gamble and hence involves commercial risk.Risk Due To TerrorismIn the recent past, India has witnessed several terrorist attacks on its soilwhich could have a negative impact on investor confidence. Not only businessenvironment and return on investment, but also the overall security conditions in anation have an effect on FDIs. Though some of the financial experts thinkotherwise. They believe the negative impact of terrorist attacks would be a shortterm phenomenon. In the long run, it is the micro and macro economic conditions ofthe Indian economy that would decide the flow of Foreign investment and in thisregard India would continue to be a favourable investment destination.Sector Specific Foreign Direct Investment in IndiaHotel & Tourism: FDI in Hotel & Tourism sector in India100% FDI is permissible in the sector on the automatic route,The term hotels include restaurants, beach resorts, and other tourist complexesproviding accommodation and/or catering and food facilities to tourists. Tourismrelated industry include travel agencies, tour operating agencies and tourist transportoperating agencies, units providing facilities for cultural, adventure and wild lifeexperience to tourists, surface, air and water transport facilities to tourists, leisure,entertainment, amusement, sports, and health units for tourists andConvention/Seminar units and organizations.For foreign technology agreements, automatic approval is granted if29
  • i. Up to 3% of the capital cost of the project is proposed to be paid fortechnical and consultancy services including fees for architects, design, supervision,etc.ii. Up to 3% of net turnover is payable for franchising andmarketing/publicity support fee, and up to10% of gross operating profit is payablefor management fee, including incentive fee.Private Sector Banking:Non-Banking Financial Companies (NBFC)49% FDI is allowed from all sources on the automatic route subject to guidelinesissued from RBI from time to time.a.FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall beas per levels indicated below:i. Merchant bankingii. Underwritingiii. Portfolio Management Servicesiv. Investment Advisory Servicesv. Financial Consultancyvi. Stock Brokingvii. Asset Management30
  • viii. Venture Capitalix. Custodial Servicesx. Factoringxi .Credit Reference Agenciesxii. Credit rating Agenciesxiii.Leasing & Financexiv.Housing Financexv. Foreign Exchange Brokeringxvi. Credit card businessxvii. Money changing Businessxviii. .Micro Creditxix.. Rural Creditb. Minimum Capitalization Norms for fund based NBFCs:i) For FDI up to 51% - US$ 0.5 million to be brought upfrontii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfrontiii) For FDI above 75% and up to 100% - US $ 50 million out of which US $7.5 million to be brought up front and the balance in 24 monthsc .Minimum capitalization norms for non-fund based activities:Minimum capitalization norm of US $ 0.5 million is applicable in respect ofall permitted non-fund based NBFCs with foreign investment.d. Foreign investors can set up 100% operating subsidiaries without the condition todisinvest a minimum of 25% of its equity to Indian entities, subject to bringing inUS$ 50 million as at b) (iii) above(without any restriction on number of operatingsubsidiaries without bringing in additional capital)31
  • e. Joint Venture operating NBFCs that have 75% or less than 75% foreigninvestment will also be allowed to set up subsidiaries for undertaking other NBFCactivities, subject to the subsidiaries also complying with the applicable minimumcapital inflow i.e. (b)(i) and (b)(ii) above. FDI in the NBFC sector is put onautomatic route subject to compliance with guidelines of the Reserve Bank of India.RBI would issue appropriate guidelines in this regard.Insurance Sector: FDI in Insurance sector in IndiaFDI up to 49% in the Insurance sector is allowed on the automatic route subject toobtaining license from Insurance Regulatory & Development Authority (IRDA)Telecommunication:FDI in Telecommunication sectori. In basic, cellular, value added services and global mobile personalcommunications by satellite, FDI is limited to 49% subject to licensing andsecurity requirements and adherence by the companies (who are investing andthe companies in which investment is being made) to the license conditions forforeign equity cap and lock- in period for transfer and addition of equity andother license provisions.ii.ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permittedup to 74% with FDI, beyond 49% requiring Government approval. Theseservices would be subject to licensing and security requirements.iii. .No equity cap is applicable to manufacturing activities.iv. FDI up to 100% is allowed for the following activities in the telecom sector:a .ISPs not providing gateways (both for satellite and submarine cables);b. Infrastructure Providers providing dark fibre (IP Category 1);c. Electronic Mail; andd. Voice Mail32
