100 Marks Project + 6th Sem.

8/2/2019 100 Marks Project + 6th Sem.

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Source : IRDA

What is insurance?

It is a contract between the insured and the insurance company whereby the insured financial risk is covered by the insurance company. The

risk can be of your vehicle, property, legal etc. So effectively, you pass on the risk to the insurance company and they charge you a nominal

sum of money for taking that risk which is called Insurance Premium.

Insurance in wikipedia

Insurance is a form ofrisk managementprimarily used tohedgeagainst theriskof a contingent,uncertainloss. Insurance is defined as the

equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance;

the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance

coverage is called the premium.Risk management, the practice ofappraisingand controlling risk, has evolved as a discrete field of study

and practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in

exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a

contract, called theinsurance policy, which details the conditions and circumstances under which the insured will be financiallycompensated.

Principles of insurance

Insurance involvespoolingfunds from many insured entities (known as exposures) to pay for the losses that some may incur. The insured entities are

therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be insurable,
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the risk insured against must meet certain characteristics in order to be aninsurable risk. Insurance is a commercial enterprise and a major part of the

financial services industry, but individual entities can also self-insurethrough saving money for possible future losses.

Definition of insurance

A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to

protect the financial well-being of an individual, company or other entity in the case of unexpected loss. Some forms of

insurance are required by law, while others are optional. Agreeing to the terms of an insurance policy creates a contract

between the insured and the insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay

the policy holder a sum ofmoney upon the occurrence of a specific event. In most cases, the policy holder pays part of the

loss (called the deductible), and the insurer pays the rest. Examples include car insurance, health insurance, disability

insurance, life insurance, and business insurance.

Overview of insurance sector

The Insurance sector in India governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business

(Nationalisation) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts. With such a large

population and the untapped market area of this population Insurance happens to be a very big opportunity in India. Today it stands as a

business growing at the rate of 15-20 per cent annually. Together with banking services, it adds about 7 per cent to the countrys GDP .Inspite of all this growth the statistics of the penetration of the insurance in the country is very poor. Nearly 80% of Indian populations are

without Life insurance cover and the Health insurance. This is an indicator that growth potential for the insurance sector is immense in

India. It was due to this immense growth that the regulations were introduced in the insurance sector and in continuation MalhotraCommittee was constituted by the government in 1993 to examine the various aspects of the industry. The key element of the reform

process was Participation of overseas insurance companies with 26% capital. Creating a more efficient and competitive financial system

suitable for the requirements of the economy was the main idea behind this reform.

Since then the insurance industry has gone through many sea changes .The competition LIC started facing from these companies were

threatening to the existence of LIC .since the liberalization of the industry the insurance industry has never looked back and today stand as
http://en.wikipedia.org/wiki/Insurable_riskhttp://en.wikipedia.org/wiki/Insurable_riskhttp://en.wikipedia.org/wiki/Insurable_riskhttp://en.wikipedia.org/wiki/Self_insurancehttp://en.wikipedia.org/wiki/Self_insurancehttp://en.wikipedia.org/wiki/Self_insurancehttp://www.investorwords.com/10666/potential.htmlhttp://www.investorwords.com/9809/future.htmlhttp://www.investorwords.com/2896/loss.htmlhttp://www.investorwords.com/1797/exchange.htmlhttp://www.investorwords.com/10604/periodic.htmlhttp://www.investorwords.com/3634/payment.htmlhttp://www.investorwords.com/10738/protect.htmlhttp://www.investorwords.com/5572/financial.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/1714/entity.htmlhttp://www.investorwords.com/2896/loss.htmlhttp://www.investorwords.com/10482/optional.htmlhttp://www.investorwords.com/4950/terms.htmlhttp://www.investorwords.com/2517/insurance_policy.htmlhttp://www.investorwords.com/1079/contract.htmlhttp://www.investorwords.com/2519/insured.htmlhttp://www.investorwords.com/2523/insurer.htmlhttp://www.investorwords.com/3634/payment.htmlhttp://www.investorwords.com/8794/agree.htmlhttp://www.investorwords.com/3626/pay.htmlhttp://www.investorwords.com/3728/policy.htmlhttp://www.investorwords.com/2324/holder.htmlhttp://www.investorwords.com/3100/money.htmlhttp://www.investorwords.com/3626/pay.htmlhttp://www.investorwords.com/1339/deductible.htmlhttp://www.investorwords.com/2289/health_insurance.htmlhttp://www.investorwords.com/1461/disability_insurance.htmlhttp://www.investorwords.com/1461/disability_insurance.htmlhttp://www.investorwords.com/2807/life_insurance.htmlhttp://www.investorwords.com/12995/business_insurance.htmlhttp://www.investorwords.com/12995/business_insurance.htmlhttp://www.investorwords.com/2807/life_insurance.htmlhttp://www.investorwords.com/1461/disability_insurance.htmlhttp://www.investorwords.com/1461/disability_insurance.htmlhttp://www.investorwords.com/2289/health_insurance.htmlhttp://www.investorwords.com/1339/deductible.htmlhttp://www.investorwords.com/3626/pay.htmlhttp://www.investorwords.com/3100/money.htmlhttp://www.investorwords.com/2324/holder.htmlhttp://www.investorwords.com/3728/policy.htmlhttp://www.investorwords.com/3626/pay.htmlhttp://www.investorwords.com/8794/agree.htmlhttp://www.investorwords.com/3634/payment.htmlhttp://www.investorwords.com/2523/insurer.htmlhttp://www.investorwords.com/2519/insured.htmlhttp://www.investorwords.com/1079/contract.htmlhttp://www.investorwords.com/2517/insurance_policy.htmlhttp://www.investorwords.com/4950/terms.htmlhttp://www.investorwords.com/10482/optional.htmlhttp://www.investorwords.com/2896/loss.htmlhttp://www.investorwords.com/1714/entity.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/5572/financial.htmlhttp://www.investorwords.com/10738/protect.htmlhttp://www.investorwords.com/3634/payment.htmlhttp://www.investorwords.com/10604/periodic.htmlhttp://www.investorwords.com/1797/exchange.htmlhttp://www.investorwords.com/2896/loss.htmlhttp://www.investorwords.com/9809/future.htmlhttp://www.investorwords.com/10666/potential.htmlhttp://en.wikipedia.org/wiki/Self_insurancehttp://en.wikipedia.org/wiki/Insurable_risk


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the one of the most competitive and exploring industry in India. The entry of the private players and the increased use of the new

distribution are in the limelight today. The use of new distribution techniques and the IT tools has increased the scope of the industry in the

longer run.

Brief history of insurance sector

The insurance sector in India has completed all the facets of competition from being an open competitive market to being nationalized and

then getting back to the form of a liberalized market once again. The history of the insurance sector in India reveals that it has witnessed

complete dynamism for the past two centuries approximately.

