Practise of principles of banking & insurance (ppbi)


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Practise of principles of banking & insurance (ppbi)

  1. 1. Origin of banking • The term “BANK” derived from German word “Bancus”, “Banque” means bench. • Jews were the early bankers • Babylonian developed banking system in 2000BC • In 14th century Royal exchangers did banking on behalf of kings • Then goldsmith did the job of accepting money • Bank of England was started in 1694 • 1708 Act provided the note issue power to them • 1844 Act restricted power of note issue by private banks. • Lack of increase in circulation of notes led to need for modern banking 1
  2. 2. Banking in India  Origin was in vedic period  In 3rd century Vedic scholar Manu gave the idea of accepting deposits& lending money  He laid rule for interest charging  During Mogul period indigenous bankers lend money  Many started this function like Shroof, sheth, shah, Chettiars etc. 2
  3. 3. Money lenders in India • They transferred money from place to place & person to person • They used their money for lending • Not accepted deposits from public • They collected money through hundies • Because of high risk high interest was collected • No banks in villages. No alternative for farmers to get money. So they depend on these people • The English traders also depend on them 3
  4. 4. Banks started by East India Company  The Bank of Bengal in 1809  The Bank of Bombay in 1840  The Bank of Madras in 1843 These 3 banks were known as Presidency Bank. The Imperial Bank of India Act was passed in 1920.These 3 banks were amalgamated into one and known as Imperial Bank of India in 1921.This bank was nationalized in 1955 by the State Bank of India Act 4
  5. 5. Banking in the pre independence period: • Lack of development of banking due to the following reasons: • I and II world war • Partition of the country in 1947 • Adversely affected states like Punjab and West Bengal • Most of the private banks collapsed • Many of the exchange banks owned by Europeans concentrated to finance on foreign trade • Indian joint stock companies were under capitalized and lacked the experience and maturity to compete with the Presidency banks and exchange banks. 5
  6. 6. Banking after independence  In 1949 the Banking Regulation Act was enacted which empowered RBI to regulate, control and inspect the banks in India  In 1955 it nationalised the Imperial Bank of India.  State bank of India became the principal agent of RBI to handle banking transactions  In 1960s the banking industry gained momentum in the devt. of the economy  In 1969, 14 major banks were nationalised  In 1980, 6 more banks were nationalised 6
  7. 7.  Banking system has reached even in the remote villages in India.  Funds were largely given to traders  Insurance cover extended to the deposits  creation of regional rural banks  Liberalisation, privatisation,globalisation  Emergence of private sector banks and foreign banks 7
  8. 8. To day’s condition…  There are 27 public sector banks accounting for more than 80% commercial banking assets  Banking system in India consists of commercial banks and co operative banks of which the former account for 98% of the banking system assets 8
  9. 9. Reforms introduced in banking sector  The main intention of reforms is to bring competitiveness, operational flexibility, efficiency and functional autonomy  banking became market oriented sector  SLR to be brought down to 25% in 5 years  CRR to be reduced progressively  Interest rate to be on par with other market rates  Entry of many private sector banks were encouraged 9
  10. 10. 1. Dealing in money 2. Agency services 3. Credit creation 4. Commercial nature 5. Withdrawable deposits 10
  11. 11.  Dealing in money: They accept deposits from public- savings, current, fixed, recurring etc. They advance money as loans to the needy people – cash credit, term loans, bill discounting overdrafts etc.  Agency: Banks act as agents of the customer. They provide agency services like transfer of money, credit cards, telebanking, cheque clearing, bill collection are some of the services provide by the banks as an agent.  Credit creation: The banks create credit. It is an additional function of the bank. It is the unique function of banks. Every deposit can create credit. 11
  12. 12. Additional money can be created for the purpose of lending. But there is a limit for such credit. The RBI has adopted certain measures to control credit created by the banks. Commercial nature: All banking functions are carried out with the profit motive. They pay interest on deposits and these deposits are advanced to the needy persons at a higher rate of interest. There is a margin of profit in banking operations. It also charge for the services rendered by them. 12
  13. 13.  Withdraw able deposits: The deposits made by the public can be withdrawn by cheques, draft or otherwise. The banks issue books to the customers. The customers have an option of withdrawing money by using cheques or withdrawal slips. The deposits are also withdrawal on demand. There are certain restrictions on the number of withdrawals in case of saving deposit. Fixed deposit can be withdrawn at maturity and these deposits can not be withdrawn by cheques by the customers. 13
  14. 14. Concepts of banking • Banking: Banking means accepting for the purpose of lending or investment of deposits of money from the public repayable on demand otherwise and withdraw able by cheque, draft order or otherwise • Banker: banker is a person who accept deposits, money on current accounts issue and pay cheques for his customers. • Customer: He is a person who has an account with the bank, performs at least a transaction of a banking activity nature. • Banking company : Banking company means a company, which transact the business of banking in India. 14
  15. 15. 15 1949 Enactment of Banking Regulation 1955 Nationalisation of SBI 1959 Nationalisation of SBI subsidiaries 1961 Insurance cover extended to deposits 1969 Nationalisation of 14 major banks 1975 Creation of regional rural banks 1980 Nationalisation of 6 major banks 1982-83 Establishment of NABARD 1985-86 Introduction of MICR technology,permission to banks to float Mutual funds 1999-00 Introduction of Kisan Credit cards 2000-01 Banks and NBFCs permitted to undertake insurance business
  16. 16. Scope for banking  Banking activity is useful for trade and industry  Distributors & protectors of liquid capital  Money and precious metals can be kept safe  Provides credit facility to customers  It encourages the habit of saving  It meets the financial needs of small scale business people  it also provide payment settlements through cheque, pay orders, DD, debit and crdeit cards etc  Rural banks provide financial support for agriculture, cottage industries and to buy the rawmaterials etc.  Regional rural banks provide credit facilities to small and marginal farmers, agricultural labourers,artisands and small entrepreneurs 16
  17. 17. Financial assistance in indian money or in foreign currency is available to start any industry Financial support in the form of loan, equity participation, guarantees, refinance and other forms of credit are available from the banks to the industries . Scheduled commercial banks and financial institutions get financial assistance from the exim bank against their export-import financing activities. Corporate sectors also get assistance from banks for many of their acitivities. 17
  18. 18. Main Functions of Banking I Accepting deposits:  Current deposits  Fixed deposits  Savings deposits  Recurring deposits 18
  19. 19. To know about….. Customer’s relationship with the bank Opening a new account Closing of a bank account  Nomination Insurance of bank deposits 19
  20. 20. II. Lending money: Banks act as brokers and dealers of society’s money. Mobilise funds for needy like agriculture, industry etc. By this banks earn interest, discounts and conversion fees. Principles of lending :  Principle of safety and security  Principle of liquidity  Principle of profitability 20
  21. 21.  Liquidity means ability of the bank to produce cash on demand. Bank must ensure that it get backs the money in time. So its obligation to pay his depositor is not affected.  Safety becoz it is using the money received from the public. To ensure safety he must see the ability and willingness of the borrower.  Profitability to cover the cost of funds, interest and risk cost, some money for its growth’ 21
  22. 22. Types of Loan  On the basis of time:  Short and medium term loan(Less than 1 year)  Long term loan (1 to 5 years)  Bridge finance  Loan syndication  On the basis of purpose:  Consumption loan(education, medical loan)  Composite loan(to buy capital assets, working capital)  On the basis of security  Secured loan  Unsecured loan 22
  23. 23. Modes of creating charges Types of charge Nature of securities Lien Goods and securities Pledge or hypothecation Movable property Assignment Book debt Mortgage Immovable property 23
  24. 24. • Lien: right of the debtor to retain goods and securities of debtor until he pays the debt. Bank cannot sell ; cannot transfer the ownership of the goods from customer to bank. • Pledge: It is a bailment of goods as security for debt. Shares, FD, units of UTI; NSC can be used for security. Transfer of possession is compulsory. Ownership is retained with the customer. Bank can sell if he fails to repay. • Mortgage: customer gets advance against immovable property. Bank can sell and recover the loan amount if he fails. In case of limited company the charge must be registered with the Registrar of companies within 30days. 24
  25. 25. Differences between Legal and Equitable MortgageLegal Equitable Legal title can be transferred from customer to bank and vice versa Legal title cannot be transferred ;only document title can be It is expensive Not expensive Reputation of the customer will be affected Reputation will not be affected Not risky Highly risky 25
  26. 26.  Hypothecation: Charge over a movable property for loan. Neither ownership nor possession is passed on to the bank. Bank can anytime inspect. customer give undertaking to give possession of goods whenever required by the bank. Higher risk of multiple financing  Assignment: Transfer of any existing or future right, property or debt by the borrower to the bank (eg) LIC policy 26
  27. 27. Legal framework of banking The structure and pattern of banking system in India is based on British banking system. The commercial banks in India were started in the 2nd half 19thCentury.Before 1944 banks were regulated by Indian Companies Act of 1913. It was insufficient and so incorporated in 1949, The Banking Regulation Act of 1949 empowers the RBI to regulate the banking activities in India. 27
  29. 29. What is a Banking Company?  A banking company is a company which performs both the functions of accepting deposits and lending or investing. (Section 49)  This prohibits any institution other than banking company to accept deposit of money from public withdrawable by cheques.  Any company which is engaged in the manufacture of goods (trading) accept deposit from the public for its finance cannot be deemed to transact banking business.  The banker can refuse to open an account in the name of a person who is considered as unreliable person like robber, thief, etc. 29
  30. 30.  Acceptance of deposit should be the main business of a banking company.  The banker cannot refund the deposit to the customer on his own accord even if the period of deposit expires.  The withdrawables can be done only by cheques, pay orders, draft or otherwise.  Demand can be made only by proper instrument in writing and not by verbal order or telephone message. 30