  • The above would be subject to the following conditions:e. FDI up to 100% is allowed subject to the condition that such companieswould divest 26%of their equity in favour of Indian public in 5 years, ifthese companies are listed in other parts of the world.f. The above services would be subject to licensing and securityrequirements, wherever required.Proposals for FDI beyond 49% shall be considered by FIPB on case to casebasis.Trading:FDI in Trading Companies in IndiaTrading is permitted under automatic route with FDI up to 51% provided it isprimarily export activities, and the undertaking is an export house/tradinghouse/super trading house/star trading house. However, under the FIPB route:-i.100% FDI is permitted in case of trading companies for the following activities:•Exports;• Bulk imports with ex-port/ex-bonded warehouse sales;•Cash and carry wholesale trading;•Other import of goods or services provided at least 75% is for procurement andsale of goods and services among the companies of the same group and not forthird party use or onward transfer/distribution/sales.ii. The following kinds of trading are also permitted, subject to provisions of EXIMPolicy:33
  • a. Companies for providing after sales services (that is not trading per se)b. Domestic trading of products of JVs is permitted at the wholesale level forsuch trading companies who wish to market manufactured products on behalf oftheir joint ventures in which they have equity participation in India.c. Trading of hi-tech items/items requiring specialized after sales serviced.d. Trading of items for social sectore. Trading of hi-tech, medical and diagnostic items.f. Trading of items sourced from the small scale sector under which, based ontechnology provided and laid down quality specifications, a company can marketthat item under its brand name.g. Domestic sourcing of products for exports.h. Test marketing of such items for which a company has approval for manufactureprovided such test marketing facility will be for a period of two years, andinvestment in setting up manufacturing facilities commences simultaneously withtest marketing.FDI up to 100% permitted for e-commerce activities subject to the condition thatsuch companies would divest 26% of their equity in favour of the Indian public infive years, if these companies are listed in other parts of the world. Such companieswould engage only in business to business (B2B) e-commerce and not in retailtrading.Power:FDI in Power Sector in IndiaUp to 100% FDI allowed in respect of projects relating to electricity generation,transmission and distribution, other than atomic reactor power plants. There is nolimit on the project cost and quantum of foreign direct investment.Drugs & Pharmaceuticals34
  • FDI up to 100% is permitted on the automatic route for manufacture of drugs andpharmaceutical, provided the activity does not attract compulsory licensing orinvolve use of recombinant DNA technology, and specific cell / tissue targetedformulations.FDI proposals for the manufacture of licensable drugs andpharmaceuticals and bulk drugs produced by recombinant DNA technology, andspecific cell / tissue targeted formulations will require prior Government approval.Roads, Highways, Ports and HarboursFDI up to 100% under automatic route is permitted in projects for construction andmaintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels,ports and harbours.Pollution Control and ManagementFDI up to 100% in both manufacture of pollution control equipment and consultancyfor integration of pollution control systems is permitted on the automatic route.Call Centres in India / Call Centre’s in IndiaFDI up to 100% is allowed subject to certain conditions.Business Process Outsourcing BPO in IndiaFDI up to 100% is allowed subject to certain conditions.Special Facilities and Rules for NRIs and OCBsNRIs and OCBs are allowed the following special facilities:1. Direct investment in industry, trade, infrastructure etc.2. Up to 100% equity with full repatriation facility for capital and dividends in thefollowing sectors.I.34 High Priority Industry Groupsii.Export Trading Companiesiii.Hotels and Tourism-related Projectsiv.Hospitals, Diagnostic Centres35
