Page |1 BANKING & INSURANCE IN SERVICE SECTOR

K.E.S SHROFF COLLEGE OF ARTS AND COMMERCE CLASS: T.Y.B.M.S (SEMESTER- 5)

SUBJECT: SERVICE SECTOR MANAGEMENT

PRESENTATION ON: BANKING & INSURANCE IN SERVICE SECTOR TEACHER INCHARGE: SWETA MAM A.Y: 2010-11

Page |2 BANKING & INSURANCE IN SERVICE SECTOR

CREDITS
SR.NO
1 2 3 4 5 6

NAMES
CHINTAN PANCHAMIA DHAIRYA PAREKH RISHI PARMAR ANKIT PATEL FALGUN PATEL MEHUL PATEL

ROLL NOS
15 17 18 19 20 21

Page |3 BANKING & INSURANCE IN SERVICE SECTOR

Acknowledgement
Any accomplishments requires the efforts of many people and this work is no different.The completion of the project not only brings an appreciated respite from many months of demanding effort, but also provides a welcome opportunity to acknowledge in writing the soul who helped all along the way, Miss SWETA who is our SERVICE SECTOR MANAGEMENT MAM who provided overall guidence regarding the project.Her help was willingly and expertly given at the time of great pressure and need, so we am greatly thankful to her. And, we thank all those who have directly or indirectly helped us in presenting the project.

Page |4 BANKING & INSURANCE IN SERVICE SECTOR

INDEX
Sr.No
1 2

Particulars
chintan

Pg.No
8

INTRODUCTION TO SERVICE SECTOR 5. INTRODUCTION TO BANKING SECTOR

chintan

3 4 5 6

BANKING SECTOR IN INDIA

chintan

11 12 21 26

7PS OF BANKING SECTOR

dhairya

ELECTRONIC BANKING
rishi

INTRODUCTION TO INSURANCE
Ankit

7 8

BASIC INSURANCE TERMINOLOGIES ANKIT

Types of insurance falguni WHY DO PEOPLE IN INDIA TAKE INSURANCE SERVICE? falguni FUTURE SCENARIO OF INSURANCE IN SEVICE INDUSTRY Mehul

27

29 31

10

32

Page |5 BANKING & INSURANCE IN SERVICE SECTOR

Conclusion mehul

INTRODUCTION TO SERVICE SECTOR

Service Sector is the lifeline for the social economic growth of a country. It is today the largest and fastest growing sector globally contributing more to the global output and employing more people than any other sector. The real reason for the growth of the service sector is due to the increase in urbanization, privatization and more demand for intermediate and final consumer services. Availability of quality services is vital for the well being of the economy. In advanced economies the growth in the primary and secondary sectors are directly dependent on the growth of services like banking, insurance, trade, commerce, entertainment etc. The service sector is going through almost revolutionary change, it dramatically affects the way in which we live and work. New services are continually being launched to satisfy consumers existing needs and to meet the Needs that they do not even know they had. Ten years ago people did not anticipate the need for email, online banking, web hosting, online reservation and many other new services, but today many of us feel we cannot survive without them. Similar transformations are happening in Business to business marketing. Service organizations vary widely in size. At one end are the huge international corporations operating in industries such as tourism, airlines, banking, telecommunication etc whereas on the other end of the scale is a vast array of locally owned and operated small businesses including parlors , hotels , laundry n numerous business to business services

Page |6 BANKING & INSURANCE IN SERVICE SECTOR

How important is the service sector in an Indian economy?

in most countries services add more economic value than agriculture, raw Materials and manufacturing combined.

in developed economies employment is dominated by service jobs and Most new job growth comes from services.

Jobs range from high paid professionals and technicians to minimum Wage positions.

Service organizations can be any size, from huge global corporations to Local small businesses.

Most activities by govt. agencies and non profit orgs involve service.