  31. 31. Contents of Section 7  Every company doing banking business should have any one of the word such as bank/banker/banking company in its name.  Any other firm or institute or company should not use these words in its name. 31
  32. 32. Contents of Section 6 What other businesses can be undertaken by a banking company?  Borrowing, raising or taking money and lending or advancing money, discounting of bills, granting letter of credit, traveller’s cheque, buying and selling of bullion and species, buying and selling of foreign exchange, providing safe deposit vaults, collection and transmitting money and securities, underwriting and dealing in shares, debentures, bonds and investments of all kinds.  Act as an agent of the government, local authority and can carry on agency business. 32
  33. 33.  It may contract for public and private loans and negotiate and issue the same.  It may insure, guarantee, underwrite, participate in managing and carrying out of any issue of state, municipal or other loans or of shares, debentures and may lend money for the purpose of any such issue. • It may manage, sell and realize any property which may come into its possession in satisfaction of its claims. 33
  34. 34.  It may acquire, construct and maintain any building for its own purpose.  It may sell, improve, manage, develop, exchange, lease, mortgage, dispose of or turn into otherwise deal with all or any part of the property and rights of the company. 34
  35. 35. No banking company shall directly or indirectly deal in the buying or selling or bartering of goods, except in connection with the realisation of security given to or held by it, or engage in any trade, or buy, sell or barter goods for others otherwise than in connection with bills of exchange received for collection or negotiation or with such of its business. " goods" means every kind of movable property, other than actionable claims, stocks, shares, money, bullion and all instruments . It also prohibits a banking company from holding a immovable property however so acquired except as it is required for its own use only for a period of 7 years from date of acquisition. 35 Contents of Section 8
  36. 36. Property for its own use may be held by a banking company on a permanent basis. When can a banking company form a subsidiary company?(Section 19) A banking company is permitted to form subsidiary company for the following purposes:  For undertaking any business permitted for a banking company  For carrying out banking activity outside India  For undertaking such other business necessary/useful in the interest of the public. 36
  37. 37. Minimum paid up capital and Reserves  A sound banking company requires adequate capital  As per 1962 act minimum amount of paid up capital required for banking company is Rs.5 lakhs  Value here means exchangable value and not nominal value  Subscribed capital should not be less than half of its authorised capital  Paid up capital should not be less than half of its subscribed capital  Banking companies capital may consist of equity shares or preference shares which were issued prior to 1944 37
  38. 38. Indian Banks A banking company incorporated in India, should have the minimum capital as follows 38 If it has in more than 1 state Rs.5 lakhs If in any place in Mumbai or Kolkatta Rs.10 lakhs If it is other than Mumbai or Kolkatta a) If it is in the principal place Rs.1 lakh + b) If it is situated in district of principal business Rs. 10,000 + c) If it is situated elsewhere in the State outside the same district Rs. 25,000 If it has only one place of business Rs.50,000 If it has all its places of business in one state that too in Mumbai/calcutta Rs 5 lakhs +
  39. 39.  Foreign banks: Incase of a company incorporated outside India the value of its paid up capital and reserves shall be less than Rs.15 lakhs and if it has a place of business in the city of Mumbai and kolkatta or both should have Rs20lakhs.  These banks also are required to maintain CRR and SLR with the RBI  The foreign banking company should deposit 20% of its profit annually with the RBI  As per the recommendations of the RBI, the Central Govt. may exempt any banking company to do so if its deposit liabilities are sufficient.  This amount is considered as the asset of the bank and incase of any problem(bankruptcy) creditors of the bank can claim first. 39
  40. 40. Restrictions on Advances  Section 20 lays down the following restrictions for issuing loans and advances:  A banking company cannot grant loans and advances against its own shares  The banking company cannot enter into any commitment to grant loans and advances to or on behalf of a) any of its directors b) any firm in which any of its directors is interested as partner, manager, employee c) any company d) any individual with whom any of its director is a partner 40
  41. 41. Contents of Section 21 The RBI may give directions regarding loans and advances: 1. The purpose for which loans can be given or not 2. The margins to be maintained 3. The maximum amount of advance to any company/person 4. The maximum amount up to which guarantee can be given by the bank on behalf of any one company 5. The rate of interest, terms and conditions on which loans can be made, etc. 41
  42. 42. Licensing of Banking Companies As per section 22, every bank should hold a license issued by RBI. The RBI issue a license only when it is satisfied with conditions like:  The company will be in a position to pay its present and future depositor in full when they claim  The affairs of the company shouldn’t be a obstacle to the interest of the depositors  The company has adequate capital structure and earning prospects  The general character of the proposed management of the company will not be harmful to the public interest or for the interest of the depositors  The grant of a license would not be harmful to the operation and consolidation of the banking system which has monetary stability and economic growth 42
  43. 43. While granting license for a banking company incorporated outside India  Whether the company complies with all the provisions of the Act applicable to such companies  Whether the Govt. or the law of the incorporated company is not discriminating with the companies registered in India  Whether starting a banking company with the other countries will be in the public interest 43
  44. 44. Opening a Branch  Every banking company should take the permission of the RBI for opening a new branch in India / change the location of the existing place of business / open a branch outside India  Change of location within the city/for a temporary place for a period of a month for the purpose of providing banking facilities in an exhibition, mela etc no such permission is required form RBI  Before giving permission, RBI has to see  The financial conditions and history of the company  The general character of the company  The adequacy of its capital structure and earning prospects  The public interest 44
  45. 45. Maintenance of Liquid Assets  Section 24 of the Banking Regulation Act 1983 says every banking company is required to maintain in India in cash, gold approved securities the amount which is not less than 25% of total of its demand & time liabilities on any particular day. This is known as Statutory liquidity ratio(SLR)RBI can raise this to 40%  The approved securities must be valued at current market price. Approved securities means the securities in which the trustees may invest trust money 45
  46. 46.  Apart form SLR, every bank is required to maintain liquid assets including cash  The cash balance to be maintained by each schedule bank with the RBI is known as cash reserve ratio(CRR)  Once in 15 days every bank has to submit its monthly report about its demand and time liabilities  If they fail to maintain the minimum prescribed balance the bank has to pay penal interest of 3% per annum and later up to 9%. 46
  47. 47. Inspection of Banks  As per of the section 35 act, the RBI on its own or as per the instance of central government can inspect any branch of the banking company and its books of accounts  Every director, officer, employer of the banking company has an obligation to furnish the RBI officer books, accounts and other documents in his custody and information relating to day to day working of the company  If the central government finds that the banking company is conducting a banking business detriment to the interest of the public then it can prohibit the bank from receiving fresh deposits, asked the RB to windup the banking company 47
  48. 48. Powers of RBI  Call for a meeting of board of directors to discuss the matter  Can call an officer of the banking company to discuss with the officer of the RBI about that matter  Can appoint an officer to observe the manner in which the affairs of the banking company  To make the changes in the management specified a per the RBI’s guidelines. 48
  49. 49. Management of Banking Companies Board of Directors: Every should have BOD in such a way not < 51% of the total no. of members should satisfy the following conditions: 1.1. They should have special knowledge or practical experience about any subjects like accountancy, agriculture, economics, finance, law, small scale industries etc. 1.2. Out of total no. of directors at least 2 should have special knowledge or practical experience about agriculture, rural economy, co operation and small scale industry. 2.1. They do not have substantial interest in any company or firm which carries on trade, commerce, industry 2.2. They should not be employee or manager of a firm/company 2.3. They should not be owner of any company 49
  50. 50.  The above conditions won’t be applicable for the persons who are owners of small scale industry or company regulated under 25 of company Act of 1956  Meaning of substantial interest:  In case of a company it means the BOD’s wife or children solely or jointly should not have shares worth more than Rs.5lakhs or 10% of the paid up capital of the same company (whichever is less)  In case of a firm the BOD’s wife or children should not hold solely or jointly 10% of the total capital subscribed by all partners. 50
  51. 51.  If the above conditions are not fulfilled then the RBI has the power to direct the banking company to reconstitute the Board and if it is not done within 2 months, the RBI can remove the director and appoint a suitable person.  A director can hold office not more than 8 years  He is not eligible for reappointment for the same post for 4 years 51
  52. 52. Appointment of Chairman  He will be one among the BOD  Will be guided by the BOD  Term – 5 years full time  Eligible for reselection / reappointment  Should have knowledge of economics, agriculture 52 Ground for Disqualification • Director of a company other than subsidiary company registered under Section 25 of Company Act 1956 • If has any interest in any other company / firm • Director/Manager/Partner/Proprietor of any other company • If engaged in any other business
  53. 53. Control over Top Management  Every banking company should get prior permission for appointment, reappointment, or termination of the Director/chairman  Approval of RBI is necessary for amending the provisions relating to do the above  RBI can remove the top managerial personnel if it is necessary in the interest of public/for preventing the affairs of the company 53