With the establishment of the Oriental Life Insurance Company in Kolkata, the business of Indian life insurance started in the year 1818.

Important milestones in the Indian life insurance business

1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance business.

1928: The Indian Insurance Companies Act was enacted for enabling the government to collect statistical information on both lifeand non-life insurance businesses.

1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies were taken over by the central government and they got nationalized.LIC was formed by an Act of Parliament, viz. LIC Act, 1956. It started off with a capital of ` 5 crore and that too from the

Government of India.

The history of general insurance business in India can be traced back to Triton Insurance Company Ltd. (the first general insurance

company) which was formed in the year 1850 in Kolkata by the British.


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Important milestones in the Indian general insurance business

1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to transact all general insurancebusiness.

1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of conduct for guaranteeing fair

conduct and sound business patterns.

1968: The Insurance Act improved for regulating investments and set minimal solvency levels and the Tariff Advisory Committee

was set up.

1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India. It was with

effect from 1st January 1973.

107 insurers integrated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company

Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC was incorporated as a company.

Insurance companies in India

IRDA has till now provided registration to 12 private life insurance companies and 9 general insurance companies. If the existing public

sector insurance companies are considered then there are presently 13 insurance companies in the life side and 13 companies functioning in

general insurance business. General Insurance Corporation has been sanctioned as the "Indian reinsurer" for underwriting only reinsurance

business.

List of Insurance companies in India

LIFE INSURERS Websites

Public Sector


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Life Insurance Corporation of India www.licindia.com

Private Sector

Allianz Bajaj Life Insurance Company Limited www.allianzbajaj.co.in

Birla Sun-Life Insurance Company Limited www.birlasunlife.com

HDFC Standard Life Insurance Co. Limited www.hdfcinsurance.com

ICICI Prudential Life Insurance Co. Limited www.iciciprulife.com

ING Vysya Life Insurance Company Limited www.ingvysayalife.com

Max New York Life Insurance Co. Limited www.maxnewyorklife.com

MetLife Insurance Company Limited www.metlife.com

Om Kotak Mahindra Life Insurance Co. Ltd. www.omkotakmahnidra.com

SBI Life Insurance Company Limited www.sbilife.co.in

TATA AIG Life Insurance Company Limited www.tata-aig.com

AMP Sanmar Assurance Company Limited www.ampsanmar.com

Dabur CGU Life Insurance Co. Pvt. Limited www.avivaindia.com

GENERAL INSURERS

Public Sector

National Insurance Company Limited www.nationalinsuranceindia.com

New India Assurance Company Limited www.niacl.com

Oriental Insurance Company Limited www.orientalinsurance.nic.in

United India Insurance Company Limited www.uiic.co.in


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Private Sector

Bajaj Allianz General Insurance Co. Limited www.bajajallianz.co.in

ICICI Lombard General Insurance Co. Ltd. www.icicilombard.com

IFFCO-Tokio General Insurance Co. Ltd. www.itgi.co.in

Reliance General Insurance Co. Limited www.ril.com

Royal Sundaram Alliance Insurance Co. Ltd. www.royalsun.com

TATA AIG General Insurance Co. Limited www.tata-aig.com

Cholamandalam General Insurance Co. Ltd. www.cholainsurance.com

Export Credit Guarantee Corporation www.ecgcindia.com

HDFC Chubb General Insurance Co. Ltd. ?

REINSURER

General Insurance Corporation of India www.gicindia.com

Indian Insurance MarketHistory

Insurance has a long history in India. Life Insurance in its current form was introduced in 1818 when Oriental Life Insurance Company

began its operations in India. General Insurance was however a comparatively late entrant in 1850 when Triton Insurance company set up

its base in Kolkata. History of Insurance in India can be broadly bifurcated into three eras: a) Pre Nationalisation b) Nationalisation and c)

Post Nationalisation. Life Insurance was the first to be nationalized in 1956. Life Insurance Corporation of India was formed by

consolidating the operations of various insurance companies. General Insurance followed suit and was nationalized in 1973. General


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Insurance Corporation of India was set up as the controlling body with New India, United India, National and Oriental as its subsidiaries.

The process of opening up the insurance sector was initiated against the background of Economic Reform process which commenced from

1991. For this purpose Malhotra Committee was formed during this year who submitted their report in 1994 and Insurance Regulatory

Development Act (IRDA) was passed in 1999. Resultantly Indian Insurance was opened for private companies and Private InsuranceCompany effectively started operations from 2001.

Insurance Market- Present:

The insurance sector was opened up for private participation four years ago. For years now, the private players are active in the liberalized

environment. The insurance market have witnessed dynamic changes which includes presence of a fairly large number of insurers both life

and non-life segment. Most of the private insurance companies have formed joint venture partnering well recognized foreign players across

the globe.

There are now 29 insurance companies operating in the Indian market 14 private life insurers, nine private non-life insurers and six publicsector companies. With many more joint ventures in the offing, the insurance industry in India today stands at a crossroads as competition

intensifies and companies prepare survival strategies in a detariffed scenario.

There is pressure from both within the country and outside on the Government to increase the foreign direct investment (FDI) limit from the

current 26% to 49%, which would help JV partners to bring in funds for expansion.

There are opportunities in the pensions sector where regulations are being framed. Less than 10 % of Indians above the age of 60 receive

pensions. The IRDA has issued the first licence for a standalone health company in the country as many more players wait to enter. The

health insurance sector has tremendous growth potential, and as it matures and new players enter, product innovation and enhancement will

increase. The deepening of the health database over time will also allow players to develop and price products for larger segments ofsociety.

MARKET SHARE OF INDIAN INSURANCE INDUSTRY


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The introduction of private players in the industry has added value to the industry. The initiatives taken by the private players are very

competitive and have given immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the

market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service

quality of the insurance. As a result LIC down the years have seen the declining phase in its career. The market share was distributed amongthe private players. Though LIC still holds the 75% of the insurance sector but the upcoming natures of these private players are enough to

give more competition to LIC in the near future. LIC market share has decreased from 95% (2002-03) to 81 %( 2004-05).The following

companies has the rest of the market share of the insurance industry.