Page |7 BANKING & INSURANCE IN SERVICE SECTOR

BANKING SECTOR

Page |8 BANKING & INSURANCE IN SERVICE SECTOR

INTRODUCTION TO BANKING SECTOR

Page |9 BANKING & INSURANCE IN SERVICE SECTOR

A bank is an institution that deals with money and credit. Different people understand meaning of a bank in different ways. For a common man, bank is a storehouse where money is stored, for a businessman it is a financial institution and for a day to day customer it is an institution where he can deposit his savings. Banks play an important role in the economy of any country as they hold the savings of the public. Provide means of payment for goods and services and provide necessary finance for development of business and change. Thus bank is a link in the flow of funds from the savers to the users hence they should render efficient customer service in order to retain the present customers and also to attract the potential customer. In the past the banks did not face any attraction in the Indian economy because of the low level of the economic activities and the little business prospects. Today we find positive changes in the national business development policy. Earlier the moneylenders had a strong hold over the rural population which resulted in exploitation of small and marginal savers. The private sector banks failed in serving the society. This resulted in the nationalisation of 14 commercial banks in 1969. There was a basic change in the banking concept with a beginning in the nationalisation of big commercial banks. The involvement of public sector banks, transformed the Indian economy. The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions. The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. Since the nationalization of banks in 1969, the public sector banks or the nationalized banks have acquired a place of prominence and has since then seen tremendous progress. The need to become highly customer focused has forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized players at all levels of the banking and financial institutions market grid to look anew at their existing portfolio offering. Conservative banking practices allowed Indian banks to be insulated partially from the Asian currency crisis. Indian banks are now quoting a higher valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems linked to huge Non Performing Assets (NPAs) and payment defaults. Co-operative banks are nimble

P a g e | 10 BANKING & INSURANCE IN SERVICE SECTOR

footed in approach and armed with efficient branch networks focus primarily on the high revenue niche retail segments. The Indian banking has finally worked up to the competitive dynamics of the new Indian market and is addressing the relevant issues to take on the multifarious challenges of globalization. Banks that employ IT solutions are perceived to be futuristic and proactive players capable of meeting the multifarious requirements of the large customers base. Private Banks have been fast on the uptake and are reorienting their strategies using the internet as a medium The Internet has emerged as the new and challenging frontier of marketing with the conventional physical world tenets being just as applicable like in any other marketing medium. The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. Indian nationalized banks (banks owned by the government) continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. The Indian banking can be broadly categorized into nationalized, private banks and specialized banking institutions. The Reserve Bank of India acts as a centralized body monitoring any discrepancies and shortcoming in the system. It is the foremost monitoring body in the Indian financial sector. The nationalized banks (i.e. government-owned banks) continue to dominate the Indian

Banking arena. Industry estimates indicate that out of 274 commercial banks operating in India, 223 banks are in the public sector and 51 are in the private sector. The private sector bank grid also includes 24 foreign banks that have started their operations here.

P a g e | 11 BANKING & INSURANCE IN SERVICE SECTOR

The liberalize policy of Government of India permitted entry to private sector in the banking, the industry has witnessed the entry of nine new generation private banks. The major differentiating parameter that distinguishes these banks from all the other banks in the Indian banking is the level of service that is offered to the customer. Their focus has always centre around the customer understanding his needs, pre-empting him and consequently delighting him with various configurations of benefits and a wide portfolio of products and services. These banks have generally been established by promoters of repute or by high value domestic financial institutions. The popularity of these banks can be gauged by the fact that in a short span of time, these banks have gained considerable customer confidence and consequently have shown impressive growth rates. Today, the private banks corner almost four per cent share of the total share of deposits. Most of the banks in this category are concentrated in the high-growth urban areas in metros (that account for approximately 70% of the total banking business). With efficiency being the major focus, these banks have leveraged on their strengths and competencies viz. Management, operational efficiency and flexibility, superior product positioning and higher employee productivity skills. The private banks with their focused business and service portfolio have a reputation of being niche players in the industry. A strategy that has allowed these banks to concentrate on few reliable high net worth companies and

Individuals rather than cater to the mass market. These well-chalked out integrates strategy plans have allowed most of these banks to deliver superlative levels of personalized services. With the Reserve Bank of India allowing these banks to operate 70% of their businesses in urban areas, this statutory requirement has translated into lower deposit mobilization costs and higher margins relative to public sector banks.

BANKING SECTOR IN INDIA

P a g e | 12 BANKING & INSURANCE IN SERVICE SECTOR

Banks are now the most significant players in the Indian financial market. They are the biggest purveyors of credit, and they also attract most of the savings from the population. The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions. The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. The need to become highly customer focused has forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized players at all levels of the banking and financial institutions market grid to look anew at their existing portfolio offering. Driven by the socialist ideologies and the welfare state concept, public sector banks have long been the supporters of agriculture and other priority sectors. They act as crucial channels of the government in its efforts to ensure equitable economic development.