  54. 54. Types of Loans offered by Banks to Customers Term loans Cash credit Overdraft Bill discounting 54
  55. 55.  1. Term loans  Short term  Term loans (Medium & long term)  Bridge Finance: There is a time gap between the date of sanctioning and its disbursement by the financial institution to the borrowing company. To bridge the gap company takes this loan. Delay in the project can be reduced  Loan syndication:2 or more banks agree to finance a particular project. The borrower can directly meet the lead bank and it will get in touch with the other banks. 55
  56. 56. • 2.Cash credit: Most favorable type of loan. Banker fixes cash limit on an annual basis. The customer can withdraw any amount as and when he likes. Interest is only on the amount withdrawn. • 3 Overdraft: Given to current account holder. Can withdraw more than what is there in his account. Maximum limit is there for amount and time. collateral security. Interest is only on the amount withdrawn. • 4 Bill discounting: This is for working capital by discounting and purchasing of bills. when customer provides a bill of exchange as security banker deducts a certain amount from the value of the bill and advances the rest of the amount to the customer. 56
  57. 57. Secondary Functions of Commercial Banks  Merchant banking  Leasing  Mutual funds  Money transfers  factoring  Housing finances  credit cards  ATM  Telebanking  Internet banking  Portfolio management 57
  58. 58. Reserve Bank of India Commercial Banks Public Sector Banks State Bank Group State Bank of India Subsidiary Bank Nationalised Banks Private Sector Banks Indian Old Banks New Banks Local Area Banks Foreign Regional Rural Banks Co,Op. Banks State Co.Op. Banks Central / District Co.op. Banks Primary Credit Societies 58
  59. 59. Reserve Bank of India  Established in 1935 as per RBI Act of 1934  Till Jan 1949,it was a private shareholders institution  Oldest central bank  As the apex bank, it guides, monitors, regulates & promotes the destiny of the Indian financial system Objectives of RBI  Issue notes, keep reserves to secure monetary stability in the country  Plays lead role in the devt. of a sound financial system  Ensures safe and efficient execution of financial transactions  In developing counties it plays additional role-developmental and promotional functions 59
  60. 60. Functions of RBI Note Issue: sole right to issue currency notes1Re &coins by the Finance Secretary to Govt. of India They are unlimited legal tender throughout India Its responsibility is not only circulation/withdraw but also exchange notes and coins of 1 denomination into another as demanded by public. 60
  61. 61. Currency Management  What is the role of the Reserve Bank in currency management? The Reserve Bank manages currency in India. The Government, on the advice of the Reserve Bank, decides on the various denominations. The Reserve Bank also co-ordinates with the Government in the designing of bank notes, including the security features. The Reserve Bank estimates the quantity of notes that are likely to be needed denomination-wise and places the indent with the various presses through the Government of India. The notes received from the presses are issued and a reserve stock maintained. Notes received from banks and currency chests are examined. Notes fit for circulation are reissued and the others (soiled and mutilated) are destroyed so as to maintain the quality of notes in circulation. The Reserve Bank derives its role in currency management on the basis of the Reserve Bank of India Act, 1934.  What is the role of Government of India? The responsibility for coinage vests with Government of India on the basis of the Coinage Act, 1906 as amended from time to time. The designing and minting of coins in various denominations is also attended to by the Government of India. 61
  62. 62.  Who decides on the volume and value of bank notes to be printed and on what basis? The Reserve Bank decides upon the volume and value of bank notes to be printed. The quantum of bank notes that needs to be printed broadly depends on the annual increase in bank notes required for circulation purposes, replacement of soiled notes and reserve requirements.  Who decides on the quantity of coins to be minted? The Government of India decides upon the quantity of coins to be minted.  How does the Reserve Bank estimate the demand for bank notes? The Reserve Bank estimates the demand for bank notes on the basis of the growth rate of the economy, the replacement demand and reserve requirements by using statistical models.  How does the Reserve Bank reach the currency to people? The Reserve Bank manages the currency operations through its offices located at various places. These offices receive fresh notes from the note presses. Similarly, the Reserve Bank offices located at Kolkata, Hyderabad, Mumbai and New Delhi initially receive the coins from the mints. These offices then send them to the other offices of the Reserve Bank. The notes and rupee coins are stocked at the currency chests and small coins at the small coin depots. The bank branches receive the bank notes and coins from the currency chests and small coin depots for further distribution among the public. 62
  63. 63.  What is a currency chest? These are actually storehouses where bank notes and rupee coins are stocked on behalf of the Reserve Bank. The currency chest branches are expected to distribute notes and rupee coins to other bank branches in their area of operation.  What is a small coin depot? Some bank branches are also authorised to establish small coin depots to stock small coins.. The small coin depots also distribute small coins to other bank branches in their area of operation.  What happens when the notes and coins return from circulation? Notes and coins returned from circulation are deposited at the offices of the Reserve Bank. The Reserve Bank then separates the notes that are fit for reissue and those which are not fit for reissue. The notes which are fit for reissue are sent back in circulation and those which are unfit for reissue are destroyed after processing shredded. The same is the case with coins. The coins withdrawn are sent to the Mints for melting.  From where can the general public obtain bank notes and coins? Bank notes and coins can be obtained at any of the offices of the Reserve Bank and at all branches of banks maintaining currency chests and small coin depots. 63
  64. 64. Banker to the Govt. Banker to Central and State Govts.  It provides all banking services- acceptance, withdrawal of deposits, making & collecting money on behalf of the Govt, transfer of funds & management of public debt  It does not receive any remuneration for this business Can charger commission for managing public debt It is authorized to make ways & means advances (Repayable in 3 months) 64
  65. 65. Banker’s Bank: It controls volume of reserves of commercial, co operative and regional & rural banks It determines the deposit/credit creating ability of the banks Banks have to maintain CRR with the RBI against their demand & time liabilities The banks can borrow funds from RBI in case of need. Exchange management and control : It has to maintain the stability of external value of rupee All reserves including gold, foreign assets, govt. balances held abroad are centralized with the RBI It has to buy & sell currencies of all members of the IMF FERA Act of 1973 empowers it to exercise control over foreign securities, foreign payments & transfer of currency ,bullion, securities to foreign nationals. 65
  66. 66. Supervising authority: It has vast powers to supervise & control the commercial and co operative banks in the country It includes: To issue licenses for new banks/new branches 1. To inspect the working of banks in India & abroad 2. To prescribe minimum requirements for paid up capital, reserves, transfer to reserve fund, maintenance of CRR etc 3. To control methods of operation of banks 4. To appoint, reappoint, terminate Directors, Chairman and Chief Executive officers to private sector banks 66
  67. 67. Credit control:  Most important function  Can use all quantitative and qualitative methods of credit control  It has to regulate the volume, cost & direction of bank loans 2 Types of credit control: Qualitative & quantitative Qualitative tools:  Margin requirements  Issuing directions  Regulation of consumer credit 67
  68. 68. Qualitatitve tools:  Bank rate (BR)  Open market operations (OMO)  Varying reserve requirements (VRR ) Export finance:  Main objective is free export sector from restriction of domestic credit  Exports should not suffer due to scarcity of finance It has following schemes for this purpose: 1. Export bill credit scheme, 2. Pre shipment credit scheme, 3. Export credit Interest subsidy scheme 4. Concessional rate of exchange, interest, discount 68
  69. 69. Development and Promotion Development of institutional agricultural credit is an important function of RBI It has established NABARD in 1962 It has started ARDC in 1963 It has also started various institutions like IDBI, IFCI 69
  70. 70. Commercial Banks  Oldest and fastest growing bank in India  It is a unique system in the world  Their objective is to make profit  Profitability, liquidity, safety and social welfare are their major principles  It has grown enormously in 40 years interms of bank branches, deposits etc  They developed innovative approaches like single window, participatory lending and consortium  A loan in which one or more lenders share, or participate, with the originating bank in advancing funds to a borrower. A participation loan is useful when the amount of the loan is too large for any single lender. 70
  71. 71. Achievements :  Massive quantitative expansion  Quick, reliable, better customer service  Diversified services like merchant banking, mutual funds, venture capital, equipment leasing, housing finance, hire purchase credit etc Drawbacks/problems: Bad debts Low efficiency Overdues Low productivity Defaults 71
  72. 72. Major changes brought by LPG:  Expansion and devt. of branch banking system  Opening branches in rural and semi urban areas  Share of priority sector increased in total bank credit  RBI controls these banks through SLR& CRR  Debt-Recovery Tribunals were set up to expedite recovery of overdue  These banks were facing problems of non-performing assets. This adversely affect the profitability of these banks. 72
  73. 73. Importance of Commercial Banks 1. Increase productivity 2. Development of trade & industry 3. Optimum use of funds 4. Capital formation in the country 5. To achieve economic development 6. To generate employment opportunities 7. To reduce regional disparities 8. To cultivate the habit of saving 9. Creation of credit in the economy 10. Expansion of business 73
  74. 74. Co operative banks  They are part of set of institutions financing for rural and agricultural development.  It is a small scale banking carried on a no profit no loss basis for mutual co operation and help  started in India in 1904  Its structure is federal in nature with 3 tier linkages between State, district and village level 74
  75. 75. Co.Operative Credit Banks Urban Co.Op.Banks Rural Co.Op.Banks Short Term State Co.Op. Banks Central Co.Op. Banks Primary Agril. Credit Societies Long Term State Co.Op. Agril. & Rural Devt. Banks Primary Co.Op. Agril. & Rural Devt. Banks 75
