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PREFACE
This Study has been done in partial fulfillment of the requirements for the
award of the degree of MASTERS IN BUSINESS ADMINISTRATION during June
6th to August 5th 2005 at BAJAJ ALLIANZ GENERAL INSURANCE, Pune.
The report is titled “Study of co-operative and rural sector banks for
profitable bancassurance tie-ups” which proposes to study the banks from 4 main
categories which are allowed to conduct insurance business by RBI, for their
profitability and potential business expected from them for fruitful tie-ups with
selected banks further. The study takes advances as basis of premium potential
calculation. The study has been limited to following four categories of banks
1. Scheduled Urban Co-operative Banks
2. Regional Rural Banks
3. State Co-operative banks
4. District central co-operative banks
The documentation begins with an introduction about banc assurance and
then moves on to define the objectives of the study, methodology of the study, scope
and findings of the study.
Finally, it provides the reports and findings of the study in the form of graphs
and tables. It also states the limitations and scope for updation.
ACKNOWLEDGEMENT
1
I express my heartfelt thanks to Mr. Atanu Singh Mukherjee for being a
constant source of encouragement & for his excellent guidance and timely support.
I would like to express my gratitude to Mr. Mohammed Arif, Mr. Naveen
Singh, Mr. Gaurav Verma & Mr. Pankaj Khandewal for their valuable suggestions,
inspiring discussions and invaluable guidance that resulted in lot of improvement in
the research study.
I am deeply indebted to officials of the RBI, NABARD and other organizations
who helped me in collecting the required database for this study.
CERTIFICATE
2
This is to certify that this is the bonafide record of the research study titled
“Study of Co-Operative & Rural Sector Banks For
Profitable Bancassurance Tie-Ups”
done by
AABHA S. TALWALKAR
This study has been conducted as a part of summer training at BAJAJ ALLIANZ
GENERAL INSURANCE CO. LTD., Pune.
Approved By
Mr. Atanu Singh Mukherjee.
TABLE OF CONTENTS
CHAPTERSUB
CHAPTERCONTENTS
PAGE NO
3
1
INTRODUCTION
1.1 BAJAJ ALLIANZ
1.2 BANCASSURANCE1.3 THE STUDY
2 OBJECTIVE OF THE STUDY
3
SCOPE OF THE STUDY
3.1SCHEDULED URBAN CO-
OPERATIVE BANKS
3.2 REGIONAL RURAL BANKS
3.3 STATE CO-OPERATIVE BANKS
3.4DISTRICT CENTRAL CO-
OPERATIVE BANKS
4METHODOLOGY OF THE STUDY
4.1 RESEARCH DESIGN
4.2 DATA COLLECTION METHODS
4.3 DATA ANALYSIS
5 FINDINGS OF THE STUDY
6 CONCLUSION AND SUGGESTIONS
7 BIBLOGRAPHY
ANNEXURES
A DATA TABLES
BRBI CIRCULARS
Chapter: 1
INTRODUCTION
The project was done with Bajaj-Allianz, For Bancassurance Channel. So
let’s first understand the company and the channel.
4
1.1
ABOUT BAJAJ ALLIANZ:
THE COMPANY:
Bajaj Allianz General Insurance Company Limited is a joint venture between,
Bajaj Auto Limited and Allianz AG Of Germany. Both enjoy a reputation of expertise,
stability and strength.
THE INDIAN PROMOTERS: BAJAJ AUTO LIMITED
Incorporated in 1945,under the leadership of Mr. Rahul Bajaj, CMD Bajaj Auto
Ltd. The company has grown into the world’s 4th largest 2 & 3 wheeler
manufacturer. It has a network of over 375 dealers across India. It also has a strong
distribution network in over 60 cities. The company is AAA rated.
THE GERMAN PROMOTER: ALLIANZ GROUP
Allianz is the leading insurance company in the world.
Headquartered in Munich, Germany, established in 1890.
With over 700 subsidiaries and 117,000 employees in over 70 countries worldwide.
The company has
recently announced acquisition of DRESDNER.