  • v Shippingvi. Deep Sea Fishingvii. Oil Explorationviii. Powerix .Housing and Real Estate Developmentx. Highways, Bridges and Portsxi. Sick Industrial Unitsxii. Industries Requiring Compulsory Licensing3. Up to 40% Equity with full repatriation: New Issues of Existing Companiesraising Capital through Public Issue up to 40% of the new Capital Issue.4. On non-repatriation basis: Up to 100% Equity in any Proprietary or Partnershipengaged in Industrial, Commercial or Trading Activity.5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of theequity Capital or Convertible Debentures of the Company by each NRI. Investmentin Government Securities, Units of UTI, National Plan/Saving Certificates.6.On Non-Repatriation Basis: Acquisition of shares of an Indian Company, througha General Body Resolution, up to 24% of the Paid Up Value of the Company.7.Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising fromShares or Debentures of an Indian36
  • CHAPTER IIIINDUSTRY PROFILEFDI in Insurance Sector of IndiaInsurance in India started without any regulations in the nineteenth century.After the independence, the Life Insurance Company was nationalized in 1956, andthen the general insurance business was nationalized in 1972. Only in 1999 privateinsurance companies were allowed back into the business of insurance with amaximum of 26 per cent of foreign holding (World Bank Economic Review 2000).Insurance in India used to be tightly regulated and monopolized by state-runinsurers. The Insurance Regulatory and Development Authority (IRDA) Act of 1999was passed. The insurance business was opened on two fronts. Firstly, domesticprivate-sector companies were permitted to enter both life and non-life insurancebusiness .Secondly, foreign Companies were allowed to participate, albeit with a capon shareholding at 26%.Since its inception IRDA has been taking steps to promoteinsurance sector and also protect interest of people.A number of reforms have been introduced by IRDA regarding regulation of agents,deciding about premium, marketing strategies etc.Milestones of insurance regulations in the 20th Century:• 1912 First piece of insurance regulation promulgated – Indian Life InsuranceCompany Act, 1912• 1928 Promulgation of the Indian Insurance Companies Act• 1938 Insurance Act introduced, the first comprehensive legislation to regulateinsurance business in India• 1956 Nationalisation of life insurance business in India37
  • • 1972 Nationalisation of general insurance business in India• 1993 Setting-up of the Malhotra Committee• 1994 Recommendations of Malhotra Committee released• 1995 Setting-up of Mukherjee Committee• 1996 Setting-up of an (interim) Insurance Regulatory Authority (IRA)• 1997 Mukherjee Committee Report submitted but not made public• 1997 The Government gives greater autonomy to LIC, GIC and its subsidiarieswith regard to the restructuring of boards and flexibility in investment normsaimed at channelizing funds to the infrastructure sector• 1998 The cabinet decides to allow 40% foreign equity in private insurancecompanies – 26% to foreign companies and 14% to non-resident &investors(FIIs)• 1999 The Standing Committee headed by MuraliDeora decides that foreignequity in private insurance should be limited to 26%• The IRA Act was renamed as the Insurance Regulatory and DevelopmentAuthority (IRDA) Act• 1999 Cabinet clears IRDA Act• 2000 President gives assent to the IRDA ActINSURANCE IN INDIA• Insurance in India remains at an early stage of development• It can be postulated that by 2014 the penetration of life insurance in India willincrease to 4.4% and that of non-life insurance to 0.9%• Indian insurance market is the 19th largest globally and ranks 5th in Asia38
  • • The public sector Insurance companies have continued to dominate the insurancemarket• The Indian insurance market it accounts for only 2.5% of premiums in Asia, ithas the potential to become one of the biggest insurance markets in the region.• The huge probability of the Insurance Laws (Amendment) Bill got an approvalin the parliament to increase the levels of Public Sector Insurers as they arealready struggling to arrest the decline in their market share. Recently, Cabinethas cleared an important decision to increase Foreign Direct Investments (FDI)limit from 26 percent, capped in 1999, up to 49 percent in Indian insurancecompanies.