  76. 76. Features of co operative banks They are govt, sponsored, supported & subsidized financial agencies  Managed by BOD on the principles of cooperation, self help, & mutual help  Their rule is one -member one- vote  Their aim is not profit maximization  Perform all banking functions .but their range of services is narrower .  Their geographic coverage is the widest  Most of these are non-scheduled banks  They have a federal structure of 3 tier linkages and vertical integration  They are only financial intermediaries  They can take part in money as well as capital markets  They face stiff competition from commercial banks & other financial instituions 76
  77. 77. Weaknesses  Too much dependence on RBI, NABARD, and the govt.  To much officialistion and politicization  Quality of loan assets and their recovery are poor  Primary agricultural co operative societies are small in size, very weak and are dormant  Many urban co operative banks have failed or are in the process of liquidation  They ace stiff competition from commercial banks, LIC, UTI, savings organizations  Suffer from multiple regulations and control authorities 77
  78. 78. 78 Commercial Banks Co.Op. Banks Function for profit Work on the principles of self-help and mutual cooperation for member’s benefit Organised on Unitary basis 3 tier setup organisation Governed by all sections of the Banking Regulation Act 1949 Only some sections are applicable to them Most commercial banks are scheduled banks Mostly non-scheduled Traditionally Urban oriented; now finance rural sector also Basically rural oriented – financing agriculture & allied sector Wide branch network – within and outside the Operation restricted to particular district / state
  79. 79. Regional Rural Banks  They are set up by govt of India under the Regional Rural Banks Act of 1976  Its main objective is to provide credit and other facilities to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs in rural areas  It is jointly set up by Govt. of India/the state Govt and the sponsor commercial bank  Each RRB operates within specified local limits  Initially they started with a capital of Rs 1cr  In this ,50% is by central Govt,15% by state govt.,& 35% by the sponsor bank  Sponsoring com. banks also help in managerial assistance, recruitment,& training of personnel in the initial period. 79
  80. 80. Distinguish between 80 Public sector banks Private sector banks At least 51% ownership is with govt. Majority shareholding lies with the general public Branches are more Branches are Comparatively less Number of employees is much more Less number of personnel They have organised trade union Unions do not pose a problem They have old set up, so capital asset is more They have lower capital base Are less technology savvy Use technology which helps for faster growth, with less investment Govt. control is more Comparatively more freedom to operate
  81. 81. Development Banks  They are set up during the planning period.  Dominate the financial system in India  Cannot be classified as banks  Cannot be considered as financial intermediaries –mobilizes resources from the Govt. and RBI & not from savers  Some are set up by Govt. while others are by private sector participation in the ownership & functioning of the institution 81
  82. 82. How it came into existence? The scenario of India was characterized by: Savings of the country was low Dominated by public sector Private sector was not developed Capital market was at its infancy stage Industries had to depend on their own profits Unable to reconstruct the war affected nation Development process was very slow No individual bank was ready to cater to the growing & diversified needs of different sectors 82
  83. 83. Functioning of development banks  They were permitted to issue bonds of their own either with or without the guarantees from the govt. They did not face any competition in using their funds Transformation: As a result of LPG, and as per the recommendations of Narashimhan committee the Devt. Finance institutions were converted into Banks. It also insisted that there should be only two intermediaries -–banking and non banking finance companies 83
  84. 84. Need for devt. banks  To reconstruct the war affected country  To speed up /accelerate the rate of devt.  to take up promotional activities  To accelerate the pace of industrialization  To promote certain key industries  To meet the capital needs  To help small and medium size industries Thus in India and in many developing countries in Asia Devt. Banks came into existence with some goals 84
  85. 85. Types of development banks Industrial finance corporation of India (IFCI)  First term lending institution set up in 1948  Objective-to provide medium & long term loan finance to large industries in private sector  Provides direct rupee & foreign currency loans for setting up new industrial projects, expansion, diversification ,renovation & modernization of existing units.  It raises its resource from RBI, issue of bonds, loans from Govts and lines of credit from foreign agencies & international capital markets 85
  86. 86. Management: It is managed by BOD consisting of a chairman & 12 Directors. The chairman is appointed by Central govt. 2 directors are nominated by central govt. 4 are by IDBI & 6 by elected shareholders It can subscribe to debentures, underwrite, guarantee for companies for the loans sanctioned by commercial banks Objectives:  Financial assistance to corporate sector  Grant loans repayable within 25 years  Financial assistance to start a new business, expansion or diversification of existing business  Playing an important role in the devt. Of the country 86
  87. 87. Industrial credit & investment corporation of India (ICICI)  First institution providing foreign currency loans  Set up in 1955 as a public limited company under the sponsorship of world bank  Encourage & provide assistance to the corporate sector in India  Also provides assistance to private sector in the following ways: 1. For creation, expansion , modernization of industrial organizations 2. Encouraging private ownership 3. Long term and medium term loans 4. Sanctioning loans to import machinery 5. Technical and management services to corporate sectors 6. Expanding the investment market 7. Underwriting services for the issue of shares and debentures 87
  88. 88. Working: It raises resources in the form of share capital, loans from govt., advancing foreign currency from the world bank, borrowings from RBI issue of bonds etc. Its major shareholders –LIC,UTI, GIC It is managed by BOD consisting of 15 directors, 2 are by shareholders in Up & the remaining are nominated by Govt. of India & USA Objectives Financial assistance to industrial projects for foreign currency Encourages and promotes industries in the private sector 88
  89. 89. Recent developments: It has become a privately owned company It’s share capital is partly owned by pvt. sector & partly by foreign institutions It has developed merchant banking, lease finance and installment sales It is converted into ICICI Bank It is the largest private sector bank It is the 1st universal bank; 2nd largest bank in terms of assets It is the largest retail financial supermarket Its ATM network accepts Master card, Visa card 89
  90. 90. Industrial development bank of India (IDBI)  It was set up in 1964 as a wholly owned subsidiary of RBI  Apex in the field of industrial finance  It is an independent entity owned by govt.  It is co coordinating, supplementing,& monitoring the operations other long term lending institutions in the country.  It provides indirect assistance in the form of discounting re discounting long term bills & promissory notes. 90
  91. 91.  I institution promoting industrial growth in the country  It is actively involved in planning, promoting and developing industries Objectives: To provide excellent service to new enterprises To provide technical and administrative assistance for expansion, to co ordinate, guide & monitor the entire range of credit facilities offered by other institutions to small scale industries 91
  92. 92. Management: It is managed by 22 BOD including a chairman. The chairman is appointed by RBI It provides term loans for new projects as well as for expansion, modernization & renovation of existing units It extends financial support to medium & large scale projects by public limited company It pays special attention to mega projects & sophisticated technology promoted by technocrats located in backward areas & exploring new technology units It provides foreign currency loans to projects for the purchase of fixed assets 92
  93. 93. Recent development  IDBI introduced a scheme for “no industries districts” by which it provides training, financial technical & administrative assistance to potential entrepreneurs in these districts 93
  94. 94. National bank for agricultural & rural development (NABARD)  It is a central Institute for financing agricultural & rural sectors  It is set up by the central govt. & RBI in 1982  Entire rural credit is taken from RBI  It act as co coordinating agency for agricultural & Rural devt.  It provides credit for devt. of agriculture, SSI, cottage industries, handicrafts and rural & other related activities. 94
  95. 95.  It acts as a Refinancing agency to state co operatives banks, commercial banks, regional rural banks.  The loans are refinanced for short term for various purposes like production, trading, marketing, storage and packing  Also provides long term loans for 20 to 25 years  It raises its resources from RBI, Central govt., world bank, sale of bonds and accepting deposits 95
  96. 96. Present status  It is the premier institution in the field of rural credit.  It looks after the financing functions of production, marketing and investment activities relating to rural devt., SSI, village industries and handicrafts  The lending rates and deposit rates changes from time to time  It sanctions medium and long term loans to agriculture  It charges less rate of interest for agriculture than other purposes 96
  97. 97. Investment Banks Definition : A financial intermediary that performs a variety of services. This includes underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients. 97
  98. 98.  An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. They invest funds in shares or bonds of the companies.  Unlike commercial banks and retail banks, investment banks do not take deposits. 98 Business organisation s Investment Banks Investors
  99. 99. i. Invest funds in the shares & bonds of the companies ii. They act as middlemen between business organization & investors iii.They act as agent & undertake the public issues. iv.Perform highly useful service to the business world by providing necessary capital for long term needs of the companies v. They are called as: ― ORIGINATORS, ― UNDERWRITERS, ― RETAILERS. 99
  100. 100. ORIGINATORS: They bring out new issues of the securities to individuals & institutional investors. UNDERWRITERS/RETAIILORS: They provide best opportunity of investment to small savers & investors. The purpose is to provide the investors the combined efforts of low risk, steady return & capital appreciation through diversification & expert management. 100
  101. 101. Investment Banking advice relates to corporate action rather than product or organizational matters. An investment banker needs to have an understanding of all these things because they too will have an impact on share holder value IB helps the commercial company by advising them for: .  Increasing the range of products Increasing the business geographical footprint Protecting a position Also advice Industrialist sector team. Raising profitability & therefore the share price Increasing in size Financial growth Shifting the business towards sectors more favorably viewed by the market 101