Allianz provides some form of insurance coverage to almost half the fortune 500
companies.
The company is AA+ rated.
THE BAJAJ ALLIANZ DIFFERENCE:
The reasons for the early success of Bajaj-Allianz in India are as follows:
5
Business strategy aligned to client’s needs and trends in Indian and global
economy/ industry.
Customer oriented; rather than business line oriented.
Wide basket of products.
Internationally experienced core team, majority with local background.
Fast, decentralized decision-making.
Long-term commitment to market and clients.
Bajaj Allianz General Insurance received The Insurance Regulatory
And Development Authority (IRDA) certificate of registration (R3) on May 2nd,
2001 to conduct General Insurance Business (including health insurance
business) in India. The company has an authorized and paid up capital of Rs
110 Crores. Bajaj Auto holds 74% and Allianz, AG, Germany, holds the
remaining 26%. In its first year of operations, the company has acquired the No. 1
status among the private non-life insurers. As on 31st march 2003, Bajaj Allianz
General Insurance maintained its leadership position by garnering a premium income
of rs.300 Crores. Bajaj Allianz also became one of the few companies to make a
profit in its first full year of operations.Bajaj Allianz today has a network of 42
offices spread across the length and breadth of the country. From Surat To
Siliguri And Jammu To Thiruvananthapuram, all the offices are
interconnected with the head office at Pune.In the first half of the current
financial year, 2004-05, Bajaj Allianz garnered a premium income of Rs. 405 Crores,
achieving a growth of 84% and registered a 52% growth in net profits of Rs.20 Crores
over the last year for the same period. In the financial year 2003-04, the premium
earned was Rs.480 Crores, which is a jump of 60% and the profit zoomed by 125% to
Rs. 21.6 CroresTHE GROWTH OF BAJAJ ALLIANZSince it’s inception in 2001,
the company has shown a remarkable growth, both in its profits and premium
collection.
6
1.2
ABOUT BANCASSURANCEAsia used to rely predominantly on agents
for distribution of insurance products. But multi-channel distribution is
becoming increasingly popular. The Regulatory environment is becoming
more conducive to the development of Bancassurance in Asia.Banks and
insurers in Asia are highly motivated to develop
Bancassurance.DEFINITIONIn its simplest form, Bancassurance is the
distribution of insurance products by Banks.
As a strategy adopted by banks or insurance companies aiming to operate in
the financial services market in a more or less integrated manner.
It is an attempt to exploit synergies between insurance companies and banks
to make full use of the bank’s customer databases to develop customer
centric service and generate higher returns for both banks and insurance
companies.SCOPEWhile Bancassurance is more suitable to life products, for good
reasons it is also relevant to Asia’s Non-life insurance markets.BENEFITS OF
BANCASSURANCE FOR BANKSBanks are drawn to the idea of
Bancassurance to secure an additional source of income and to leverage on
their customer bases.
1. Banks can sell complete range of financial services and increase customer
satisfaction and retention.
7
2. Bancassurance helps banks to reduce risk-based capital requirement for the
same level of revenue.
3. By using Bancassurance as an additional service, banks can work towards an
integrated financial services tailored to the life cycle of customer.
4. Through Bancassurance banks can access funds that are otherwise kept with
insurers.BENEFITS OF BANCASSURANCE FOR INSURERSBy using
Bancassurance in an effective manner, insurers can tap into the huge
customer base of banks.
1. As Bancassurance develops into an effective distribution system on it’s own,
the insurers can reduce their reliance on agents.
2. Through bancassurance, insurers can also share services with banks.
3. As Bancassurance ensures the direct interaction with bank customers,
insurers can develop new products to suite banks customers.
4. This helps in giving maximum customer satisfaction, which ultimately
increases good will and reputation of the company in customers.
5. For new insurance companies, Bancassurance can establish market
presence rapidly without building network of agents.The Bancassurance
channel gives an important advantage, which is Cost Advantage
8
BENEFITS OF BANCASSURANCE FOR CONSUMERS
1. Lower premium-lower distribution cost can be passed on to customer by way
of lower premium.