• During the last decade (2001-02 to 2011-12), the market share of the publicsector insurers has decreased due to new entrants in the private sector. A ZeeResearch Group (ZRG) analysis reveals that Life insurance Corporation (LIC)has been struggling to maintain the market share in segments, life and non life,since 1999, when 26 percent FDI was allowed in the insurance sector.Public sector insurer, LIC, in its bread and butter segment (Life segment) has lost asignificant market share from 98.65 percent in 2001-02 to 71.40 percent in 2011-12.On the other hand, during the corresponding period, the market share of privatesector life insurers has increased from 1.35 percent to 28.6 percent. With regards tothe market share of LIC in the non-life segment has decreased to 58.46 percent in2011-12 from 95.91 percent in 2001-02. The massive potential in the Indian life andnon-life insurance sector has encouraged large private financial services companiesto form joint ventures with global insurers. Some of the prominent private players ofthis sector include the names of Bajaj Allianz, Birla Sun life, ICICI Prudential, TataAIG, HDFC Standard Life, Reliance Life, Max Life and so on.On the declining market share of public sector insurers, S B Mathur, formerLIC Chairman, opined, “Something has to happen when 24 private players are doingbusiness in the insurance sector. Increase in FDI limit can lead to greater penetrationof retail market. Consequently, the general and non-life public sectors insurers could39
  • feel the rub-off effect mainly due to the cut throat competition from the privateplayers in the country.”Mathura’s thought got an endorsement from N S R Chandra Prasad, Chairman andManaging Director, National Insurance Company (NIC), who averred, “FDI ininsurance will be the threat for the public sector companies because the growth inthe numbers of private players will affect the market share of public sector insurersin the country.”Type of Insurance• General Insurance• Life Insuranceo whole life plano endowmento term plano money back plano Unit Linked Insurance Plan (ULIP).The main types of insurance policies available in the market are:• Life Insurance: In this policy, the insurance company pays in case of thedemise of the policy holder or at the time of the maturity of the policy. Nowa days a new policy has been launched by insurance companies in which youwill be covered under the insurance policy even after the maturity of thepolicy. Read what the different types of life insurance are and which one isgood for you.40
  • • Property Insurance: This insurance helps you to prevent the losses againsttheft, fire, burglary or any natural calamity like Earthquake, Floods etc.based on the points mentioned in the policy.• Health Insurance: Health Insurance consists of a package of various typesof insurance related to health. For example Medical Insurance is one themajor part of health insurance however in most of the cases, dental issues arenot covered in this policy so there is another Dental Insurance policy whichcovers dental problems and is also a part of health insurance. Thesubcategory of health insurance also involves the injuries or accident atworkplace insurance benefits.• Auto Insurance: Any financial loss due to accident of a vehicle is coveredunder the auto insurance policy. Sometimes the expenses on the medicinesfor treating injuries and all other medical expenditure are also covered underthis policy.• Travel Insurance: Loss of personal belongings while traveling, medicalcoverage, delays in the travel are all part of the travel insurance policy.• Insurance at Amusement Points: This is a one of the new kinds ofinsurance policy (not very popular in India) where in you are insured againstthe equipments that you are using at the amusement joints. For example: ifyou are using boats for an independent boat ride , then they will charge youwith some extra money for an property loss(say $5) and in case of anyproperty damage you will not be liable to pay any amount required to repairthe damaged property.• Credit Insurance: This type of insurance pays the loans of the policy holderin case of any accident of the policy holder or job loss or death.• Third Party Insurance: This type of insurance covers damages caused byyou (first party) to others (third party). For more details visit third partyinsurance.41
  • Effect of FDI on Indian Insurance SectorIn the world of increased competition and rapid technological changes, globalizationhas played a complimentary role over the past years. Globalization has encouragedmore and more multinationals to adopt FDI. According to Charles W.L. Hill (1998)“FDI occurs when a firm invests directly in facilities to produce and market aproduct in a foreign country”. The growth of FDI is more than the growth of worldtrade and world output so role played by FDI in world economics is very vital.Patterson, N. and Montanjees, M. (2004) say that FDI is the most favoured form ofexternal finance for the reason that it is non-debt creating, non- volatile and theoutcome depends upon the projects performance initiated by investors. FDI isadvantageous because it facilitates international trade and transfer of technology,knowledge and skills.The purpose of this study is to investigate factors that attract FDI. De Mello(1999) asserts that scope for business in a country, opportunities for expansion,market size etc are some of the