NAME OF THE INSURANCE COMPANY AND THE SHARE HOLDING PATTEN

Name of the Insurance Company Shareholding

Agricultural Insurance Co Bank and Public Ins Co

Bajaj Allianz General Insurance Co. Ltd. Privately Held

Cholamandalam MS General Insurance Co. Ltd. Privately Held

Export Credit Guarantee Company Public Sector

HDFC Chubb General Insurance Co. Ltd. Privately Held

ICICI Lombard General Insurance Co. Ltd. Privately Held

IFFCO-Tokio General Insurance Co. Ltd. Privately Held

National Insurance Co. Ltd. Public Sector


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New India Assurance Co. Ltd. Public Sector

Oriental Insurance Co. Ltd. Public Sector

Reliance General Insurance Co. Ltd. Privately Held

Royal Sundaram Alliance General Insurance Co. Ltd. Privately Held

Tata AIG General Insurance Co. Ltd. Privately Held

United India Insurance Co. Ltd. Public Sector

There are a total of 13 life insurance companies operating in India, of which one is a Public Sector Undertaking and the balance 12 are

Private Sector Enterprises.List of Companies are indicated below:-

NAME OF THE LIFE INSURANCE COMPANY AND THE SHARE HOLDING PATTEN

Name of the company Nature of Holding

Allianz Bajaj Life Insurance Co Private

Aviva Life Insurance PrivateBirla Sun Life Insurance Co Private

HDFC Standard Life Insurance Co Private

ICICI Prudential Life Insurance Co Private

ING Vysya Life Insurance Co. Private


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Life Insurance Corporation of India Public

Max New York Life Insurance Co. Private

MetLife Insurance Co. Private

Om Kotak Mahindra Life Insurance Private

Reliance insurance Private

SBI Life Insurance Co Private

TATA- AIG Life Insurance Company Private

PRESENT SCENARIO OF INSURANCE INDUSTRY

India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry.

Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors.

The insurance sector in India has come to a position of very high potential and competitiveness in the market. Indians, have always

seen life insurance as a tax saving device, are now suddenly turning to the private sector that are providing them new products and

variety for their choice.

Consumers remain the most important centre of the insurance sector. After the entry of the foreign players the industry is seeing a

lot of competition and thus improvement of the customer service in the industry. Computerisation of operations and updating of

technology has become imperative in the current scenario. Foreign players are bringing in international best practices in service

through use of latest technologies

The insurance agents still remain the main source through which insurance products are sold. The concept is very well established in

the country like India but still the increasing use of other sources is imperative. At present the distribution channels that are available

in the market are listed below.

Direct selling


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Corporate agents

Group selling

Brokers and cooperative societies

Bancassurance

Customers have tremendous choice from a large variety of products from pure term (risk) insurance to unit-linked investment

products. Customers are offered unbundled products with a variety of benefits as riders from which they can choose. More

customers are buying products and services based on their true needs and not just traditional moneyback policies, which is not

considered very appropriate for long-term protection and savings. There is lots of saving and investment plans in the market.

However, there are still some key new products yet to be introduced - e.g. health products.

The rural consumer is now exhibiting an increasing propensity for insurance products. A research conducted exhibited that the rural

consumers are willing to dole out anything between Rs 3,500 and Rs 2,900 as premium each year. In the insurance the awareness

level for life insurance is the highest in rural India, but the consumers are also aware about motor, accidents and cattle insurance. Ina study conducted by MART the results showed that nearly one third said that they had purchased some kind of insurance with the

maximum penetration skewed in favor of life insurance. The study also pointed out the private companies have huge task to play in

creating awareness and credibility among the rural populace. The perceived benefits of buying a life policy range from security of

income bulk return in future, daughter's marriage, children's education and good return on savings, in that order, the study adds.


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Presentation Transcript

TOPIC: :

TOPIC: PRIVATIZATION

Slide 2:

PRIVATIZATION Government have no business to be in business

MEANING :

MEANING It is the process of transferring ownership of a business, enterprise or public service from the public sector (government) to the private sector (business).

EVOLUTION OF PRIVATIZATION :

EVOLUTION OF PRIVATIZATION Post 1975 - Greater freedom for private sector . 1980 Devised an instrument i.e. MOU 1990 SOE Reforms. 1991 Industrial policy1998-1999 Announcement of government stake. 1999-2000 Declaration of privatization. 2000-2001 Government stake in non strategic enterprises.

PUBLIC SECTOR:

PUBLIC SECTOR A public sector enterprise is an organization which is owned by public authorities including Central, State or Local a uthorities, to the extent of 51% or

more.

MERITS OF PUBLIC SECTOR:

MERITS OF PUBLIC SECTOR Helps in rapid economic growth Create employment Non-profit driven


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REASONS FOR PRIVATIZATION :

REASONS FOR PRIVATIZATION Inefficient management. Price policy Use of manpower planning in excess. Political factors influencing decisions. Delays in completionand increase in costs.

ECONOMIC REFORMS IN INDIA:

ECONOMIC REFORMS IN INDIA GDP growth Increase in productivity Foreign investment Performance of public sector

. Annual Average GDP Growth rate:

. Annual Average GDP Growth rate YEAR GROWTH RATE 1980-81 to 1990-91 5.6% 1990-91 to 2000-01 5.5% 2000-01 to 2004-05 6.3%

INCREASE IN PRODUCTIVITY:

INCREASE IN PRODUCTIVITY YEAR Increase 1983 - 1988 3.16% 1988 - 1994 3.32%

PERFORMANCE OF PUBLIC SECTOR ENTERPRIZES :

PERFORMANCE OF PUBLIC SECTOR ENTERPRIZES YEAR GROSS PROFIT NET PROFIT 1993-94 11.61% 2.84% 2003-04 21.90% 11.70%

FOREIGN INVESTMENT :

FOREIGN INVESTMENT YEAR APPROVALS ACTUAL FLOWS 1992 1781 233 1995 11245 2100 1997 15752 3330

DEMERITS OF PUBLIC SECTOR:


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DEMERITS OF PUBLIC SECTOR Corruption Not efficiency driven Limited flexibility Non responsive to small volume demand May be subject to government budgetrestrictions Political Interference

MACRO ECONOMIC GOALS OF PRIVATISATION:

MACRO ECONOMIC GOALS OF PRIVATISATION Reduce the governments role in the economy. Promote the development of the private sector. Obtain the salesproceeds and use them to finance shortfalls in the government's. Share ownership so that the public has mechanisms for saving money.

GROWTH OF PRIVATE SECTOR:

GROWTH OF PRIVATE SECTOR 7-8 % GDP growth rate. POSITIVE EFFECT Manufacturing registered 11.9%. The passenger vehicles sector grew by 11.61% duringApril-May 2007. Electricity, Gas & water supply recorded of 8.3%.

Slide 16:

Construction growth rate rose to 10.7%. Trade, hotels, transport and communication registered of 12%. Financing, Insurance, Real estate and Business servicesrecorded an impressive growth rate of at 11% during the 1st quarter of this fiscal year.

Slide 17:

Exports grew by 18.11% during the 1st quarter of 2007-2008 and Imports shoot up by 34.30%. The food sector is estimated US$ 200 billion and expected to grow $310billion by 2015. Merchandise Exports recorded strong growth.