2. Customers can get a product specially designed to their requirement.
3. Consumer will reap major benefits from lower premium and better service.
4. The integration of two essential services, i.e. banking and insurance, means
lesser wastage of time, energy and other resources.
BANCASSURANCE STRUCTURE:
Bancassurance is a distribution strategy opted by insurance companies in
collaboration with banks. The type of tie-up between these two entities can differ
according to the requirements of both. But there are four basic types of
bancassurance, which are seen in market with small variations. These four types are
as explained below;
BANCASSURANCE MODELS IN ASIA
9
1. DISTRIBUTION AGREEMENTBank distributes insurance products
(standalone/bundled) in return for a fee.
No or little sharing of customer database.
Limited investment.
2. STRATEGIC ALLIANCE
A higher degree of integration in products development/service/channel
management.
Possible sharing of customer database
Requires investment in IT and sales personnel.
3. JOINT VENTURE
Clear mutual ownership of products and customers.
Sharing of customer database.
Requires strong and long-term commitment from both sides.
4. FINANCIAL SERVICES GROUP
Operations and systems can be fully integrated.
A high capability to leverage on banks existing customer and other services
provisions.
One stop financial services.
Potential for fully integrated products.
POTENTIAL OF BANCASSURANCE IN ASIA:
10
Bancassurance could bolster Asia’s life and non-life premium by 5.5% and
1.5% respectively, by 2006, and account for 13% and 6% of life and non-life
insurance distribution.
Strong growth potential of Asia’s insurance market should enhance the
potential for bancassurance.
SWOT ANALYSIS- Bancassurance in INDIA
The high population numbers in India is one major aspect, which will help
Bancassurance to gain success here.
Apart from size of market success of Bancassurance also depends on
The regulatory environment
No of bank branches & infrastructure
Maturity of insurance market.
Competition among distribution channels.
Let’s analyze India to understand the Bancassurance in India better.
STRENGTH
• Large number of bank branches reaching even remote areas.
• Regulatory changes are favorable to Bancassurance development.
WEAKNESS
• Restriction on foreign share ownership limits the choice of bancassurers.
• Weak customer database and infrastructure support.
OPPORTUNITY
• Foreign insurer entering the Indian market is keen to use bank branches as
their main distribution channel.
THREATS
• Some of the current Bancassurance deals may fall through when operational
obstacles begin to emerge.
1.3
ABOUT THE STUDY
11
The study, which was conducted by me, was for bancassurance. It basically
aimed at studying the current operating banks, target selected categories and then
further proceed to select top banks in given category to work for successful and
profitable bancassurance relationship with these selected banks.
For any business to be profitable and successful, the foundation on which it
stands must be sound and strong. Proper analysis of the environment and selection
among the available choices, based on that analysis is the key for early success of
any business.
The customers of the banks in India is the targeted market for the
bancassurance business and their analysis must start with the analysis of bank’s
performance first. An insurance giant like Bajaj Allianz must take the decisions about
bancassurance tie-ups with proper care and only after proper analysis. This was the
reason why I found my job very challenging. The first step in successful marketing of
any product is analysis of targeted customers followed by setting up of proper
distribution system. As my project dealt with both these aspects, it is a marketing
project in true sense.
Now let’s understand what steps were followed to complete this study:
Deciding on bank categories to be selected to limit the scope of
the project :
This step was essential as the choice available in India is very vast. Only
those banks, which are allowed by RBI to conduct the insurance business, had to
be analyzed for their performances. Also, the priority sector banks were mainly
focused as reaching the rural areas through banks is one of the main objectives
of bancassurance in India.
Hence following categories were selected:
1. SCHEDULED URBAN CO-OPERATIVE BANKS
2. NON-SCHEDULED URBAN CO-OPERATIVE BANKS
3. REGIONAL RURAL BANKS
4. STATE CO-OPERATIVE BANKS
5. DISTRICT CENTRAL CO-OPERATIVE BANKS
These categories are discussed in details in the scope of project later.