  102. 102. Investment banks advice on the raising of capital ―IN WHAT FORM? ―HOW MUCH? ―FROM WHOM? Investment Bank may charges a fee for arranging the financing or for “UNDERWRITING” i.e. for advising & provision, service provided There are many way in which IB raise its capital ―PUBLIC OFFERING ―RIGHT OFFERING ―PRIVATE PLACEMENT 102
  103. 103.  They purchase new shares or securities of the companies or government corporations and reissue them for public subscription at a higher price  They also act as agents and undertake the public issues.  They are known as originators (For new companies)underwriters (for well established companies)  Thus it perform highly useful service to the business world by providing long term needs of the companies 103
  104. 104. Investment banking +commercial banking Mixed banking Commercial banks ==liquidity === risk Investment banks====longer investment risk Investment banks include: Banks & non bank financial institutions Investment trusts, loan and finance companies nidhis, chit funds, which give loan to commerce, trade, & for consumption.UTI, Mutual funds, LIC Their coverage is narrow & specialized 104
  105. 105.  Investment banks can be close ended or open ended  Close ended- authorized capital & issued capital is fixed (Investment Trusts)provide useful services by conserving & managing property of public who cannot manage their own funds, give expert advice & on lucrative investment channels  Open ended –can go increasing its resources by selling units (UTI) 105
  106. 106.  Role of an Investment Bank The major work of investment banks includes a lot of consulting. For instance, they offer advices on mergers and acquisitions to companies. The other arena where they give advice are tracking the market and determining when should a company come out with a public offering and what is the best possible way to manage the public assets of businesses. The role that an investment bank plays sometimes gets overlapped with that of a private brokerage house. The usual advice of buying and selling is also given by investment banks. 106
  107. 107. Largest full-service investment banks  The following are the largest full-service global investment banks; Full-service investment banks usually provides both advisory and financing banking services, as well as the sales, market making, and research on a broad array of financial products including equities, credit, rates, currency, commodities, and their derivatives:  Bank of America Goldman Sachs  JPMorgan Chase  Morgan Stanley  Nomura Securities  UBS  Wells Fargo Securities 107
  108. 108. MERCHANT BANKING INVESTMENT BANKING Expands in securities & underwritings Trade financing activities Participated only in selling with general public Raise funds for business & government No dealing with general public Facilitates mergers & acquisition through share sales. Perform international activities focus on small scale companies Focus on IPOs & large public Offers trade financing products Rarely offers trade financing products Focus on small scale companies Focus on IPOs & large public 108
  109. 109. Many investment banks offer both buy side & sell side services. The sell side typically refers to selling shares of newly issued IPOs, placing new bond issues, engaging in market making services, or helping clients facilitate transactions. The buy side, in contrast, worked with pension funds, mutual funds, hedge funds, &the investing public to help when maximize their returns when trading or investing in securities such as stocks & bonds. 109
  110. 110. 110
  111. 111. Merchant Banking  Organization – underwrites securities for companies  Merchant Banker – Engaged in the business of issue mangt. Either by making arrangements regarding selling, buying or subscribing to securities or acting as manager/consultant/adviser/rendering corporate advisory services – he has certificate granted by SEBI  Merchant Banks – financial institutions providing services – acceptance of bills of exchange, corporate finance, portfolio management and other services 111
  112. 112. Banks provide services to businessman – finance, management consultancy, preparation of project report, feasibility study, technical consultancy, managing public issues, underwriting, loan syndication by coordinating with other banks, etc. Banks have separate divisions, appoint experienced managers to carry out these finances 112
  113. 113. Mutual Funds  They are new subsidiaries floated by banks to mobilize savings of general public and invest them in stock market and money markets.  Unit Trust was the first one to be started in India in 1964.  There are > 63 mutual funds in operation in the country.  These are open or close ended schemes – i.e. the investor can invest or exit at any point of time or there is a lock in period of 3 – 5 years.  Important schemes – Growth schemes, Income schemes, Balance schemes, Tax saving schemes 113
  114. 114.  They are managed by financial and professional experts.  The mutual funds are relatively secured hence they are profitable for the small investors in particular 114
  115. 115. Money Transfers Banks help individuals , society to transfer money from place to place and from person to person DD, pay orders, telegraphic transfer, mail transfer, credit cards are used. 115
  116. 116. Housing Finance Bank’s subsidiaries undertake housing finance as a specialized business. Now a days all banks are permitted to provide housing finance to the people at a reasonable rate of interest. To buy a new home, home improvement, extension, land purchase, bridge loans and balance transfer loans etc are provided 116
  117. 117. CREDIT CARDS  They are small plastic cards issued by banks that allow the card holders to buy goods and services on credit and pay at fixed intervals through the card issuing bank.  This could also be used for obtaining cash from the branches of the same bank which has issued it or form other specified banks .  There is an annual charge for this card.  There is no need to have an account with the bank and no money is needed to be paid in advance  Card holders are given 30 – 40 days credit at a certain rate of interest. 117
  118. 118. ATM  This is one of the service provided by the bank through Automated Teller Machine (ATM)  There is a unique Personal Identification Number (PIN) on the card, and also a magnetic strip with the account number of the card holder.  Money withdrawn is immediately debited in the card holder’s account and an SMS is sent to the holder of the card.  PIN number is very important in this and has to be maintained secretly by the card holder to avoid frauds and robberies. 118
  119. 119. Leasing  Banks started funding the fixed assets through leasing i.e renting out of immovable property by the banks to the businessmen on a specified period rent fro a specific period which is mutually agreed upon.  Written agreement is made  Banks now have subsidiaries to transact equipment leasing business with the permission of RBI. 119
  120. 120. Tele-Banking  This is a service provided through the phone.  Each customer is given a specific Telephone PIM (T- PIN)  Customer can call the exclusive tele-banking numbers, provide details to identify himself to the automated voice  When the respective number match the computerized system, the customer is given access to his account to query or transact on his account.  Cash delivery to the customer is not there except for certain class of customers. 120
  121. 121. Internet Banking  This service is similar to that of the ATM. Here also the customers can request the ban to provide them with this service.  Customers are given a PIN number, Login id (which he can change) and also a Transaction password (which he has to change)  Using internet the customer can log on to his account and carry out any transaction.  Here also there is a need to change the passwords now and then and keep them safely 121
  122. 122. Factoring It is an arrangement in which receivables arising out lf sale of goods are sold by a firm to the factor as a result of which the title to the goods passes to the factor.  The factor becomes responsible for all credit control, sales accounting, and debt collection from the buyers.  In case of insolvency or inability of the debtor the factor has to absorbs the losses. 122
  123. 123.  The factor provide services of -finance, maintenance of accounts, collections of debts, protection against credit risk  Realization of credit is the main function of factoring services  In case bank undertakes collect and manage clients debts and also finances the clients either by lending against account receivables or purchasing or discounting them outright for a charge which is called as discount 123
  124. 124. Portfolio Management  It is a process of investment in securities  It involves a proper investment decision making.  It involves proper money management  Objective-to help investors with the expertise of professionals  It involves construction of portfolio based on the investor’s objectives, constraints, preferences and tax liability  It should be reviewed from time to time in tune with the market conditions 124
  125. 125.  Portfolio manager is an important person who holds the dreams of millions of investors.  This scheme floated by many banks and financial institutions  They do for a fee. They should get a SEBI certificate to do. It frames certain rules and regulations Violating the this is an offence and punishable  Banks extend services for managing surplus funds of their corporate customers either directly or through this  It provides safety, liquidity and maximum yield to the customers 125
  126. 126. Insurance
  127. 127. Defining Insurance  Insurance in broad terms may be described as a method of sharing financial losses of few from a common fund who are equally exposed to the same loss.  Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of a guaranteed small loss to prevent a large, possibly devastating loss.  An insurer is a company selling the insurance. The insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage.
  128. 128. Concept of risk
  129. 129. Massive risk with high magnitude Day to day risk of lesser magnitude
  130. 130. Defining Risk  A variation in the possible outcome  The degree of uncertainty associated with a particular loss  Greater the accuracy with which the outcome can be predicted the lower is the risk.  Risk is the possibility of an unfortunate occurrence  Risk is the possibility of loss  The combination of hazards  Uncertainty of loss  The tendency that actual results may differ from predicted results
  131. 131. Basic Terminology  Peril : Cause of a risk and losses. E.g. Earthquake, flood , fire, criminal activities etc.
  132. 132. Basic Terminology  Hazard : Condition that increases the frequency or severity of loss. E.g. absence of proper security or fencing , poorly maintained fire alarm system etc.
  133. 133. Basic Terminology  Moral Hazard: It refers to the dishonesty of the insured person leading to increase probability of loss from given risk exposure. E.g. setting fire to your own house.  Morale Hazard: This refers to attitude of indifference to losses that results out of a known fact that the said losses were insured.  Catastrophic loss: It is a potential loss that is unpredictable such as flood, but is capable of producing an extra ordinary large amount of damage related to assets held in insurance pool. These are generally natural disasters like earthquake flood etc.