The liberalize policy of Government of India permitted entry to private sector in the banking, the industry has witnessed the entry of nine new generation private banks. The major differentiating parameter that distinguishes these banks from all the other banks in the Indian banking is the level of service that is offered to the customer. Their focus has always centre around the customer understanding his needs, pre-empting him and consequently delighting him with various configurations of benefits and a wide portfolio of products and services. These banks have generally been established by promoters of repute or by high value domestic financial institutions. Today, the private banks corner almost 4% share of the total share of deposits.

7 PS OF BANKING SECTOR

P a g e | 13 BANKING & INSURANCE IN SERVICE SECTOR

1.

PRODUCT

A product can be defined as a bundle of utilities consisting of various product features accompanying services. Bank services are viewed with not just things that are created with value but they are seen in terms of satisfaction they deliver. E.g. A bank account is seen in terms of customer satisfaction such as safety, convenience of paying dues keeping records status, transferring funds, etc. A. Bank Products 1. DEPOSITS:Savings, current, fixed etc. 2. ADVANCES:-

(a) Fund Oriented: Term loan Clean loan Bill discounting Advancing Pre-shipment and post-shipment finance Secured and unsecured lines of credit. (b) Non-Fund Oriented: Guarantees Letter of credit 3. INTERNATIONAL BANKING: Letter of credit Foreign currency

4.

CONSULTANCY:

P a g e | 14 BANKING & INSURANCE IN SERVICE SECTOR

Investment counseling Project counseling Merchant banking Tax consultancy 5. MISCELLANEOUS: Traveler cheques Credit cards Remittances Collections Sale of drafts Standing instructions and Trusteeship.

2. PRICE MIX
The price mix in the banking sector is nothing but the interest rates charged by the different banks. In todays competitive scenario where customer is the king, the banks have to charge them interest at a rate in accordance with the RBI directives. Banks also compete in terms of annual fees for services like credit cards, DMAT etc. Another important aspect of the banks pricing policy today is the interest charged on the Home Loans and Car Loans. With Indias economy progressing, there are more and more buyers seeking these loans but at a very competitive interest rate. Lets understand this with an example. A particular buyer approaches a bank for a car loan for a period of 3 years. He is charged Rs. 20,000 as interest. However, if a sale representative of another bank comes to know of this deal, he will try to attract the customer by giving him a better deal i.e. a loan at a lower rate on interest. In this way, it is the customer that ultimately benefits.

3.

PLACE MIX

P a g e | 15 BANKING & INSURANCE IN SERVICE SECTOR

Place mix is the location analysis for banks branches. There are number a factors affecting the determination of the location of the branch of bank. It is very necessary for a bank to be situated at a location where most of its target population is located. Some of the important factors affecting the location analysis of a bank are: 1. The Trade area 2. Population characteristics 3. Commercial structure 4. Industrial structure 5. Banking structure 6. Proximity to other convenient Outlets 7. Real estate rates 8. Proximity to public Transportation 9. Drawing time 10. Location of competition 11. Visibility 12. Access It is not necessary that all the above conditions have to be satisfied while selecting the location but it should try and satisfy as many of them as possible.

4.

PROMOTION MIX

Promotion is nothing but making the customer more and more aware of the services and benefits provided by the bank. The banks today can use a lot of new technology to communicate to their customers. Two of the fastest growing modern tools of communicating with the customers are:

1.

Internet Banking

P a g e | 16 BANKING & INSURANCE IN SERVICE SECTOR

2.

Mobile Banking This can be better explained with the example of ICICI bank.

SMS services: SMS functions through simple text messages sent from your cellular phone. These messages are recognized by ICICI bank to provide you with the required information. For example, when you enter IBAL your cellular phone screen will display the current balance in your primary account. Thus with the help of SMS a wide range of query based transactions can be performed without even making a call. ICICI was the first organization in India to provide Wireless Application Protocol (WAP) based services. Mobile commerce using WAP technology, allows secure online access of the web using mobile devices. With WAP one can directly access the ICICI WAP server, check ones account details and use other value added services. Thus different methods are used by different banks to promote its services. A bank may have very attractive schemes and services to offer to their customers but they are of no use if they are not communicated properly to the customers. Promotion is to inform and remind the individuals and persuade them to accept, recommend or use of product, service or idea. However there some very important points that is to be considered before the promotion strategy is made.