factors that attract FDI. Growth rate of a company oran industry leads to magnetism of more and more investment as investors know thattheir investment is safe enough. According to Dunning, J. (1981) Availability ofvaluable and unique resources in an industry such as cheap production capacity,cheap skilled labour and advanced technology which are necessary for running abusiness successfully provides the basis for selecting particular sector ororganization by investors to invest in. By investing in a well established industry ororganization , foreign companies get competitive advantage against the brand imageof existing domestic companies with whom they enter the sector and this alsoprotect the company from the risk of takeover. This research will also consider thesignificance of presence of FDI in an industry or organization. Lloyd, P. (1996)suggests that FDI provides capital to form strong infrastructure in terms ofexpansion of business, distribution network etc. FDI facilitates the organisationtousle advanced technology to provide quality service to customer. FDI has helpedthe country by reducing the level of unemployment as investment made in anindustry creates new jobs for educated population of the country. Borensztein et al,(1998) says that FDI enables domestic company to adopt foreign company’s42
  • management expertise which results in cost savings and best promotion of thecompany. Competitor companies also get inspired by great expertise of foreigncompanies and hence results in improvement in performance of competitorcompanies as well.Research will also emphasize on the risks of FDI that can’t be overlooked bythe company. Control over the company is the most obvious concern of foreignplayers. Getting approval on various issues by foreign players makes the decisionmaking process complex and time consuming. Another thing related to FDI is itsuncertain nature which contributes to the drawbacks of having FDI in a company.According to Slogan, J. and Hinde, K. (2007) joint ventures and mergers amongforeign and domestic companies can give rise to one more drawback which isdifference in the corporate cultures of the companies. As companies belong todifferent countries the viewpoint of management of both companies differs thatsometimes creates misunderstanding. Insurance sector of India has been chosen asan industry for the research purpose. India has become the second most preferreddestination for investors around the globe after China. In general, India is a muchliberalized in terms of FDI policies, as FDI has been recognised as one of theimportant drivers of economic growth of India. Indian insurance sector haswitnessed great potential for growth.FDI has a long history in India. The presence of FDI can be noticed in theIndian economy even prior to 1947. Indias mining, trade, plantation, manufacturingsectors were mostly dominated by foreign firms mostly British. Further, foreigninvestment played inevitable role in the early post-independence years and India hadan optimistic attitude towards FDI because it could provide new technology andcapital which was necessary for development. In 1960’s Indian government realisedthat FDI was contributing to the problem of foreign exchange crisis through importsof inputs and repatriation of profits. Then the FERA ACT (Foreign ExchangeRegulation Act) of 1973 was introduced that marked the tightening of the regulatoryregime regarding the management of FDI. (Mattoo,A. and Stern, R.M., 2003)43
  • In beginning of 1990s India was suffering from financial crises. The balanceof payment position deteriorated, further devaluation of rupee had a negative effecton India’s credit rating. Then steps like permission to invest in various new sectorsthat had been excluded in the past were taken. These included the infrastructuresectors like generation of power, construction sector(highway and port) and by theend of 1990s service sectors like telecommunication, insurance which werepreviously controlled and dominated by government was liberalised and policies toinvite FDI were formulated. Thus new rays of light were experienced and theeconomy stared experiencing the initial growth with the funds coming in the countryand development taking place.Since independence it took almost six decades to make the Indian economygrow towards a developing direction. The European investors consider India as apreferable destination to invest despite of its ongoing obstacles of politicaluncertainties, infrastructural deficiencies and bureaucratic hassles. With the presenceof abundant resources and vast business potential, a company of any size, any originwhich is aspiring to become a global player can achieve success. It is well knownglobally that