  134. 134. Requirements of Insurable Risk  Should be a Pure risk  Involves a chance of loss or no loss  Large number of exposure units  to predict average loss  Accidental and unintentional loss  to control moral hazard  to assure randomness  Determinable and measurable loss  to facilitate loss adjustment
  135. 135. Requirements of Insurable Risk  No catastrophic loss  to allow the pooling technique to work  Probability of loss must not be very high  to determine the premium need  Economically feasible premium  so people can afford to buy
  136. 136. Concept of Insurance
  137. 137. Basic Characteristics of Insurance  Pooling of losses  Spreading losses incurred by the few over the entire group  Risk reduction based on the Law of Large Numbers  Payment of fortuitous losses  Insurance pays for losses that are unforeseen, unexpected, and occur as a result of chance  Risk transfer  A pure risk is transferred from the insured to the insurer, who typically is in a stronger financial position  Indemnification  The insured is restored to his or her approximate financial position prior to the occurrence of the loss
  138. 138. Example  Say 1000 motor cars valued @ 300000/- are observed over a period of five years. On an average say per year two are total loss by accident. Then the total annual loss would be Rs.600000. If the loss is to shared by all the thousand owners then they have to contribute Rs.600/-  The loss experience will be established by taking the past experience, geographical area in which the vehicles are used and density of traffic.
  139. 139. Basic terms  Insurer : The party to an insurance arrangement who undertakes to indemnify for losses.  Insured: A person whose interests are protected by an insurance policy.  Premium: Financial cost of obtaining an insurance cover, paid as a lump sum or in installments during the duration of the policy.  Policy: Written contract or certificate of insurance  Exposure to Loss: In insurance, areas in which the risk of loss exists. Four loss risk areas are: (1) property; (2) income; (3) legal vulnerability; and (4) key personnel in an organization
  140. 140. Basic terms  Life annuity: A life annuity is a financial contract in the form of an insurance product according to which a seller (issuer) — typically a financial institution such as a life insurance company — makes a series of future payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum (single-payment annuity) or a series of regular payments (regular-payment annuity), prior to the onset of the annuity.  Nomination: It is the right of the policy holder on his/ her own life to designate a living person to receive the policy proceeds in the event of him predeceasing the nominee before the maturity of the policy.  Nominee: Nominee should not be a stranger because its against the objective of insurance which in most cases is family protection.
  141. 141. Basic terms  Assignment: An agreement under which one party–the assignor– transfers some or all of his ownership rights in a particular property, such as a life insurance policy or an annuity contract, to another party–the assignee.  Assignor: A property owner who transfers some or all of the ownership rights in a particular property to another party by means of an assignment.  Assignee: A person or party to whom a property owner transfers some or all of the property owner's rights in a particular property by means of an assignment.
  142. 142. IRDA The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India, based in Hyderabad. It was formed by an act of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements. Mission "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto."
  143. 143. Benefits of Insurance to an Individual  Peace of mind  Aversion of risk  Protects mortgaged properties  Provides self dependency  Tool of savings  Tool of investment  Satisfies various needs
  144. 144. Benefits of Insurance to Business  Reduced reserve requirements  Capital freed for investment  Indemnification  Reduction of uncertainty  Reduced cost of capital  Reduced credit risk  Loss control activities  Business and social stability
  145. 145. Benefits of Insurance to Society  Protects wealth of the country  Helps in economic growth  Control inflation
  146. 146. Cost of Insurance  Operating Expense  Distribution cost  Underwriting cost  Policy Administration Cost  Reserve cost  Moral Hazard resulting in extra cost  Exaggerated Losses  Benefit-cost Tradeoff
  147. 147. Insurance Classification Insurance Life Insurance General Insurance Fire Marine Health Auto
  148. 148. Players in the Industry Life Insurance General Insurance Life Insurance Corporation of India. General Insurance Corporation of India. 1. Oriental Insurance Company Ltd. 2. New India Assurance Company Ltd. 3. National Insurance Company Ltd. 4. United India Insurance Company Ltd. New Entrants ICICI Prudential Life Insurance Ltd. Bajaj Alliaz General Insurance Company Ltd. Tata AIG Life Insurance Corporation Ltd. Reliance General Insurance Company Ltd. ING Vysya Life Insurance Corporation Ltd. Tata AIG General Insurance Company Ltd. Kotak Mahindra Life Insurance Corporation Ltd. Royal Sundaram Alliance Insurance Company Ltd.
  149. 149. Concept of General Insurance
  150. 150. Defining General Insurance  General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event.  General insurance typically comprises any insurance that is not determined to be life insurance.  It is called property and casualty insurance in the U.S. and Non-Life Insurance in Continental Europe.
  151. 151. Classification  Commercial lines: products are usually designed for relatively small legal entities. These would include workers' comp (employers liability), public liability, product liability, commercial fleet and other general insurance products sold in a relatively standard fashion to many organizations. There are many companies that supply comprehensive commercial insurance packages for a wide range of different industries, including shops, restaurants and hotels.  Personal lines: products are designed to be sold in large quantities. This would include autos (private car), homeowners (household), pet insurance, creditor insurance and others.
  152. 152. Principles of Insurance  Utmost Good Faith  Insurable Interest  Principle of Indemnity  Principle of Contribution  Principle of Subrogation  Principle of loss Minimization  Principle of ‘CAUSA PROXIMA’
  153. 153. Utmost Good Faith  Both the parties i.e. the insured and the insurer should a good faith towards each other.  The insurer must provide the insured complete ,correct and clear information of subject matter.  The insurer must provide the insured complete ,correct and clear information regarding terms and conditions of the contract.  This principle is applicable to all contracts of insurance i.e. life, fire and marine insurance.
  154. 154. Insurable Interest  The insured must have insurable interest in the subject matter of insurance.  In life insurance it refers to the life insured.  In marine insurance it is enough if the insurable interest exits only at the time of occurrence of the loss  In fire and general insurance it must be present at the time of taking policy and also at the time of the occurrence of loss.  The owner of the party is said to have insurable interest as long as he is the owner of the it.  It is applicable to all contracts of insurance.
  155. 155. Principle of Indemnity  Indemnity means a guarantee or assurance to put the insured in the same position in which he was immediately prior to the happening of the uncertain event. The insurer undertakes to make good the loss.  It is applicable to fire ,marine and other general insurance.  Under this the insurer agrees to compensate the insured for the actual loss suffered.
  156. 156. Principle of Contribution  The principle is a corollary of the principle of indemnity.  It is applicable to all contracts of indemnity.  Under this principle the insured can claim the compensation only to the extent of actual loss either from any one insurer or all the insurers.
  157. 157. Principle of Subrogation  As per this principle after the insured is compensated for the loss due to damage to property insured , then the right of ownership of such property passes on to the insurer.  This principle is corollary of the principle of indemnity and is applicable to all contracts of indemnity
  158. 158. Principle of Loss of Minimization Under this principle it is the duty of the insured to take all possible steps to minimize the loss to the insured property on the happening of uncertain event.
  159. 159. Principle of ‘Causa Proximal’  The loss of insured property can be caused by more than one cause in succession to another.  The property may be insured against some causes and not against all causes.  In such an instance, the proximate cause or nearest cause of loss is to be found out.  If the proximate cause is the one which is insured against ,the insurance company is bound to pay the compensation and vice versa.
  160. 160. General Rules  Mis-description  Reasonable care  Fraud  Basic principles  Insurable interest  Utmost good faith  Subrogation  Contribution  Indemnity  Risk of loss not covered
  161. 161. Types of General Insurance Main types of general insurance are:  Fire  Health  Marine  Motor Vehicle
  162. 162. Fire Insurance
  163. 163. Fire Insurance Fire insurance is a form of property insurance which protects people from the costs incurred by fires. When a structure is covered by fire insurance, the insurance policy will pay out in the event that the structure is damaged or destroyed by fire.
  164. 164. Types of Fire Insurance Policies  Specific policy: In this type of policy, the insurance company is liable to pay a sum, which may be less than the property’s real value. The insured is called to bear a part of the loss, as the actual value of the property is not considered in deciding the amount of indemnity.  Comprehensive policy: Known as “all-in-one” policy, the insurance company indemnifies the policyholder for loss arising out of fire, burglary, theft and third party risks. In this type of policy, the policyholder also gets paid for loss of profits incurred, due to fire, till the time the business remains shut.  Valued policy: In this type of policy, the value of the commodity is already set and actual loss is not taken into consideration. The policy follows a standard contract of indemnity, wherein the policyholder gets paid a specific amount of indemnity, without considering the actual loss.
  165. 165. Types of Fire Insurance Policies  Floating policy: This type of policy is subject to average clause and the extent of coverage expands to different properties, belonging to the policyholder, under the same contract and one premium. The floating policy also provides protection of goods kept at two different stores.  Replacement or Re-instatement policy: As per replacement or re- instatement policy, the insurance company instead of paying the policyholder the amount of indemnity in cash, replaces the damaged property/commodity with a new one.
  166. 166. Fire Insurance Claim Procedure  Individuals/corporate must inform insurer as early as possible , in no case later than 24 hours.  Provide relevant information to the surveyor/claim representative appointed by the insurer.  The surveyor then analyzes the extent/ value of loss or damage.  The claim process takes anywhere between one to three weeks.
  167. 167. Documents Required  True copy of the policy along with schedule  Report of fire brigade  Claim Form  Photographs  Past claims experience
  168. 168. Need of Fire Insurance Fire insurance is important because a disaster can occur at any time. There could be many factors behind a fire, for example arson, natural elements, faulty wiring, etc. Some facts that stress the importance of fire insurance include:  Fire contributes to the maximum number of deaths occurring in America due to natural disasters.  Eight out of ten fire deaths take place at home.  A residential fire takes place after every 77 seconds.  The major reason for a residential fire is unattended cooking.