DIFFERENT WAYS OF PROMOTION

P a g e | 17 BANKING & INSURANCE IN SERVICE SECTOR

1. Public Relations: In todays competitive scenario developing strong public relations is very important for any bank to be successful. Most banks today have a separate Public Relations department. However primarily it is considered as a responsibility of the various bank managers to develop a steady and strong relationship with their present customers as well as potential customers. This can be done by a constant follow up, small programmers etc. 2. Personal Selling: Personal selling is found to be one of the most effective and popular forms of promoting bank business. The main reason for this is that banking is a service in which trust plays a very important role. In personal selling, a bank representative goes to the customers and explains the scheme to the customers. Also he gives the customers any kind consultation he might need. He provides the customers all the information sought by him. The representative tries to persuade the customers to go for the scheme provided by the bank by telling him all the benefits. Here are some of the important features of personal selling It is a direct relation between the buyers and the seller It is oral presentation in conversation It is personal and social behavior It is found to be more effective in service oriented organizations It is based on the professional excellence or expertise of an individual 3. Sales Promotion: Sales promotions are basically giving the customers some additional benefits, maybe at times just some small gifts, in order to promote the schemes. The more innovative the sales promotions the more positive are the results. Some of the most popular sales promotions techniques are gifts, contests, fairs and shows, discounts and commission, entertainment and travelling plans for bankers, additional allowance, low interest financing etc. It is very important that the sales promotions benefits are designed in such a manner that they are better than those of the competitors. 4. Word of mouth Promotion:

P a g e | 18 BANKING & INSURANCE IN SERVICE SECTOR

This form of promotion is not only very effective in banking services but in any kind of service. However it is more important in banking for the only reason that this is a service where trust plays a very important role. If a particular banks services are recommended by friends, relatives, or other well wishers the person is more influenced and inclined towards that bank. It is very important to note that the internal employees of the bank play a very important role in word of mouth promotion technique. This is because they can start the process by recommending the bank to their friends and relatives and after that it is like a chain, which spreads like a wild fire. 5. Telemarketing: In recent times telemarketing has gained increasing importance as an effective tool for promotion. Telemarketing is a process of making use of sophisticated communication network for promoting the banks. This includes promoting through television, telephone, and radio. Nowadays, cell phones are used extensively for the same. This is the most popular form of promotion. Banks today have started using SMS and many other services supported by cell phones to provide benefits to their customers and thus have tried to increase their sales. In todays competitive and modern scenario it very important that banks makes use of telemarketing techniques very efficiently to have desirable results. 6. Internet: The use of Internet as a promotional tool is increasing. More and more banks are using Internet to promote their services. The online banking has made it even easier for the customers to avail the banks services. No longer do people have to go to their bank branches for small petty matters like checking their balance etc. All this can be done with the help of a few clicks. Thus, these were the numerous ways in which a bank can promote its services and create more awareness amongst the people.

5.

PEOPLE

P a g e | 19 BANKING & INSURANCE IN SERVICE SECTOR

People are the employees that are the service providers. In a banking sector, the service provider plays a very important and determinant role in rendering the customers a satisfactory and a good service. It is extremely essential that the service provider understand what his customers expect from him. In the banking sector, the customer needs to be guided in a lot of matters, which is possible only with the help of the service provider. The position in the eyes of the customer will be perceived by appearance, attitude and behavior of the customer contact employees. Not only does the customer contact employee influence the customers perception but also the customer base of the organization does so. 6. PROCESS MIX

The process mix constitutes the overall procedure involved in using the services offered by the bank. It is very necessary that the process is very customer friendly. In other words a process should be such that the customer is easily able to understand and easy to follow. Today if particular banks formalities are long and the procedure very complicated the overall process fails and the customer may not be inclined towards using that banks services. Lets take for example the process for application for a car loan at HDFC bank. Now this mainly involves 3 things. 1. Producing of proper documents 2. Filling up of application form 3. Paying for the initial down payment. Here the process may fail in the following cases: 1. If the customer is asked to produce a number of forms out of which some may not be necessary at all. Thus it is very necessary that the customer be asked for the minimum but most necessary document and not the other unnecessary documents.