India holds a potential to be one of the top three emerging economiesin the world, so every other nation can make the maximum being a part of Indianprospects.Indian insurance sector has experienced different phases from being an opencompetitive market to nationalization and back to a liberalized market again. Themilestone of insurance in India was laid in the year 1818 with the establishment ofthe Oriental Life Insurance Company in Calcutta.Market Structure and FDIEvery industry posses a different and unique market structure and it is consideredthat the relationship between openness to foreign investment and market structure iscomplex. Caves, RE (1996) states that there are empirical evidences which show thepositive relationship between the extent of foreign investment and the degree ofmarket concentration. It could be said that foreign investment is being attracted byindustries with high concentration and high profitability. The short-run effect of44
  • foreign entry is to increase the number of firms and reduce concentration. On theother hand, the degree of competition among entrants and current firms decide thelong run effects of foreign entry. If current firms are moderately competent thenthere would be anhonorable cycles of technological competition and if inefficientthen they would lose market share to foreign firms.There is evidence that industrial concentration and foreign presence waspositively correlated across industrial sectors and that is because of industrial policyand its attendant control of production capacities. So it can be said that industry withhigh scope and opportunities attracts more FDI than other industries that can be thereason of uneven distribution of FDI among various industries of a country. Servicesector like Insurance sector of India couldn’t attract large flow of FDI because ofgovernment policies. Before 1999 government policies were framed in order toprotect Indian insurance industry from foreign and private player, so governmentintended to maintain monopoly in the sector. As a result monopoly power causedsupply scarcity, poor product-quality, and technological obsolescence. Therefore itcan be said that due to absence of competition whether it is foreign or domestic hascontributed to poor performance. Thus it is not necessary that monopoly leads tobetter development of the sector, but in order to maintain control the governmentcan take necessary steps by keeping track of the latest change trends and performingas per desired objectives in order to restrict he concentration of industries. Then itcould be said that great openness to liberalization may not a substitute for an activecompetition policy. With the reforms of 1999 insurance sector was first time openedfor foreign and private player but still the FDI limit kept restricted to 26%.45
  • CHAPTER IVDATA ANALYSIS AND INTERPRETATIONTop Life Insurance Policies in IndiaThe following table shows the leading life insurance plans available in India:Insurer Name of policyBajaj Allianz iGain III Insurance Plani-Secure Insurance PlanCashRich Insurance PlanBirla Sun Life Insurance BSLI Wealth PlanBSLI Guaranteed Wealth PlanHDFC Standard Life Click2Protect Online Protection PlanHDFC Life Smart Woman PlanICICI Prudential LifeInsuranceICICI Pru iCareING Life Insurance ING Market ShieldING Star LifeLife Insurance Corporation ofIndiaJeevan AnkurJeevan Akshay VIMetLife India Met Monthly Income PlanKotak Life Insurance Kotak Ace Investment PlanKotak Assured Income PlanTata AIA Life Insurance Tata AIA Life Insurance Suraksha Kosh46
  • Tata AIA Life Insurance Maha Raksha SupremeAviva Life Insurance Aviva iLifeSahara Life Insurance Sahara Vatsalya Jeevan BimaShriram Life Insurance ShriLifeWealth PlusMoney BackShriram Ujjwal Life SPBharti AXA Life Insurance Bharti AXA Life eProtectFuture Generali Future Generali Smart LifeIDBI Federal Life Insurance IDBI Federal Termsurance Seniors Insurance PlanIDBI Federal Wealthsurance Milestone PlanIDBI Federal Childsurance Dreambuilder InsurancePlanIDBI Federal Lifesurance Suvidha SavingsInsurance PlanIDBI Federal Hospitalization and Surgical PlanIDBI Federal Incomesurance Endowment & MoneyBack PlanIDBI Federal Loansurance Group Life PlanIDBI Federal Homesurance Protection PlanIDBI Federal Bondsurance Advantage InsurancePlanIDBI Federal Group Microsurance PlanCanara HSBC OBC LifeInsuranceDream Smart PlanSecure Smart PlanGrow Smart PlanSmart Sanchay PlanFuture Smart PlanAEGON Religare LifeInsuranceiTermDLF Pramerica LifeInsuranceWEALTHASSURE47
  • Market Share of Life Insurance Companies in India 201248