METHODS OF PRIVATIZATION:

METHODS OF PRIVATIZATION Share Issue Privatization Asset Sale Privatization- Privatization due to policies. Disinvestment Vouchers

SHARE ISSUE PRIVATIZATION:


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SHARE ISSUE PRIVATIZATION State sells the whole or a part to the public generally in the form of an IPO Great Revenue raising potential Wider stock ownership.ONGC & NTPC

ASSET SALE PRIVATIZATION:

ASSET SALE PRIVATIZATION Selling the entire firm or a part of it to a strategic investor Normally undertaken in case of sick industries Basically valued on the basis ofthe assets Normally done by auction Eg : Hotel Tulip Star

POLICIES & REFORMS LEADING TO PRIVATIZATION:

POLICIES & REFORMS LEADING TO PRIVATIZATION Government frame policies so as to invite private players in the sector. Fiscal policies so as to lure the privateplayers E.g.: Open Sky Policy 1990 (Aviation Sector)

DISINVESTMENT:

DISINVESTMENT Most popular method of privatisation Methods Of disinvestment: Strategic Sales Open Market Sales Eg: NTPC, REC, NMDC

VOUCHER PRIVATIZATION:

VOUCHER PRIVATIZATION Shares are distributed to all citizens Creates a real sense of participation in the public Usually used in transition economies such as Russia,Poland etc

STEPS IN PRIVATISATION:

STEPS IN PRIVATISATION Reviewing the target companies Preparing a privatization plan Where the company is to be marketed Terms of transaction are negotiatedTransaction is completed

MERITS OF PRIVATISATION:


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MERITS OF PRIVATISATION Improve service quality Lower prices Employment Increase efficiency and innovation Allow policymakers to steer, rather than rowStreamline and downsize government

DEMERITS OF PRIVATISATION:

DEMERITS OF PRIVATISATION Emphasis on non priority industries Emergence of monopoly power and concentration Industrial disputes Privatization of publichospitals can sometimes be daunting Eg: Reliance Energy.

IMPACT OF PRIVATIZATION ON::

IMPACT OF PRIVATIZATION ON: Banking Insurance Education

Slide 28:

BANKING SECTOR

IMPACT OF PRIVATIZATION ON BANKING SECTOR:

IMPACT OF PRIVATIZATION ON BANKING SECTOR Introduction SBI enjoys a monopoly of the government business. The government hold around 93% of the equity,leaving 7% to private ownership. This act was outdated and needs to be re-addressed.

Slide 30:

Later Indian government announced its decision to reduce its stakes in public sector banks to 33%. Are the banks really sick? The answer is No. Public sector banks aremaking profits.Then why this outcry of privatization.

Why Need of Privatization???:


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Why Need of Privatization??? In early 80`s, the Banking Sector in India was dominated by the public sector banks which werecharacterized by : High IntermediationCosts Over-staffing and Over-branching Huge portfolio of Non performing Loans Poor Customer Services Undercapitalized Poorly Managed / Narrow Product RangeUndue Interference in Lending, Loan Recovery & Personnel

RATIONALE FOR PRIVATIZATION:

RATIONALE FOR PRIVATIZATION Reduction in fiscal deficit Increase in the efficiency levels To foster competition Broad basing of equity capital Releasing resourcesfor physical and social infrastructure

RATIONALE FOR PRIVATIZATION:

RATIONALE FOR PRIVATIZATION So the need was felt to put some control over the activities of the Nationalize banks. Privatization of banks was one such action. Eg:ICICI Bank

BENEFITS OF PRIVATIZATION:

BENEFITS OF PRIVATIZATION There was a great increase in the no. of bank branches after privatization from 8262 to 45,898. Branches in rural/semi-urban sectorsincreases from 2% to 40% after privatization. Credit to agriculture increases from Rs.162 crore to Rs.4,46,496 crore.


BENEFITS OF PRIVATIZATION More job opportunities raise after privatization which leads to increase in staff from 2,20,000 to 9,65,720. Because of creditmisallocation, public sector banks may be a bigger threat to stability than private banks. Private sector bank loans growth is faster as compared to public sector banks.


BENEFITS OF PRIVATIZATION There was a great increase in the efficiency of the private banks as the control over bank employees increases. Private sector banksprovide many additional services to its customers.


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Slide 37:

INSURANCE

IMPACT OF PRIVATIZATION ON INSURANCE::

IMPACT OF PRIVATIZATION ON INSURANCE: INTRODUCTION: RECOMMENDATIONS: Government stake in the insurance Companies to be brought down to 50%Private Companies with a minimum paid up capital of Rs.1 billion. 26% equity cap

LIST OF PRIVATE PLAYERS IN LIFE INSURANCE: :

LIST OF PRIVATE PLAYERS IN LIFE INSURANCE : Allianz Bajaj Life Insurance Company Limited Birla Sun-Life Insurance Company Limited HDFC Standard LifeInsurance Co. Limited ICICI Prudential Life Insurance Co. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. Limited MetLife

Insurance Company Limited Om Kotak Mahindra Life Insurance Co. Ltd. SBI Life Insurance Company Limited TATA AIG Life Insurance Company Limited AMP SanmarAssurance Company Limited Dabur CGU Life Insurance Co. Pvt. Limited

PRIVATE PLAYERS IN GENERAL INSURANCE:

PRIVATE PLAYERS IN GENERAL INSURANCE Bajaj All ianz General Insurance Co. Limited ICICI Lombard General Insurance Co. Ltd. IFFCO-Tokio General InsuranceCo. Ltd. Reliance General Insurance Co. Limited Royal Sundaram Alliance Insurance Co. Ltd. TATA AIG General Insurance Co. Limited Cholamandalam GeneralInsurance Co. Ltd. Export Credit Guarantee Corporation HDFC Chubb General Insurance Co. Ltd.

CONTRIBUTION TO GROWTH: :

CONTRIBUTION TO GROWTH: Currently, the insurance sector size is estimated at Rs.500 billion. GIC, LIC and others have come down to 70% in last 4-5 years fromover 97%. The private sector insurance p layers have started exploring the rural markets. Indias life insurance premium, as a percentage of GDP is 1.8%

FUTURE OF THE SECTOR::


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FUTURE OF THE SECTOR: Indian insurance sector is likely to register unprecedented growth of 200% and attain a size of Rs. 2000 billion by 2015-16 A private sectorinsurance business will achieve a growth rate of 140% as a result of aggressive marketing technique being adopted by them against 35-40% growth rate of state ownedinsurance companies. In rural markets, the share of private insurance players would increase substantially

BENEFITS:

BENEFITS Fast growth Rise of premium income by 16% Tie ups with banks

PRIVATIZATION IN EDUCATION :

PRIVATIZATION IN EDUCATION Shift in ownership Models of Privatization Transfer of Ownership Shifting Sectoral Balance Increased government funding in privateIncreased private financing and control

Slide 45:

Why Private and not Public school/institution Other factors for preference in private school Government colleges and Universities

Slide 46:

Change in higher and professional education Closure of these colleges Private sector in providing quality education

Slide 53:

FUTURE SCOPE AND SUGGESTIONS PRIVATISATION

ROLE OF PUBLIC SECTOR:


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ROLE OF PUBLIC SECTOR What should the portfolio composition of the government be? State should not be a player in regulated industries like airlines, railways,shipping, telecom, banking , insurance. the State should not be producing things that can be produced in competitive markets like steel, aluminium, cars

PRIVATISATION PROGRAM:

PRIVATISATION PROGRAM Conversion of the larger PSUs Provisions in the disinvestment mechanism Liberalizing entry rules for FIIs Sale of under-performing orunder-utilised PSU assets

BUDGET 2010:

BUDGET 2010 PRIVATISATION PROGRAMME

PRIVATIZATION PLAN:

PRIVATIZATION PLAN Expected to raise about $5 billion in the current fiscal year SOEs to be listed for the first time Government will retain a controlling stake of 51%SOEs to be profitable for past three years with positive net worth Factors pushing the privatization program

Private insurance companies

Insurance industry in India is one of the flourishing sectors, especially general and life insurance which accounts for 2.5% and 0.65% respectively of total India's GDP.