12
Collecting the data of all the banks:
This step proved to be the most difficult step, as the data for individual banks
under each category was not available readily. Different methods of data collection
were required for collecting data for each category. The data to be collected was
mainly about financial performance of individual banks including the advances and
deposits of these banks for latest financial year. The organizations like RBI,
NABARD, and NIBM were the main sources of data.
Analysis of the collected data for profitability and potential:
All the data, which was collected, was further analyzed on basis of premium
potential, which is a function of total advances. Premium potential is the approximate
premium amount that can b collected if the advanced assets are insured with Bajaj
Allianz. Thus here we predict approximate business that a given bank can give
based on its advances in given year. As advances for next year (i.e.2005-6) are
obviously not available, we compared the banks performances for last financial year
(i.e.2004-5). Also non-performing assets, deposits and profits were taken into
account while analyzing this data. The top 20 banks according to their premium
potential are found out from each category, which were further analyzed based on
other parameters as mentioned above.
Conclusion and suggestions:
As actual tie-ups with the selected banks was beyond the scope of the project
due to time restrictions, my project ends with recommendations about which banks
seem to be good for Bancassurance tie-ups. Thus the last step of my study was to
suggest top performing banks from each category, which can be considered for
future tie-ups by Bajaj Allianz.
Thus the study has been done mainly with the aim selecting the banks from
given categories of banks and further analyzing their performance to ensure
profitable tie-ups.
13
Chapter: 2
OBJECTIVE OF THE STUDY
14
Any research study can be started only after defining the objective of the study very
clearly and precisely. The objectives of this study are as defined below:
1. To decide the scope of study with clear grouping of banks to be analyzed.
2. To collect the data about these banks for following parameters from reliable
sources:
Advances.
Deposits
Net profits
Location
Address
3. To analyze collected data for profitability and potential.
4. To select specific number of banks from each category for bancassurance tie-
ups.
Chapter: 3
SCOPE OF THE STUDY
15
Before proceeding with the data collection one important step in any research is to
decide and delimit the scope of the study. In this study it became further more
important as the field of banking in India is very well developed and offers many
options as banks have been categorized in various ways. Many types of banks and
similar financing companies exist in India and analyzing performances of all banks is
not possible due to time restrictions as a summer trainee.
Also all banks and similar institutions are not allowed to conduct insurance business
in Indian regulatory environment. Thus deciding on which banks to analyze was the
main task.
This was decided on basis of following parameters:
Whether they are allowed to conduct insurance business.
Whether the customer base of these banks can be the targeted customer
group for general insurance products.
The locations at which these type of banks are saturated.
The type of business conducted mainly by these type of banks.
The availability and reliability of data.
According to these parameters, following categories were finalized for further
analysis:
SCHEDULED URBAN CO-OPERATIVE BANKS
REGIONAL RURAL BANKS
STATE CO-OPERATIVE BANKS
DISTRICT CENTRAL CO-OPERATIVE BANKS
Though NON SCHEDULED URBAN CO_OPERATIVE BANKS were included in
study initially, due to non-availability of required data, they were not included in final
analysis.
Let’s understand the categories one by one to understand the scope of the study in
details.
16
17
3.1
SCHEDULED URBAN CO-OPERATIVE BANKS
PARAMETER
Number of banks 56
Regulating body RBI, Urban Banks Department
Permission to conduct insurance
business
Granted
Locations Mainly urban and semi-urban
localities
Availability of data Available.
The Structure Of Urban Co-Operative Banking System:
Co-operative Banks are organized and managed on the principal of co-operation,
self-help, and mutual help. They function with the rule of "one member, one vote".
Co-operative Banks function on "no profit, no loss" basis. Co-operative banks, as a
principle, do not pursue the goal of profit maximization.
In Urban co-operative banks, most are non-scheduled while only 56 are scheduled
UCBs. Scheduled UCBs constitute those UCBs, which have been included in the
Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes
only those banks in this schedule, which satisfy the criteria laid down, vide section
42 (60 of the Act.