  • ICICI PRUDENTIAL:ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank,one of the foremost financial services companies of India and Prudential plc, one ofthe leading international financial services group headquartered in the UnitedKingdom. ICICI Prudential was amongst the first private sector life insurancecompanies to begin operations in December 2000 after receiving approval fromInsurance Regulatory Development Authority (IRDA).YEAR ICICI PRUDENTIAL Prudential plc2011-12 1428.85 370.782010-11 1428.46 370.782009-10 1428.14 370.782008-09 1427.26 370.732007-08 1401.11 363.63Interpretation:In the year of 2012 ICICI PRUDENTIAL ended up with the first rank among privateinsurance companies. The capital of the company has been increasing every year49
  • from 2007-12.the foreign promoter investment has increased for two years 07-08&08-09,&then remained constant for the last three years.HDFC-Standard:HDFC Life (HDFC Standard Life Insurance Company) is an Indian private lifeinsurance company. It is a joint venture between Housing Development FinanceCorporation Ltd (HDFC) and Standard Life plc, provider of financial services in theUK. It was established after private companies were allowed to enter the insuranceindustry in the year 2000. HDFC holds 74% of the equity while Standard Life holds26%.YEAR HDFC Stand Standard Life plc2011-12 1994.88 518.672010-11 1994.88 518.672009-10 1968 511.682008-09 1796 466.962007-08 1271 330.46Interpretation:For the year 2012 HDFC Stand stood in second place among all the lifeinsurance companies of india.We can observe a drastical growth in the year 2007-08,2008-09&2009-10 andremained constant in the last two years.50
  • The equity capital of foreign promoter increased in the same manner.SBI LIFE:SBI Life Insurance is a joint venture life insurance company between State Bank ofIndia (SBI), the largest state-owned banking and financial services company inIndia, and BNP Paribas Assurance. SBI owns 74% of the total capital and BNPParibas Assurance the remaining 26% of the capital. SBI Life Insurance has anauthorized capital of 2,000 crore (US$364 million)and a paid up capital of 1,000crore (US$182 million).YEAR SBI LIFE BNP Paribas2011-12 1000 2602010-11 1000 2602009-10 1000 2602008-09 1000 2602007-08 1000 260Interpretation:The turnover of the SBI LIFE is constant for the last five years.The equity captal of the foreign promoter is constant since 2007-08.51
  • COMPARISION OF CAPITAL & FDI IN THREE COMPANIES:YEAR ICICI PRUDENTIAL HDFC Standard SBI LIFE2011-12 1428.85 1994.88 10002010-11 1428.46 1994.88 10002009-10 1428.14 1968 10002008-09 1427.26 1796 10002007-08 1401.11 1271 1000YEAR Prudential plc Standard Life plc BNP Paribas2011-12 370.78 518.67 2602010-11 370.78 518.67 2602009-10 370.78 511.68 2602008-09 370.73 466.96 2602007-08 363.63 330.46 260Interpretation:FDI is playing a major role in these three companies along with theother private companies.HDFC Standard has the high capitalization of foreigncurrency.52
  • CHAPTER VFINDINGS AND CONCLUSIONFINDINGS:1. The life insurance industry recorded a premium income of Rs2, 87,072 croreduring 2011-12 as against Rs2, 91,639 crore in the previous year, registering anegative growth of 1.57 per cent. While private sector insurers posted 4.52 percent decline in their premium income, LIC recorded 0.29 per cent decline.2. Industry experts believe that most of the challenges can be addressed throughhigher capitalization.3. With the increase in stake, foreign players will be able to contribute in thetechnical aspects of insurance business.4. This includes product innovation, claims settlement process, effectivedistribution models and other technological best practices.5. Increase in solvency capital will motivate insurers to ramp up their operationsand expand to smaller cities and towns.53
  • CONCLUSIONS:1. This is a very capital intensive industry. Already about Rs33, 000 crore hasbeen invested as capital and a further Rs50, 000-60,000 crore is requiredbefore companies actually breakeven and start making profits.2. A well-developed and evolved insurance sector is a boon for economicdevelopment as it provides long-term funds for infrastructure development atthe same time strengthening the risk taking ability of the country.3. Nearly 80% of the Indian population is without life, health and non-lifeinsurance. The insurance sector in India is a colossal one and is growing at arate of 15-20%. Together with banking services, insurance services addabout 7% to the country’s Gross domestic product (GDP)LIMITATIONS:• I narrowed down my study to FDI in insurance sector.• I again narrowed it to life insurance companies.• Since, to study the whole 24 life insurance companies becomes a big task, soi took three companies to analyse the data.• I took 5 years (2007-1012) equity share capital of the respected companies,which is a limitation.54