The growth has opened an array of opportunities for global firms to either set-up their division in India or to enter into a joint venture with the Private Insurance

Companies in India.

The industry has witnessed many alterations especially post 1999 when the Indian government allowed the privatization of the sector to promote insurance for attracting

FDI up to 25%. Since then the Indian Insurance industry is regarded as a booming market amongst the international insurance firms. Although, the biggest insurance firm

in India is still controlled and governed by the government.


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List of Private Insurance Companies in India

There is a long list of Private Insurance Companies in India. Some of the popular ones are:

Bajaj Allianz - A joint venture between Bajaj Finserv and Allianz SE, Bajaj Allianz Life Insurance Co. Ltd. is one of the major insurance players in national and

international market with assets more than a trillion to its credit. It has its units in 70 nations all across the world and has deployed more than 50,000 Insurance

Advisers in its different units. The insurer deals with both general and life insurance and after it joined hands with Thomas Cook India; travel finance has been

one of its hottest selling plans. Bajaj Allianz guarantees world-class insurance and investment schemes besides providing customized plans assisted by

excellent technology. Some of its popular plans are: Unit Linked Plans, Micro Insurance, Children Plans, Health Plans, Women Insurance Plans, Term Plans,

Pension Plans, etc.

ICICI Prudential Life Insurance - A tie-up between Prudential plc and ICICI Bank, ICICI Prudential Life Insurance Company with his headquarters in UK and

more than 2000 divisions and 1,117 sub-divisions is one of the flourishing global financial services group. The firm was felicitated by AAA rating from Fitchratings in terms of financial strength. The company offers various insurance schemes that have been created by keeping customers' needs into consideration.

Some of its popular plans are: Rural Plans, ICICI Pru Group Solutions Advantage, Health Coverage Plans, Protection Plans, Retirement Solutions, Wealth

Creation Plans, Education Insurance Plans, etc.

ING Vysya Life Insurance - ING Vysya Life Insurance is a collaboration between Vysya Bank and ING Insurance Co. Coming into action in the year 2001, the

firm has its main office in Bangalore and 140 divisions all across the world. The insurance plans offered by ING Vysya guarantees complete monetary security to

the policy holders' family after his demise. It specializes in providing life and general insurance along with medical, group, company and Long-Term Care

Insurances. Some of its popular plans are: Protection Plans, Retirement Plans, Savings Plans, Investment Plans, etc.

Max New York Life Insurance - A joint venture between New York Life International and Max India Limited, the firm began its financial functions in India in

2001. It takes pride of being one of the the first life insurance firm to be felicitated by the IS0 9001:2000 status. With over 133 divisions all over India, Max New

York provides an assortment of flexible scheme enveloping both health and life insurances. The company offers different plans based on individual needs and to

meet its long term fiscal objectives. Some of its popular plans are: Strategic Products Plans, Retirement Plans, Savings Plans, Health Plans, Children Plans,

Protection Plans, Investment Plans, etc.

Tata AIG Life Insurance - The Limited firm is a joint venture between American International Group, Inc. (AIG) and Tata Group. It is one of the biggest

commercial groups in India and provides variety of standard and customized life insurance schemes. Some of its popular plans are: Life Assure Educare, Life


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InvestAssure Plus, etc for children; Life Easy Retire, Life Health Protector, Life Assure Lifeline Plans, etc for adults and Life InvestAssure Swarna Jeevan, Life

InvestAssure Future, etc for easy Reti rement Planning.

Bharti AXA Life Insurance - With businesses in the field of retail, telecom and agriculture, Bharti AXA Life Insurance Co. Ltd. over the years has become a

major commercial group in India which offers financial security and wealth administration. It is a joint venture between AXA and Bharti and has its divisions in

nations like Thailand, Western Europe, Indonesia, Malaysia, New Zealand, Philippines, Singapore, Australia, etc. Some of its popular plans are: Group Plans

like Bharti AXA Life Credit Shield, Bharti AXA Swasthya Sanjeevani, Bharti AXA Sanjeevani, etc. and Individual Plans like Bharti AXA Invest Confident, Bharti

AXA Spot Suraksha, Bharti AXA Dream Life Pension, Bharti AXA Wealth Confident, etc.

Aviva Life Insurance - A tie up between Dabur group of and Aviva insurance group, Aviva is the fifth biggest insurance firm in the world. It started its operations

in 1834 and was the first company to introduce the concept of Bancassurance in India. It provides schemes that offer flexibili ty and worth to its customers. Some

of its popular plans are: Whole Life Plans, Endowment Plans, Pension Plans, Group Plans, Child Plans, Pure Term Plans, Single Premium Plans, Health Plans,

etc.

INDIAN INSURANCE: MODERN MARKETING APPROACHAuthor

Dr. A. VINAYAGAMOORTHY

M.Com. M.Phil. M.Ed. PGDCA. Ph.D.

Dr. A. VINAYAGAMOORTHY who is a is a Reader in Commerce atPeriyaar University. He has got the teaching experience of 19 years.His

area of specialisation is Marketing, Insurance and Finance. He haspublished around 26 articles and 2 Books. He has guided 20 M.Phil. and6 Ph.D students. He has been reveiwing books for Sultan Chand &

Sons. He has served as Editorial Board Member for four reputed


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Journals.

INTRODUCTION

The Insurance sector plays a vital role in the

economic development of our nation. It actsas a mobiliser of savings, financialintermediary, promoter of investmentactivities, stabiliser of financial markets and

a risk manager. India is still an under-insured country in the world. It is at the 18thposition among Life Insurance markets and

28th in Non-Life Insurance markets in theworld. This indicates that there is a hugepotential, yet to be explored.

HISTORY OF INSURANCE IN INDIAThe business of life insurance in India in its existing form started inIndia in the year 1818 with the establishment of the Oriental LifeInsurance Company in Kolkatta.