P a g e | 20 BANKING & INSURANCE IN SERVICE SECTOR

2. In case of application form, the application form must be in a language best understood by the customers and it should not be very lengthy or demanding a lot of unnecessary information. 3. Finally the payment of initial amount. The customer should be given options as to how he would like to pay by cheques or by credit card. Once again the amount should be very competitive not very high above the regular rates prevailing in the markets. The smaller and simpler the procedure, the better the process, and the customer will be more satisfied. 7. PHYSICAL EVIDENCE

Physical evidence is the overall layout of the place i.e. how the entire bank has been designed. Physical evidence refers to all those factors that help make the process much easier and smoother. For example, in case of a bank, the physical evidence would be the placement of the customer service executives desk, or the location of the place for depositing cheques. It is very necessary that the place be designed in such a manner so as to ensure maximum convenience to the customer and cause no confusion to him. Let us see an example as to how banks try to make little changes so as to make the service better for their customers. The Hong Kong Shanghai Banking Corporation (HSBC) had decided in introducing a common uniform for all the employees in all its branches all over India. The plan is possibly in line with the aggressive retail banking adopted by HSBC. A common uniform is nothing like a revolutionary change but however this little change makes it very easy for the customer to identify with his service provider and makes the entire process very easy for him. The more the bank does to make the service easier the better it is for the customer. Thus, these are the 7 Ps of services. Each of them plays a very important and a pivotal role in determining the quality of the service provided to the customer.

P a g e | 21 BANKING & INSURANCE IN SERVICE SECTOR

RELIABILITY It is defined as the ability to perform the promised service dependably and accurately. In its broadest sense, reliability means that the company delivers on its promisespromises about delivery, service provision, problem resolution, and pricing. It is also known as the No Excuses service delivery. Indian Overseas Bank faces stiff competition from many other banks within its vicinity and some of these banks are foreign banks. But the existing customers have faith, loyalty and trust in this bank. The customers are well aware that the bank will provide them back the best and reliable services. For e.g. No person likes to wait to withdraw his/her money. In order to correct this problem, Indian Overseas Bank has ensured that whoever comes in for cash withdrawal will receive his/her cash within five to ten minutes.

ASSURANCE
Assurance is defined as employees knowledge and courtesy and the ability of the firm and its employees to inspire trust and confidence. It includes the ability, knowledge, genuineness, and honesty to provide the best services to the customer from the frontline staff. In this dimension the front line staffs is more important rather than the owner. At Indian Overseas Bank, every customer who comes is treated with utmost care and any problem that takes place is solved with great enthusiasm. It assures the customers coming up to the bank that the money they invest is secure; the interest rate that is being provided to them is at par or sometimes even higher as compared to other banks. Also, it assures the customers that the money they have invested will be returned to them as and when required with proper interest. It tries to empower their customer, contact people and regularly train them in skills to build trust and loyalty between employees and the customers.

P a g e | 22 BANKING & INSURANCE IN SERVICE SECTOR

ELECTRONIC BANKING
With the introduction of computers in Indian banks and with the advent of ATMs the banking services are provided across the banks. Customers need not necessarily visit the bank to do banking transactions when the bank provides them with tele banking and or remote banking facilities. This type of banking is called electronic banking and the concept is becoming popular with individual as well as corporate entities in India. 1. Automated Teller Machines (ATMs):

ATMs have eliminated the time limitations of customer service and offer a host of banking services including deposits, withdrawals, requisitions, instructions and transactions. ATMs traditional and primary use is to dispense cash upon insertion of a plastic card and its unique PIN or personal identification number. It is issued to Current and Saving account holders of a bank who hold a certain minimum balance. When the card is inserted into the ATM, the machine sensing equipment identifies the account holder and asks for his or her identification PIN number. This number is not even known to the bank staff and is unique and secret to the individual 2. Internet Banking: Banks have over a long time been using electronic and telecommunication network for delivering a wide range of value added products and services. The delivery channels include dial-up connection, private network, public network etc and the devices include telephone personal computers including the ATM etc. With the popularity of PCs and easy access to the internet and World Wide Web banks increasingly use internet as a channel for receiving instructions and delivering their products and services to their customers. This form of banking is often referred to as internet banking, although the range of products and services offered by different banks, vary widely both in their content and sophistication.

P a g e | 23 BANKING & INSURANCE IN SERVICE SECTOR

3.