Being a part of the second schedule confers some benefits to the bank in terms of
access to accommodation by RBI during the times of liquidity constraints.
At the same time, however, this status also subjects the bank certain conditions and
obligation towards the reserve regulations of RBI.
The Business Performed By UCBs:
Urban Co-operative Banks (UCBs) play an important role as financial intermediaries
in urban and semi-urban areas catering to the needs of the non-agricultural sector,
18
particularly small borrowers. Co-operative bank performs all the main banking
functions of deposit mobilization, supply of credit and provision of remittance
facilities. Co-operative Banks provide limited banking products and are functionally
specialists in agriculture related products. However, co-operative banks now provide
housing loans also. UCBs provide working capital loans and term loan as well. The
scheduled UCBs, however, can lend up to Rs 3 lakh for housing purposes. The
UCBs can provide advances against shares and debentures also. The urban and
non-agricultural business of these banks has grown over the years.
Co-operative bank do banking business mainly in the agriculture and rural sector.
However, UCBs, SCBs, and DCCBs operate in semi urban, urban, and metropolitan
areas also.
Regulatory Environment:
The urban co-operative banks are regulated and supervised by State Registrars of
Co-operative Societies, Central Registrar of Co-operative Societies in case of Multi-
state co-operative banks and by Reserve Bank. The Registrars of Co-operative
Societies of the States exercise powers under the respective Co-operative Societies
Act of the States in regard to incorporation, registration, management,
amalgamation, reconstruction or liquidation. In case of the urban co-operative banks
having multi-state presence, the Central Registrar of Co-operative Societies, New
Delhi, exercises such powers. The banking related functions, such as issue of
license to start new banks / branches, matters relating to interest rates, loan policies,
investments, prudential exposure norms etc. are regulated and supervised by the
Reserve Bank of India under the provisions of the Banking Regulation Act,
1949(AACS).
19
Financial Performance In Recent Past:
During 2003-04, scheduled UCBs witnessed several positive developments
pertaining to balance sheet, profit and income, and asset quality. The deposits and
advances of scheduled UCBs continued to grow during 2003-04. The net profit of
the scheduled UCBs showed a substantial growth of 40.4 per cent, while the net loss
of UCBs declined by 69.1 per cent. Tier I capital of scheduled UCBs as a group
increased considerably to Rs.297 crore in 2003-04 from a negative Rs.10 crore in
2002-03. It may be noted that the negative Tier I capital shown for the year ended
Non-performing assets declined both in absolute as well as percentage terms. The
decline in net NPAs was higher due to increased provisioning.
Items 2003 2004 Variation
Amount in Rs.
crore
Amount in Rs. crore (in per cent)
Number of Scheduled UCBs 56 55 –
Paid up capital 608 707 16.2
Reserves (excluding loan loss
provisions)
2,195 2,488 13.4
Tier I capital -10 297 –
Tier II capital 434 529 21.7
Deposits 36,024 39,305 9.1
Investment in Government and other
approved securities
10,806 13,954 29.1
Loans and Advances 22,941 23,962 4.5
Gross NPAs 6,927 6,892 -0.5
Net NPAs 3,827 3,509 -8.3
Net Profit 354 497 40.4
Net Loss 326 101 -69.1
Accumulated Losses 2,276 2,320 1.9
Note: Based on UCB returns. Reserves include statutory reserves and other reserves and provisions
not in the nature of outside liabilities.
20
21
3.2
REGIONAL RURAL BANKS
PARAMETER
Number of banks 196
Regulating body RBI, Rural Planning And Credit
Department.
Permission to conduct insurance
business
Granted
Locations Mainly rural and remote localities
Availability of data Available.