Some of the important milestones in the Life Insurance Business inIndia are:

1912 : The Indian Assurance Companies Act enacted as the firststatue to regulate the Life Insurance business.

1928 : The Indian Companies Act enacted to enable the

government to collect statistical information about LifeInsurance.

1938 : Earlier legislation consolidated and amended to by theInsurance Act with the object of protecting the interest of theinsuring public.

1956: 245 Indian and Foreign Insurers and provident societiestaken over by the Central Government and Nationalised. LIC

formed by an Act of Parliament viz. LIC Act, 1956 with a capital


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contribution of Rs.5 crore from the Government of India. TheGeneral Insurance Business in India, on the other hand, cantrace its roots to the Triton Insurance Company Ltd., the first

General Insurance Company established in the year 1850 in

Kolkatta by the British.

Some of the important milestones in the General Insurance Business inIndia are:

1907 : The Indian Mercantile Insurance Ltd., set up, the firstcompany to transact all classes of general insurance business.

1957 : General Insurance Council, a wing of the InsuranceAssociation of India, frames a code of conduct for ensuring fairconduct and sound businesspractices.

1968 : The Insurance Act amended to regulate investments andset minimum solvency margins and the Tariff AdvisoryCommittee set up.

1972 : The General Insurance Business (Nationlisation) Act,1972 nationlaised the general insurance business in India witheffect from 1st January 1973. 107 insurers amalgamated andgrouped into four companies viz. the National InsuranceCompany Ltd., the New India Assurance Company Ltd., theOriental Insurance Company Ltd., and the United IndiaInsurance Company Ltd. GIC incorporated as a company. Thefunds generated by LIC and Public Sector General insurers are

invested in the avenues that benefit the society. They solelyacted as public undertaking insurers and catered the life coverand general risk cover of the public till the enactment of

Insurance Regulatory and Development Authority (IRDA) Act,1999.


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CURRENT SCENARIOGlobal integration of financial markets resulted from de-regulating

measures, technological information explosion and financial innovations.Liberalisation and Globalisation have allowed the entry of foreign

players in the Insurance sector. With the entry of private and foreignplayers in the Insurance business, people have got a lot of options tochoose from. Radical changes are taking place in customer profile dueto the changing life style and social perception, resulting in erosion of

brand loyalty. To survive, the focus of the modern insurers shifted to acustomer-centric relationship.

1. Liberalisation and PrivatisationIndias economic development made it a most lucrative Insurance

market in the world. Before the year 1999, there was monopoly staterun LIC transacting life business and the General Insurance Corporationof India with its four Subsidiaries transacting the rest. In the wake ofreform process and passing Insurance Regulatory and DevelopmentAuthority (IRDA) Act through Indian parliament in 1999, IndianInsurance was opened for private companies.

Liberalisation on the Insurance sectors has allowed the foreign playersto enter the market with their Indian partners. Most of the foreignInsurers have joined within the local market. India offers immense

possibilities to foreign Insurers since it is the worlds most populous

country having over a billion people.

Insurance industry had ten and six entrants in life and non-life sectorrespectively in the year 2000-2001. The industry again saw two andthree entrants in the life and non-life business respectively in the year

2001-2002. One additional entrant was made both in the life and innon-life business in 2004 and 2005 respectively. At present there arefourteen companies each in Life and General Insurance. The Funds

earlier generated by the state owned insurers have been diversified


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with other new insurers. We should wait and see how the new playersare going to boost up our economy.

2. Competition

Private and Foreign entrants in the Insurance Industry made othersdifficult to retain their market. Higher customer aspirations lead to newexpectations and compel him to move towards the insurer who provideshim the best service in time. It becomes less viable for them even tomaintain the functional networks or competitive standards and services.

To survive in the Industry they analyse, the emerging requirements ofthe policyholders / insureds and they are in the forefront in providingessential services and introducing novel products. Thereby they becomeniche specialists, who provide the right service to the right person inright time.

MARKET SHARE (%) - AUGUST 2005

LIFE INSURERS NON LIFE INSURERS

1. LIC 76.07 1. New India 21.41

2. ICICIPrudential

6.91 2. National 17.11

3. Bajaj Allianz 4.75 3. United India 17.11


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4. HDFC Standard 2.98 4. Oriental 17.02

5. Brila Sunlife 1.72 5. ICICI- Lombard 8.04

6. Tata AIG 1.66 6. Bajaj Allianz 6.15

7. SBI Life 1.46 7. IFFCO-Tokio 4.00

8. Max New York 1.28 8. Tata-AIG 2.89

9. Aviva 1.08 9. ECGC 2.50

10. Kotak MahindraOld Mutual

0.71 10. Royal Sundaram 2.17

11. ING Vysya 0.54 11. Cholamandalam 1.22

12. AMP Sanmar 0.46 12. HDFC-Chubb 0.89

13. Met Life 0.37 13. RelianceGeneral

0.75


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14. Sahara Life 0.03 14. AgricultureInsurance Co.

--

PRIVATETOTAL

23.93 PRIVATETOTAL

27.35

PUBLIC

TOTAL

76.07 PUBLICTOTAL

72.65

GRANDTOTAL

100.00

GRANDTOTAL

100.00

Source :www.irdaindia.org

In August 2005, the private players in the life insurance business have

increased their market share to 23.93 per cent. Among them ICICIprudential is ranked first in capturing the market followed by Bajaj

Allianz and HDFC Standard. In the General Insurance sector the privateplayers have captured 27.35 per cent. Among them ICICI-Lombard isranked first, followed by Bajaj Allianz and IFFCO-Tokio.

The healthy competition in the sector enabled the State owned insurersof our mother country to reduce its market share to 76.07 per cent and72.65 percent in life and non-life business respectively. Moreover,private insurers have planned to increase their market share in the nextfive years. The public insurers have to enrich its approach to withholdits share.
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3. Information TechnologyInsurers are the earlier adopters of technology. Because of theInformation revolution, customers are free to choose from a wide range

of new and innovative products. The Insurance companies are utilizing

the Information technology applications for better customer service,cost reduction, new product design and development and many more.New technology gives the policyholders / insureds better, wider and

faster access to products and services. The impact of InformationTechnology in Insurance business is being felt at an accelerating pace.In the initial years IT was used more to execute back office functions

like maintenance of accounts, reconciling broker accounts, clientprocessing etc. With the advent of database concepts, these functionsare better integrated in an administrative efficiency.The real evolution is however emerged out of Internet boom. The

Internet has provided brand new distribution channels to the Insurers.

The technology has enabled the Insurer to innovate new products,provide better customer service and deeper and wider insurancecoverage to them. At present, Insurance companies are givingcustomers a distinct claim id to track claims on-line, entertaining on-line enrollment, eligibility review, financial reporting, billing andelectronic fund transfer to its benefit clan customers.