Mobile Banking:

Through inter banking one can visit the web site of each bank by entering his password and known the account balance and even pass his own credit and debit entries. This means that we can do our banking through our personal computer settings at home. Banks may soon allow zero balance savings accounts through internet facility only. Customers can now make balance enquires download statements and open fixed deposits over the net. They will soon be able to carry out all their transactions over the net. So visiting a bank would be needless. Time to come; mobile phones will drive banking transactions. These mobile phones will drive banking transactions. These mobile phones will be equipped with smart cards that are embedded with banking and other information. This mobile phone banking facility is yet to come but the mechanics of linking the banking with the cell phone is being sorted out. Teller machines are being installed in the banks for the electronic banking facility. Banking will be on wheels and mobile by the use of smart banking. 4 Note and coin counting machines:

To reduce the need of manual counting, note and counting machines are available which counts a bundle of notes placed on it. Loose notes are inserted into the machine. The machine then counts the notes at top speed, while simultaneously indicating the number counted on a digital display. Every time the number reaches 100, the machine stops, subject to it being fixed at 100 and allows for the bundle to be taken out. This machine does relieve the drudgery involved in counting. However, one limitation of this machine is that the notes have to be in fairly good condition for the machine to able to count properly. However, the machine requires all the notes to be in the same denomination.

5.

Electromagnetic Cards:

P a g e | 24 BANKING & INSURANCE IN SERVICE SECTOR

In the modern days of commerce credit cards have acquired a fairly prominent and pervasive role. With the increasing use of credit cards the society is moving towards cashless transactions. In India however the use of credit cards is restricted to small value and mostly personal transactions. The two international credit card giants viz, Visa international and Master Card international are poised to make deeper inroad in untapped Indian market.

Types of electromagnetic cards:

1) Charge card: In such cards transactions are accumulated over a period of time generally a month and the total amount is charged i.e. debited to the account. In charge card the amount becomes payable immediately on the debit to the account. 2) Credit card: This is the same as charge card where the transactions are charged to the account with the total value of transaction debited to the card holders account once in a month. The difference between the credit and charge card is that in case of the credit card holder is given about 25 to 50 days time to credit his account in case there are insufficient funds in his account at the time of debit. 3) Debit card: A bank-issued card that allows its users to access their funds for the purpose of paying for merchandise.

4) Smart card: There are two types of smart cards intelligent memory chip and micro processor cards. The memory smart cards have been around for several years they are being used in paying phones, identification, access control, voting and other applications. Processer smart cards are the most advanced and are ideally suited for banking and financial application where re use of the card is allowed.

P a g e | 25 BANKING & INSURANCE IN SERVICE SECTOR

5) Member card: This is used by members of a club or a chain of hotels. E.g. the Taj Card is a card issued by the Management of the Taj group of Hotels to be used by patrons of their hotels .Similarly there are many other types of cards where the usage is exclusive to the members of the group.

CONCLUSION OF BANKING SECTOR

With the development of modern communication facilities, electronic payment systems are becoming popular. These are teller machines available for bank customers within the bank as well as outside the bank premises. ATMs which are being located even at public places, are able to provide the customers minimal banking services including cash payments round the clock. Shared ATMs are also introduced in India where the services are provided across the banks. Customers need not necessarily visit the bank to do banking transactions when their banker provides them tele-banking or remote banking facilities. We have also seen that the various electronic and electro-mechanical aids that help the modern banker to efficiently render innovative and novel customer service. Equipments like note and coin counting machines help the banker to take care of the tedium in his task, reduce drudgery and at the same time efficiently discharge his functions. These technological aids not only take care of some of the physical routine tasks but also contribute substantially to efficient housekeeping functions and also render services that are in tune with the customer needs and satisfaction

INSURANCE SERVICE SECTOR

P a g e | 26 BANKING & INSURANCE IN SERVICE SECTOR

INTRODUCTION TO INSURANCE SECTOR

P a g e | 27 BANKING & INSURANCE IN SERVICE SECTOR

The Government of India (GoI) opened the insurance sector to private players on October 24. 2000, thus unraveling a new chapter in this field. This new policy of GOI is an outcome of Indias policy of liberalizations and also the result of its obligation as a signatory to the WTO to conform to its principles and guidelines relating to the reduction of barriers to trade in services. This epoch-making decision has ushered in a new era that has transgressed four decades of complete control by the public sector over the insurance sector (life insurance was nationalized in 1956 by merging 245 private insurance companies to form the life Insurance Corporation Of India (LIC), while general insurance was nationalized with the formation of general Insurance Corporation (GIC) in 1972). This decision of the GOI has been accompanied by a set of laws and regulations governing this domain. Accordingly the Insurance Regulatory and Development Authority Act 1999 (The IRDA Act) was enacted with the predominant aim of setting up an autonomous body known as the Insurance Regulatory and Development Authority (the IRDA) to regulate, promote and ensure orderly growth of the insurance industry. The influx of new players in both life and non-life sectors has made the insurance market a consumers paradise. All new players are striving to introduce innovative products. Where the old players (LIC and GIC) have a first mover advantage and have a wide spread network, the new players are banking on their innovative products and superior services to surge them ahead.