The Structure RRBs:
These banks are state-sponsored, regionally based and rural-oriented. Regional
Rural Banks (RRBs) were established in India under the Regional Rural Banks Act,
1976. As per recommendations of the Working Group on Rural Banks, the first five
RRBs were established on 2 October 1975 under a Presidential ordinance, which
followed the promulgation of the Act in April 1976. By 1987, the number of RRBs
had grown to 196. Regional Rural Banks (RRBs) are India’s state-owned
development finance vehicles charged with serving the rural poor, especially micro
entrepreneurs, in the agricultural and nonfarm sectors. Originally established to drive
the moneylender “out of business” and bridge the capital gap supposedly unfilled by
the rural cooperatives and commercial banks, these “social banking” institutions
have expanded remarkably throughout the country during the last two decades.
RRBs have played a key role in rural institutional financing in terms of geographical
coverage, clientele outreach and business volume as also contribution to
development of the rural economy.
The Business Performed By RRBs:
22
The RRBs have been identified as scheduled banks under the Reserve Bank of
India Act, 1934 and are authorized to transact banking business as defined in the
Banking Regulation Act, 1949. The RRBs were required, in particular, to undertake
the business of providing credit facilities to the poorer sections of rural society,
generally referred to as the ‘Target Group’. More than 50 per cent of the rural credit
is disbursed by the co-operative banks and Regional Rural Banks (RRBs).
However, over a period of about 25 years, several changes have taken place in the
focus and operations of these banks in the wake of the of financial sector reforms in
the country. The RRBs have a special place in the multi-agency approach adopted
to provide agricultural and rural credit in India. The RRBs were established “with a
view to developing the rural economy by providing, for the purpose of development
of agriculture, trade, commerce, industry and other productive activities in the rural
areas, credit and other facilities, particularly to small and marginal farmers,
agricultural laborers, artisans and small entrepreneurs, and for matters connected
therewith and incidental thereto”(RRBs Act, 1976). Their equity is held by the Central
Government, concerned State Government and Sponsor bank in the proportion of
50:15:35.
The rural orientation of RRBs is evident from the fact that their rural and semi-urban
branches constituted over 97 per cent of their branch network.
RRBs, with their wide outreach in rural India, region-centric banking activities and
close relationship with the local authorities and population, were expected to cater to
the credit requirements of the rural areas and provide necessary banking
infrastructure. Though the RRBs have been able to mobilize small savings of the
rural sector, they have been relatively less successful in enhancing the flow of credit
to the targeted rural poor.
Regulatory Environment:
NABARD is responsible for regulating and supervising the functions of co-operative
banks and RRBs. In this direction NABARD has been taking various initiatives in
association with Government of India and the Reserve Bank to improve the health
of co-operative banks and Regional Rural Banks. The Board of Supervision (BoS)
23
for SCBs, DCCBs and RRBs constituted by NABARD in 1999 to provide guidance
and direction to the Bank on matters relating to supervision.
Financial Performance In Recent Past:
Aggregate deposits of RRBs increased from Rs.4, 151 crore in 1990 to Rs.56, 350
crore by March, 2004 owing mainly to their geographical spread and opening of new
branches in unbanked areas. The advances of RRBs increased from Rs.3, 554
crore to Rs.26, 114 crore during the above period. Notwithstanding the sharp
increase, RRBs advances constituted just around 2 per cent of the banking systems
credit portfolio. The share of RRBs in total agriculture credit (given by scheduled
commercial banks, cooperatives and RRBs) has remained at around 9 per cent,
despite their strong rural outreach. The average per branch advances increased
from Rs.25 lakh in March 1990 to Rs.154 lakh in March 2003. There are wide state-
wise differences in credit deployment by RRBs.
During the year 2003-04, 163 RRBs earned profits amounting to Rs.953 crore while
33 RRBs incurred losses to the tune of Rs.184 crore. Ninety RRBs had accumulated
losses as on March 31, 2004. Aggregate accumulated losses of RRBs amounted to
Rs. 2,725 crore during the year 2003-04. Of the 90 RRBs having accumulated
losses, 53 RRBs had eroded their entire owned funds and also a part of their
deposits (i.e., to the extent of Rs.1, 660 crore or 11.75 per cent of the total deposits
of these banks).