4. Product InnovationsInsurers are continuously innovating new products based on forward-looking models. They have developed new products addressing the newchallenges in society and products to address the hazards from new

environmental issues. Companies will need to constantly innovate interms of product development to meet ever-changing consumer needs.

Understanding the customer better will enable Insurance companies todesign appropriate products, determine price correctly and to increaseprofitability. Since a single policy cannot meet all the Insuranceobjectives, one should have a portfolio of policies covering all theneeds.

Product development is made possible by integrating actuarial, rating,claims and illustration systems. At present, the Life Insurers areconcentrating on the pension schemes and the Non-Life Insurers on


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many innovative schemes of various realms and thereby enriching theirmarket share. Moreover, with increased commoditization of insuranceproducts, brand building is going to play a vital role.

5. Distribution Network

While companies have been successful in product innovation, most ofthem are still grapping with right mix of Distribution Channels forcapturing maximum market share to build brand equity, building strong

and effective customer relationships and cost effective customerservice.While the traditional channel of tied up advisors or agents would be the

chief distribution channel, insurer should innovate and find newmethods of delivering the products to customers. Corporate agency,brokerage, Bancassurance, e-insurance, cooperative societies andpanchayats are some of the channels, which can be tapped by the

insurers to reach the appropriate market segments. Now days, the

urban masses are tapped with the new techniques provided byInformation Technology through Internet. Rural masses are attractedby the consultative approach adopted by the Insurers. Moreover, theyattract the customers through telephone and mobile also.6. Customer Education and ServicesInsurance is a unique service industry. The key industry drivers are

related to life style issues in terms of perceiving insurance as a savingsinstrument rather than for risk cover, need based selling, quality ofservice and customers awareness.In the present competitive scenario, a key differentiator is the

professional customer service in terms of quality of advice on productchoice along with policy servicing. Servicing focus is on enhancing the

customers experience and maximizing his convenience. This calls theeffective CRM system, which eventually creates sustainable competitiveadvantage and enables to build long lasting relationship.

MODERN MARKETING APPROACHMarketing strategies for insurance in the emerging scenario could beunderstood in terms of the following steps:


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R >>>>>> STP>>>>>MM>>I>>>> CHere, R = Market ResearchSTP = Segmentation, targeting, positioning

MM = Marketing Mix

I = ImplementationC = ControlHaving done market research and finalising on segmentation, targeting

and positioning the strategy would focus on the marketing mix namely,Product, Price, Place and Promotion. While determining theimplementation methodology, the four characteristics viz. Intangibility,

Inseparability, Perishability and Variability gives rise to certain uniquerequirements that deserve careful attention while formulating themarketing strategy for insurance. After implementation, the insurersshould concentrate on the effective control that would enhance their

business.

In India Insurance is sold and not bought. The agents / Advisors byusing various strategies sell the product by convencing the customers.Moreover, they push Policies with the highest premium to pocket ahigher commission. The consultative approach to selling is the modernapproach, which helps customers and prospects to buy. A consultantmakes calls and sells just like any other sales person. The difference is

in their attitude, their approach and their commitment. Here, thecustomer is seen as a person to be served and not a person to be sold.It helps the purchaser to make an intelligent decision. The four-stepprocess includes:

*Need discovery* Selection of the product

* Need satisfaction presentation, and* Serving the saleThis approach to selling their products requires understanding ofconcepts and principles borrowed from the fields of psychology,communications, and sociology and needs a lot of personal

commitments and self discipline from the seller.

The commitments referred are:


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Finding and understanding the needs of the customers. Partnering with the customers. Helping the customers to achieve his business and other

objectives by the purchase of the product or service.

Believing that your products / services are a great fit with yourcustomers needs, and

Believing in yourself and your ability to help the customers insolving their problems.

A consultant is willing to forego short-term gains to achieve greaterlong term benefit to him and to the customers he serves. He buildsrelationships on a foundation of trust, respect and performance.Moreover, consultants dont sell theyre specialists who make

recommendations to help the prospect to buy. They act as aprofessional and offer realworld solutions that make sense to the

customer. Today, the insurers adopt this technique and thereby go onincreasing their market share.

CONCLUSIONIn the global era, Insurance companies are increasingly willing to spendmore on the customer satisfaction and brand building exercises. Thoughit is one of the highly regulated industries, it still provides lot of scopefor creativity and innovations. As our industry is predominantly

dominated by personal selling and personalized services many a timethe service standards vary based on the intermediary involved in theprocess. In order to achieve the competitive edge over othersstandardize the process and bring about quality improvement and get

feed back from the customers regarding the quality of servicesrendered. This will result in customer satisfaction, customer retention,customer acquisition, employee retention and cost reduction. This paperfocuses on the marketing approach adopted by the modern insurers to

withhold their existing customers and attract new ones.

REFERENCES


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BOOKS1. Insurance Principles and Practice (2006) M. N. Mishra, S. Chand andCompany Ltd., New Delhi. Pp. 12-34.

2. Introduction to Insurance (2006) Marks S. Dorfman, Prentice hall,Inc, Engle Wood Cliffs, N.J. 07632 pp. 124-254.3. Indian Insurance Industry (2006)D.C. Srivastava and ShashankSrivastava, New Century Publications, Delhi. Pp.256-275.

JOURNALS1. Southern Economist, March 1, 2004.2. Insurance Watch, August, 2004.3. Insurance Watch, September, 2004.

4. Insurance Chronicle, February, 2005.5. Insurance Watch, March, 2005.

6. Insurance Watch, July, 2005.7. Indian Journal of Marketing, July, 2005.8. Life Insurance Today, September, 2005.

WEBSITES1. www.irdaindia.org2. www.bimaonline.com3. www.licindia.com4. www. asiantradehub.com


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Insurance sector grew 83% after privatisation

Our Banking Bureau / Mumbai April 09, 2005

The insurance industry has grown by 83 per cent since the opening up of the sector. Remarking on the performance of the insurance industry, C S Rao, chairman,Insurance Regulatory & Development Authority (Irda), said public sector players have not suffered with the opening up of the sector.

Insurance premium income has risen to Rs 82,415 crore in 2003-04, against Rs 45,000 crore in 2000-01. Rao expects premium income in the life insurance sector to risefurther by 15-16 per cent and non-life insurance premium by 14 per cent in 2005-06. The growth comes on the back of healthy demand from the manufacturing sector.

There has been no reduction in growth rates as seen in the case of the Life Insurance Corporation of India (LIC). It is ableto hold on to its existing share in terms ofbusiness growth. Market share is bound to stand reduced as some business goes to the private players, said Rao.

The health and personal line segments are expected to see maximum growth during the current financial year.

The health insurance sector is expected to grow by 10-15 per cent, Rao said at a one-day seminar on Growth of Insurance Industry in India organised by the IndianMerchants Chamber (IMC) in Mumbai today.

If the cap on foreign direct investment is increased to 49 per cent from the current 26 per cent, the industry can expect greater entry of players. But this, said Rao, shouldnot be seen as a threat to public sector players.