  169. 169. Fire Insurance in India Fire insurance business in India is governed by the All India Fire Tariff that lays down the terms of coverage, the premium rates and the conditions of the Fire Policy. The fire insurance policy has been renamed as Standard Fire and Special Perils Policy. The risks covered are as follows: Dwellings, Offices, Shops, Hospitals (Located outside the compounds of industrial/manufacturing risks) Industrial / Manufacturing Risks Utilities located outside industrial/manufacturing risks Machinery and Accessories Storage Risks outside the compound of industrial risks Tank farms / Gas holders located outside the compound of industrial risks
  170. 170. Fire Insurance in India  Perils Covered: Cause of Loss Fire Lightning Explosion/Implosion Aircraft damage Riot, Strike Terrorism Storm, Flood, inundation Impact damage Subsidence, landslide Bursting or overflowing of tanks Missile Testing Operations Bush fire etc.  Exclusions:  Loss or damage caused by war, civil war and kindered perils  Loss or damage caused by nuclear activity  Loss or damage to the stocks in cold storage caused by change in temperature  Loss or damage due to over-running of electric and/ or electronic machines  Claims: In the event of a fire loss covered under the fire insurance policy, the Insured shall immediately give notice there of to the insurance company. Within 15 days of the occurrence of such loss the Insured should submit a claim in writing giving the details of damages and their estimated values. Details of other insurances on the same property should also be declared.
  171. 171. Indian Companies Offering FI  ICICI Lombard General Insurance (Pvt.)  United India Insurance (Govt.)  New India Insurance (Govt.)  Bajaj Allianz Insurance (Pvt.)  Oriental Insurance (Govt.)  Tata-AIG General Insurance (Pvt.)
  172. 172. Health Insurance
  173. 173. What is Health Insurance? Health insurance, like other forms of insurance, is a form of collectivism by means of which people collectively pool their risk, in this case the risk of incurring medical expenses.
  174. 174. Importance of Health  Rising medical costs  Sharing of health related risk  uncertain hospital bills  Expensive/quality health care services  Money value – Sick Vs Healthy  Family health insurance  Tax benefit  Productivity of workforce  Removes some of the burden from the state  Keeping pace with the customer needs while achieving profitability
  175. 175. How to improve the access to health care and financial protection of the poor? Answer The most obvious solution will be to improve the health insurance penetration.
  176. 176. How to Improve Health Insurance Penetration?  Regulator/Government  Enhance customer awareness  Enhance client confidence - real value benefits in the event of a claim  Effective supervision  Compulsory percentage of total business towards health  Compulsory savings towards health  Tax incentives to employers for promoting group health coverage  Insurer  Clients confidence - warrantable claim will be paid out in a reasonable time frame  New clients have to be reached  Value for money  Design products as per clients needs  Product transparency  Cost efficiency  affordability  Wellness programmes
  177. 177. Initiatives of IRDA  Committee to formulate regulations  Pure health insurance products  Allowing the formation of an stand alone health insurance company  Standalone health insurance companies  Renewability  Senior citizens
  178. 178. Impediments in Health Insurance  Lack of Data  Moral Hazard/Adverse Selection  Complex nature of the product  Medical Inflation  New treatments  Unnecessary treatments  Difficulty in pricing  Government provision of health care  Long term nature  Changing life style  Mis-selling/fraud
  179. 179. Mitigation of Impediments  Insurer  Designing a less complex products  Transparency in the product features  Clarity in policy terms, conditions & exclusions  Efficient back-office support for underwriting and claims processing  Higher Reinsurance  Need for quicker services. E.g. Toll free numbers, cashless, quick response  Expense analysis on a regular basis  Product innovation  Efficient training of sales force
  180. 180. Mitigation of Impediments  Policyholder  Pay attention to policy conditions  Read the exclusions and limitations very carefully  Compare premium costs, deductibles, co-payments  Take an informed decision  TPA  Proper infrastructure  Speedy claim settlement process  Less paper work
  181. 181. Mitigation of Impediments  Regulator/Government  Come out with health insurance regulations  Centralized data base for health insurance experience statistics  Provider rating  Cap on renewal premiums  Ensure that a decent portfolio of health coverage represent the rural sector  Guard against ill effects of privatization  Further tax incentives  Compulsory savings towards health care
  182. 182. Types of Health Insurance Plans  Individual health plan  Family floater plan  Senior Citizens’ plan  Critical illness plan  Daily hospital cash and  Unit-linked health plan (ULHP).
  183. 183. Individual Health Plans  Largely, an individual health insurance plan (IHIP), or ‘mediclaim’, would cover expenses if you are hospitalised for at least 24 hours.  These plans are indemnity policies, that is, they reimburse the actual expenses incurred up to the amount of the cover that you buy.  Some of the expenses that are covered are room rent, doctor’s fees, anaesthetist’s fees, cost of blood and oxygen, and operation theatre charges.
  184. 184. Family Floater Plans  This is a fairly new entrant in the health insurance firmament.  It takes advantage of the fact that the possibility of all members of a family falling ill at the same time or within the same year is low.  Under a family floater (FF) health plan, the entire sum insured can be availed by any or all members and is not restricted to one individual only as is the case in an individual health plan.  Let’s look at an example. Say, a family of four has individual covers of Rs 1 lakh each. If the cost of treating one person crosses Rs 1 lakh, then the rest has to be borne by the family out of its own money. If, however, the entire family is insured for Rs 4 lakh through a floater policy, then any of the members will be covered for that amount in any year. To the extent of the annual cover, any number of members can avail the money.
  185. 185. Senior Citizens’ Plans  Insurance is considered a form of long-term savings for senior citizens. This money provides financial stability and also helps them in times of need. Medical insurance enables senior citizens to pay for health checkups, emergency medical costs and long-term treatment. The income tax benefit on insurance premiums is up to Rs. 15,000 under Section 80 D of the Income Tax Act, as on March 31, 2007. Medical insurance is provided through several private insurance companies and four public sector general insurance companies. These are:  National Insurance Company  Oriental Insurance Company  New India Assurance  United India Insurance Company
  186. 186. Senior Citizens’ Plans  The National Insurance Company offers the Varistha Mediclaim Policy for senior citizens. This policy covers hospitalization and domiciliary hospitalization expenses under Section I as well as expenses for treatment of critical illnesses, if opted for, under Section II. Diseases covered under critical illnesses are coronary artery surgery, cancer, renal failure, stroke, multiple sclerosis and major organ transplants. Paralysis and blindness are covered at extra premium.  Oriental Insurance Company provides a Comprehensive Health Insurance Scheme, a Group Insurance and an Individual Mediclaim Policy. These policies pay for hospitalization or domiciliary hospitalization of the insured in case of a sudden illness, an accident or surgery. These conditions should have arisen during the policy period.
  187. 187. Critical Illness Plans  A Critical Illness plan means to insure against the risk of serious illness. It will give the same security of knowing that a guaranteed cash sum will be paid if the unexpected happens and one is diagnosed with a critical illness.  The purpose of a critical illness plan is to let you put aside a small regular amount now, as an insurance against all this happening.  Bajaj Allianz, in its efforts to provide a customer centric solution is offering an insurance policy to cover to some of these critical illnesses like Cancer Coronary Artery bypass surgery First Heart attack Kidney Failure Multiple sclerosis Major organ transplant Stroke Arota graft surgery Paralysis Primary Pulmonary Arterial Hypertension.
  188. 188. Daily Hospital Cash  Expense benefit is paid on per day basis after hospitalization (most plans mandate at least 48 hours of hospitalization).  The pre-decided daily benefit amount is paid in full, irrespective of the actual expenses.  For example, a person buys a DHC plan with a limit of Rs 2,000 per day. He gets hospitalised for 7 days and the total bill is Rs 35,000. He would be reimbursed Rs 14,000 (2,000x7). If the bill is Rs 8,000, he would still be reimbursed Rs 14,000.
  189. 189. Unit-linked health plan (ULHP)  All ULHPs offer one or more combination of the other benefits (for which risk premium is deducted from fund value). Also, charges such as premium allocation charge and policy administration charge are deducted from the fund value.  LIC has launched Health Plus plan, a unique long term health insurance plan that combines health insurance covers for the entire family (husband, wife and the children) – Hospital Cash Benefit (HCB) and Major Surgical Benefit (MSB) along with a ULIP component (investment in the form of Units) that is specifically designed to meet domiciliary treatment (DTB) related expenses for the insured members.
  190. 190. Health Insurance in India The health insurance market in India is very limited covering about 10% of the total population. The existing schemes can be categorized as:  Voluntary health insurance schemes or private-for-profit schemes;  Mandatory health insurance schemes or government run schemes (namely ESIS, CGHS).  Insurance offered by NGOs / community based health insurance, and  Employer-based schemes
  191. 191. Voluntary health insurance schemes  In private insurance, buyers are willing to pay premium to an insurance company that pools similar risks and insures them for health related expenses.  The main distinction is that the premiums are set at a level, which are based on assessment of risk status of the consumer (or of the group of employees) and the level of benefits provided, rather than as a proportion of consumer’s income.  In the public sector, the General Insurance Corporation (GIC) and its four subsidiary companies (National Insurance Corporation, New India Assurance Company, Oriental Insurance Company and United Insurance Company) provide voluntary insurance schemes.