TYPES OF INSURANCE

P a g e | 28 BANKING & INSURANCE IN SERVICE SECTOR

Insurance has been classified into: (A) (B) Life Insurance General Insurance or Non-Life insurance

(A) LIFE INSURANCE

Life insurance is a written contract between the insured and the insurer, that provides for the payment of the insured sum on the date of the maturity of the contract or on the unfortunate death of the insured, whichever occurs earlier. (1) The different types of life insurance are: (2) Whole Life Assurance Plans (3) Term Assurance Plans (4) Annuities
(B) NON LIFE INSURANCE

There are various broad categories of non-life or general Insurance as follows: Health Insurance: Just like one looks to safeguard ones wealth, these policies ensure guarding the insurer's health against any calamities that may cause long term harm to ones life and even hamper ones earning ability for a lifetime. Some examples of this type of policy are mediclaim policy, personal accident, group accident, traffic accident, etc. Business Insurance: Risks of loss of profits/business, goods, plant and machinery are most profound in case of business. Under this head they cover the most widely used policies that cover a business from any loss of the above kind. Some of these policies are burglary insurance, shopkeepers insurance, key-man insurance, marine insurance,

P a g e | 29 BANKING & INSURANCE IN SERVICE SECTOR

public liability insurance, workmen compensation insurance, air transit insurance, fidelity guarantee insurance etc. Automobile Insurance: Auto Policy is required to be taken to cover the risks that arise to the owner, vehicle and third party. This includes the Compulsory Vehicle Policy (In India, by the Motor Vehicles Act, every car owner is required to covered against Act risks) and the Comprehensive Vehicle Policy. Fire Insurance: This policy is required to be taken to prevent any loss of profits / property from incidental fire. Eg: fire insurance and fire consequential loss policy. Travel Insurance Every year number of tourists dies while travelling. They lose their baggages; passports etc are left stranded in unfamiliar environments. Medical attention in a foreign land while very expensive is also very difficult to find in foreign land. Travel policies are designed to take care of all the problems that generally occur while travelling, whether domestic or foreign.

BASIC INSURANCE TERMINOLOGIES

P a g e | 30 BANKING & INSURANCE IN SERVICE SECTOR

Insured:The person known as the policyholder, a person with insurance coverage. Insurer:A company licensed to transact the business of insurance and Issue insurance policies. Policy:It's the written contract between an insurance company and its insured. It defines what the company agrees to cover for what period of time and describes the obligations and responsibilities of the insured.

Premium:It's the amount of money a policyholder pays for insurance protection Claim:It's the notice to the insurance company that under the terms of a policy, a loss maybe covered. Indemnity:Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss. Agent:A licensed person or organization who sells insurance and represents the insurance company to the policyholder.

Broker:-

P a g e | 31 BANKING & INSURANCE IN SERVICE SECTOR

An organization or person paid by the policy holder to look for insurance on their behalf. Deductible:It's the amount of the loss which the insured is responsible to pay before the insurance company pays the benefits. Expiration Date:This is the date on which the policy ends. Grace Period:A period (usually 30 or 31 days) following each insurance premium due date, other than the first due date, during which an overdue premium may be paid. All provisions of the policy remain in force throughout this period. Limit:It's the maximum amount paid by the insurance company under The terms of a policy. Underwriting:The process of classifying applicants for insurance by identifying characteristics such as age, gender, health, occupation and hobbies. People with similar characteristics are grouped together and are charged a premium based on the group's level of risk.