Scope of Private Banking in India

Posted by abhyudaya On June - 22 - 2009

Private Bankis a bank that is not state-owned in a country where most banks are owned by the government and provides banking facilities

to high net worth individuals.

In India, the financial sector has become stronger in terms of capital and the number of customers. It has become globally competitive and

diverse aiming, at higher productivity and efficiency.

Some Special Services provide by Private Banks are as follows:
http://blog.i2k2.com/others/scope-of-private-banking-in-india/http://www.clientassociates.com/http://www.clientassociates.com/http://www.clientassociates.com/http://blog.i2k2.com/others/scope-of-private-banking-in-india/


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Net Banking available

Phone Banking available

ATM Booths are available everywhere

Shopping can be done by Debit Card also

Quick response to Customer problems

Loans are easily available

Account can be easily open at Rs.0

Balance can be Rs.0 for long time

Accounts can be maintain for long time.

Insurance Facilities are available

Provides better quality products and services

Bank Executives help people to plan for their investments.

Depository services

Mortgage financing

Securitisation

Because large number of players in various fields has been entered the market, competition will be intensified by mutual funds, post offices,

Non Banking Finance Corporations (NBFCs) etc. from both domestic and foreign players. This would lead to increased sophistication and

technology in the sector.

There are many challenges for the banking sector such as consumer satisfaction, technology, risk management, corporate governance etc.

and they are redefining their priorities, which are now focused on cost reduction, product differentiation and customer centric services.

Major players in this sector are HDFC, ICICI, HSBC, State Bank of India, Punjab National Bank, ABN Amro Bank,City Bank, etc.

Scope of Insurance Sector in Private Banks: The insurance sector has opened up for private insurance companies with the enactment ofIRDA Act, 1999. A large number of companies are competing under both life and general Insurance.

Major players in this sector are LIC, Max New York Life Insurance, Metlife Insurance, Birla Sun Life Insurance, Bajaj Allianz, ICICI

Prudential, HDFC Standard Life, etc.


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In India, most of the population is not insured, so there is a lot of scope in this sector and a number of companies are planning to enter the

sector.

How important is privatisation in India?The first order issue is that of competition policy. When the government hinders competition by blocking entry or FDI, this is deeply damaging. Once competitive

conditions are ensured, there are, indeed, benefits from shifting labour and capital to more efficient hands through privatisation, but this is a second order issue.

The difficulties of governments that run businesses are well-known. PSUs face little "market discipline". There is neither a fear of bankruptcy, nor are there incentives for

efficiency and growth. The government is unable to obtain efficiency in utilising labour and capital; hence the GDP of the country is lowered to the extent that PSUs

control labour and capital.

When an industry has large PSUs, which are able to sell at low prices because capital is free or because losses are reimbursed by periodic bailouts, investment in that

entire industry is contaminated. This was the experience of Japan, where the "zombie firms" - loss-making firms that were artificially rescued by the government -

contaminated investment in their industries by charging low prices and forcing down the profit rate of the entire industry.

Further, in many areas, the government faces conflicts of interest between a regulatory function and an ownership function. As an example, the Ministry of Petroleum

crafts policies which cater for the needs of government as owner, which often diverge from what is best for India.

There is a fundamental loss of credibility when a government regulator faces PSUs in its sector: there is mistrust in the minds of private investors, who demand very high

rates of return on equity in return for bearing regulatory risk.

These arguments have led many economists to advocate large-scale privatisation, so as to clear the slate, and get on with the task of building a mature market economy.

The role model in this regard is Germany After the collapse of communism and the unification of East and West Germany, an auction was held for selling off all East

German PSUs.

Negative bids were permitted; i.e. the government was willing to even pay a private manager to take over a loss-making business if no higher bid was to be found.

Through this, Germany was able to erase the heritage of socialism, and get on with the task of running an efficient market economy.
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While such a game plan is entirely feasible in India, the present Parliament desires no privatisation. Does this mean that in the immediate future, progress in economic

policy on privatisation must merely wait for the next elections?

When we look at various industries in India, the gains from privatisation are quite heterogeneous. In some cases, there are hopelessly loss-making PSUs. These operatein industries where private and foreign firms have been able to come in, and the PSU has been left far behind the standards o f quality and price set by the private sector.

The PSUs should ideally have been sold off long ago, but today, these firms are irrelevant for the competitive dynamics of the industries that they operate in. The only

issue is that of getting the land, the labour and some machinery out of public hands.

When privatisation is achieved, India will benefit because the private buyer will produce more GDP using the same resources, and the flow of budgetary support to these

firms will cease. The government should be happy to get these firms out of its hands with negative bids.

The next and most interesting category comprises industries lik e telecom and airlines. In these areas, India has witnessed the dramatic benefits that come from the entry

of private players.

Telecom and airline services in India are now dramatically improved, if not yet up to world-class, by changing rules in a way that permitted limited entry to domestic and

foreign players. The privatisation of VSNL was critically important because it was part of the opening up of the ILD sector to competition: the government would arguably

have been more tardy in opening up if it had a vested interest through ownership of VSNL.

However, the key innovation, which broke with the stasis of socialism was opening up entry barriers - not privatisation.

In both sectors, the full benefits from permitting foreign competitors, which are only present in very muted fashion, remain to be harnessed. While Spicejet is a good

airline, there are bigger benefits waiting to be obtained by having domestic flights run by Lufthansa and Singapore Airlines. In both sectors, the defining issue in policy is

the removal of entry barriers, not privatisation.

Looking forward, there is a good chance that in some years, BSNL, MTNL and the merged airline will end up like one of the man y defunct PSUs of today. It makes sense

for the government to sell today - while the going is good. But the privatisation of these three firms is no longer the most important issue - the further elimination of entry

barriers faced by domestic and foreign firms is.


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What does this tell us about banking? The decline in market shares of PSU banks, while helped along by strikes of PSU bank unions, has proceeded only slowly. This is

partly because there is a fundamentally non-level playing field where private and foreign banks have deposit insurance for only Rs 100,000 of deposits while PSU banks

have unlimited deposit insurance. This gives one reason in favour of bank privatisation: it is inherently difficult to achieve competitive conditions without privatisation.

But equally, there is no industry in India where the licence-permit raj hinders entry more than in the case of banking. At a time when the Indian economy is booming, and

every kind of business is being created, the one industry where we see no new firms starting up is banking. This has surely got to do with government restrictions on

entry.

There is absolutely no industry in India where the opening of branch offices by foreign firms and private firms requires permission from the government. When Ford

operates in India, it has to obey rules on FDI, but after that, it never has to go back to the government to take permission to open offices.

What is worse, all foreign banks - put together - are given permission to open 12 branches per year in the full country. There is no worse instance where contemporary

Indian policy-making is animated by ideas from the 1960s.

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