  192. 192. Voluntary health insurance schemes  The most popular health insurance cover offered by GIC is Mediclaim policy.  Mediclaim policy: It was introduced in 1986. It reimburses the hospitalization expenses owing to illness or injury suffered by the insured, whether the hospitalization is domiciliary or otherwise.  Some of the various other voluntary health insurance schemes available in the market are :- Asha deep plan II , Jeevan Asha plan II, Jan Arogya policy, Raja Rajeswari policy, Overseas Mediclaim policy, Cancer Insurance policy, Bhavishya Arogya policy, Dreaded disease policy, Health Guard, Critical illness policy, Group Health insurance policy, Shakti Shield etc.
  193. 193. Mandatory health insurance schemes Employer State Insurance Scheme (ESI)  Enacted in 1948, the employers’ state insurance (ESI) Act was the first major legislation on social security in India.  The scheme applies to power using factories employing 10 persons or more and non-power & other specified establishments employing 20 persons or more.  It covers employees and the dependents against loss of wages due to sickness, maternity, disability and death due to employment injury. It also covers funeral expenses and rehabilitation allowance. Medical care comprises outpatient care, hospitalization, medicines and specialist care.  These services are provided through network of ESIS facilities, public care centers, non-governmental organizations (NGOs) and empanelled private practitioners.
  194. 194. Mandatory health insurance schemes Central Government Health Insurance Scheme (CGHS)  Established in 1954, the CGHS covers employees and retirees of the central government and certain autonomous and semi autonomous and semi-government organizations.  It also covers Members of Parliament, Governors, accredited journalists and members of general public in some specified areas.  Benefits under the scheme include medical care, home visits/care, free medicines and diagnostic services.  These services are provided through public facilities with some specialized treatment (with reimbursement ceilings) being permissible at private facilities.  Most of the expenditure is met by the central government as only 12% is the share of contribution.
  195. 195. Mandatory health insurance schemes Universal Health Insurance Scheme (UHIS)  For providing financial risk protection to the poor, the government announced UHIS in 2003.  Under this scheme, for a premium of Rs. 165 per year per person, Rs.248 for a family of five and Rs.330 for a family of seven , health care for sum assured of Rs. 30000/- was provided.  This scheme has been made eligible for below poverty line families only. T  o make the scheme more saleable, the insurance companies provided for a floater clause that made any member of family eligible as against mediclaim policy which is for an individual member.
  196. 196. Insurance offered by NGOs  Insurance offered by NGOs/Community based schemes are typically targeted at poorer population living in communities. Such schemes are generally run by charitable trusts or non-governmental organizations (NGOs).  In these schemes the members prepay a set amount each year for specified services. The premia are usually flat rate (not income related) and therefore not progressive.  The benefits offered are mainly in terms of preventive care, though ambulatory and inpatient care is also covered.  Such schemes tend to be financed through patient collection, government grants and donations.  Some of the popular Community Based Health Insurance schemes are: - Self-Employed Women’s Association (SEWA), Tribuvandas Foundation (TF), The Mullur Milk Co-operative, Sewagram, Action for Community Organization, Rehabilitation and Development (ACCORD), Voluntary Health Services (VHS) etc.
  197. 197. Employer based schemes  Employers in both public and private sector offers employer based insurance schemes through their own employer.  These facilities are by way of lump sum payments, reimbursement of employees’ health expenditure for out patient care and hospitalization, fixed medical allowance or covering them under the group health insurance schemes.  The Railways, Defense and Security forces, Plantation sector and Mining sector run their own health services for employees and their families.
  198. 198. Marine Insurance
  199. 199. Defining Marine Insurance Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination.
  200. 200. Two Broad Categories  Ocean marine insurance  Inland marine insurance
  201. 201. Ocean Marine Insurance  Hull  Cargo  Freight  Protection and indemnity insurance
  202. 202. Inland Marine Insurance  Extension of Ocean marine insurance  Domestic goods in transit  Property held by Bailees  Mobile equipment and property  Block Policies- “all-risks” basis  Means of transport and communication
  203. 203. Risks Two types of risks are covered by ocean marine insurance.  The first type is the perils of the sea that include both natural calamities and fortuitous accidents.  The second type of risks covered is extraneous risks. These risks include ordinary risks such as theft, pilferage, rain damage, shortage, breakage, etc and special risks such as strike, war, failure to deliver, etc.
  204. 204. Covered Perils  Perils of the sea, such as loss due to bad weather, high waves, collision, and other navigable waters  Fire, enemies, pirates, thieves, jettison  Barratry, or fraud by crew members  All risks
  205. 205. Further Cover  Pollution Hazard  War and strikes clause  Bursting boilers or breaking shafts  Accident or negligence of a third party
  206. 206. Common Exclusions  Loss, damage or expenses attributable to willful misconduct of the assured  Ordinary or inevitable losses  Loss, damage or expense caused by inherent vice or nature of the subject matter insured  Loss/damage due to insufficient, unsuitable or defective packing (including storage)  Loss/damage or expenses proximately caused by delay even if the delay is caused by a peril insured against  Loss damage or expenses arising from insolvency of the owners, managers, operators of the vessel.  Loss damage due to un seaworthiness of the vessel or craft, container, lift van employed for carrying the insured matter.  Wars, strikes and civil commotions unless covered under separate endorsements.
  207. 207. Hull Insurance  Covers physical damage to ship or vessel  Always written with a deductible  Contains collision liability clause  Covers owner’s legal liability
  208. 208. Cargo Insurance  Covers the loss to the shipper if the goods are damaged or lost  Policy can be single or open cargo policy  Salvage loss  Follows forced sale of badly damaged cargo
  209. 209. Cargo Partial Loss  Where goods delivered damage measure of indemnity is  Proportion of sum fixed by policy  equal to the gross sound value less damaged value at place of delivery
  210. 210. Freight Insurance  Insures the profit made by a ship owners out of ships used to carry cargo, both their own and others  Loss occurs when cargo is not deliverable
  211. 211. Liability Insurance  Covers the property damage or bodily injury to third party  Damage caused by the ship to docks, harbor installation, fines, penalties, injury to crew members, etc
  212. 212. Major Types of Policy  Time policy  Voyage policy  Mixed policy  Open policy
  213. 213. Time Policy  A time policy is one that runs for a period of time usually not exceeding 12 months.  In using a time policy, the most important question is whether the loss occurred at a time in which the policy was running because sometimes it is difficult to prove in case where it is alleged that the conditions giving rise to the loss (e.g. a hole in the ship) occurred during the policy, although the final consequence (the foundering of the vessel) occurred afterwards.
  214. 214. Voyage Policy  This is a policy that operates for the period of the voyage.  For cargo, the cover is from warehouse to warehouse.  The policy will not apply if the actual voyage and/or ports are different from those in the policy.
  215. 215. Mixed Policy  This is a policy that covers the subject matter for the voyage within a time period.  It is used to cover the cargo from warehouse to warehouse with a time limit.  The cargo has to be warehoused within 60 days after discharge or the policy will no longer cover the cargo.
  216. 216. Open Policy  This is an arrangement in which terms such as types of risks to be covered, validity of the insurance contract, rate, premium, maximum value of each shipment and geographical limits, etc are worked out when the contract is signed.  Each shipment is covered once the assured declares the details. The assured may be authorized to issue against payment a pre- printed insurance certificate which is valid after completion of shipment details and his signature for documentation purposes.  The insurance certificate is pre signed by the insurer. If the contract is effective only for a specified period, a clause of termination should be included.
  217. 217. Auto Insurance
  218. 218. Defining Auto Insurance Auto insurance (also known as vehicle insurance, car insurance, or motor insurance) is insurance purchased for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of traffic accidents and against liability that could be incurred in an accident.
  219. 219. Auto Insurance Coverage Auto insurance provides property, liability and medical coverage:  Property coverage pays for damage to or theft of the car.  Liability coverage pays for the legal responsibility to others for bodily injury or property damage.  Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses
  220. 220. Coverage Levels Vehicle insurance can cover some or all of the following items:  The insured party  The insured vehicle  Third parties (car and people)  Third party, fire and theft  In some jurisdictions coverage for injuries to persons riding in the insured vehicle is available without regard to fault in the auto accident (No Fault Auto Insurance)
  221. 221. Types of Auto Insurance in India There are different types of Auto Insurance in India :  Private car insurance: It is the fastest growing sector as it is compulsory for all the new cars. The amount of premium depends on the make and value of the car, state where the car is registered and the year of manufacture.  Two wheeler insurance: It covers accidental insurance for the drivers of the vehicle. The amount of premium depends on the current showroom price multiplied by the depreciation rate fixed by the Tariff Advisory Committee at the time of the beginning of policy period.  Commercial vehicle insurance: It provides cover for all the vehicles which are not used for personal purposes, like the Trucks and HMVs. The amount of premium depends on the showroom price of the vehicle at the commencement of the insurance period, make of the vehicle and the place of registration of the vehicle.
  222. 222. What it covers? The auto insurance generally includes:  Loss or damage by accident, fire, lightning, self ignition, external explosion, burglary, housebreaking or theft, malicious act.  Liability for third party injury/death, third party property and liability to paid driver.  On payment of appropriate additional premium, loss/damage to electrical/electronic accessories.