WHY DO PEOPLE IN INDIA TAKE

P a g e | 32 BANKING & INSURANCE IN SERVICE SECTOR

INSURANCE SERVICE?
People in India have been viewing Insurance, especially life insurance as a form of Investment .These is the common reasons why people in India take up insurance: (1). Insurance safeguards a person /his family /his business against possible losses on account of risks and perils. It provides financial compensation for the losses suffered due to the happening of any unforeseen events. (2). Tax Relief:

(A) Under Section 88 of Income Tax Act, a portion of premiums paid for life insurance policies (LIC) are deducted from tax liability. Similarly, exemption is Available for Health Insurance Policy premiums. (B).Money paid as claim including Bonus under a life policy is exempted from payment of Income Tax. (3). Encourages Savings: An insurance scheme encourages thrift among individuals. It inculcates the habit of saving compulsorily, unlike other saving instruments, wherein the saved money can be easily withdrawn. (4) The beneficiaries to an insurance claim amount are protected from the claims of Creditors by affecting a valid assignment. (5) Life Policies are accepted as a security for a loan hey can also be surrendered For meeting unexpected emergencies. (6) Based on the concept of sharing of losses, the society will benefit as catastrophic Losses are spread globally

FUTURE SCENARIO OF INSURANCE IN SEVICE INDUSTRY

P a g e | 33 BANKING & INSURANCE IN SERVICE SECTOR

The size of the existing insurance market is very large and is growing at the rate of 10% per year. The estimated potential of the Indian insurance market in terms of premium was around Rs. 3, 44,000 crores in the year 1999. Only 10% of the market share has been tapped by LIC and GIC and the balance 90% of the market still remains untapped. This vast potential can be tapped only by a large number of insurers. To serve 100 crores of population, Indian insurance market offers tremendous opportunities to prospective insurers. Hence, the regulator should issue licenses to a large number of insurers if the insurance market has to grow at a fast rate. With the increase in the life span of individuals and disintegration of the joint family system, each Individual now has arranged insurance cover for himself and for his family. Hence, coverage of insurers, which was around 7% of the population in 1999, has to grow very fast. In fact all the citizens in the middle class, estimated around 314 million can afford insurance from their own financial resources. The remaining population has to be given subsidized insurance with the help of the government as well as the insurers. The huge fund from insurance investments can be utilized for financing the infrastructure industry as well as a support to other industries in the country. Hence insurance industry is likely to play a key role in changing the economic landscape of the country. However the success of the insurance industry will primarily depend upon meeting the rising expectations of the consumers who will be the real king in the liberalized insurance market in future.

CURRENT PLAYERS

P a g e | 34 BANKING & INSURANCE IN SERVICE SECTOR

In the first year of insurance market liberalization (April 2-December 31, 2001) as much as 16 private sector companies including joint ventures with leading foreign insurance companies have entered the Indian insurance sector. Of this, 10 were under the life insurance category and six under general insurance. Since then, till June, 2002 two more joined the life insurance sector. Thus in all there are 18 players (12 life insurance and 6 general insurance) in the Indian insurance industry till date. Life Insurance Companies: (1) Life Insurance Corporation of India (2) ICICI Prudential (3) HDFC Standard Life Insurance (4) Max New York Life (5) Birla Sun Life Insurance (6) SBI Life (7) Tata AIG Insurance (8) ING Vysya Life Insurance (9) Allianz Bajaj (10)Amp Sanmar (11)Old Kotak Mahindra Life (12)MetLife India Insurance General Insurance Companies: (1) IFFCO-TOKIO General Insurance (2)National Insurance (3)New India Insurance (4)United Insurance (5)Oriental Insurance (6)Royal Sundaram

P a g e | 35 BANKING & INSURANCE IN SERVICE SECTOR

EXECUTIVE SUMMARY OF INSURANCE

Insurance is defined as the contract between Insurance co. (Insurer) and the customer (Insured). In this legal contract, the insurer agrees to indemnify (compensate) the insured in lieu of payment of premium, for any financial loss due to risks covered in the Policy. Since 1956, with the nationalization of insurance industry, the state- run Life Insurance Corporation of India (LIC) has held the monopoly in that country's life insurance sector. General Insurance Corporation of India (GIC), with its four subsidiaries, was its counterpart in the general insurance sector. In 1999, the government passed the IRDA Bill to open up the insurance sector in India. In the last year, the country saw a large number of Indian and foreign players rushing to enter this lucrative and untapped insurance market of India. The Indian Insurance sector is thus at the beginning of a new era. It has been only a year since the new players became active and it is difficult to say whether the reforms were successful. But it is believed that the country has a vast untapped potential and the new players will surely use this to their best advantage. This project aims to study the topic of Insurance and the Indian Insurance Sector in particular. The first part of the project covers the concept of insurance, the need for insurance, the types of insurance. In the second part, we study the Indian insurance sector. Under the study of the insurance sector, we will look at why the government decided to open up the sector, a brief overview of the reforms, the potential of the sector, the requirement for entry into the market and the new players in the market. We will also give a brief insight into the investment