The spotlight of forthcoming Union Budget will be on regional rural banks and
cooperative banks. Finance Minister P Chidambaram is expected to announce a
detailed restructuring package for 196 RRBs and 2,104 urban cooperative banks
and reposition them to step up credit flow into the rural sector. The government is
also set to redefine the role of NABARD in the Budget.
24
3.3
STATE CO-OPERATIVE BANKS
PARAMETER
Number of banks 30
Regulating body RBI, NABARD
Permission to conduct insurance
business
Granted
Locations All states.
Availability of data Available.
The Structure SCBs:
The short-term rural co-operative credit system in India comprising State co-
operative banks (SCBs) at the apex (State) level, district central co-operative banks
(DCCBs) at the intermediate (district) level and primary agricultural co-operative
Societies (PACS) at the grass root (village) level, is designed essentially to provide
for short-term credit needs for production purposes. SCBs and DCCBs have over
the years grown substantially in terms of coverage and outreach, and at end-March
2003, their number stood at 30 and 367, respectively. Most of the SCBs and DCCBs
were established prior to March 1, 1966, the date from which the Banking Regulation
Act, 1949 was made applicable to the co-operative banks. Of these, only 13 SCBs
and 73 DCCBs have been granted license by the Reserve Bank since 1966.
The Business Performed By SCBs:
The State Co-operative Banks (SCBs), Central Co-operative Banks (DCCBs) can
normally extend housing loans up to R 1 lakh to an individual. SCBs and DCCBs
also provide both short term and term loans
Regulatory Environment:
25
National Bank for Agriculture and Rural Development (NABARD) is the apex
institution entrusted with a pivotal role in policy planning and providing refinancing
facilities to rural financial institutions to augment their resource base.
Financial Performance In Recent Past:
There was a decline in overall income and expenditure of SCBs during 2002-03.
However, the net profit increased mainly due to increase in miscellaneous income
and reduction in wage bill (Table IV.12). Out of 24 reporting SCBs, 21 have earned
profits aggregating to Rs.463 crore, while 3 made losses amounting to Rs.29 crore.
Table IV.12: Financial Performance ofState Co-operative Banks(As at end-March)(Amount in Rs. crore)
ITEM 2002 2003 VARIATION OF 2003 OVER 2002
VRIATION IN PERCENTAGE
A. Income 5,809 5,572 -237 -4.1(i+ii) (100.0) (100.0)i) Interest Income 5,508 5,229 -279 -5.1
(94.8) (93.8)ii) Other Income 301 343 42 14.0
(5.2) (6.2)B. Expenditure 5,632 5,137 -495 -8.8
(i+ii+iii) (100.0) (100.0)i) Interest Expended 4,192 3,978 -214 -5.1
(74.4) (77.5)ii) Provisions and 1,024 700 -324 -31.6
Contingencies (18.2) (13.6)iii) Operating Expenses 416 458 43 10.3
(7.4) (8.9)of which : Wage Bill 304 284 -20 -6.6
(5.4) (5.5)C. Profi
ti) Operating Profit 1,201 1,135 -66 -5.5ii) Net Profit 177 435 258 145.8
D. Total Assets 57,478 57,762 284 0.5
Notes :1. Figures in brackets are percentage to totalliabilities/assets.2.‘Reserves’ include credit balance in Profit and LossAccount shown separately by some of the banks.3.Data for SCBs in the States Rajasthan, Delhi,Jammu & Kashmir, Manipur, Bihar and Arunachal Pradesh not yet received.4.Data for 2002-03 are provisional.Source:NABARD.
26
3.4
DISTRICT CENTRAL CO-OPERATIVE BANKS
PARAMETER
Number of banks 370
Regulating body RBI, NABARD
Permission to conduct insurance
business
Granted
Locations Mainly rural and semi-urban
localities
Availability of data Available.
The Structure DCCBs:
While every state has an apex co-operative bank, All DCCBs in that state come
under purview of this apex bank. Thus the structure for this system is as given
below:
The Business Performed By DCCBs:
The State Co-operative Banks (SCBs), Central Co-operative Banks (DCCBs) can
normally extend housing loans up to R 1 lakh to an individual. SCBs and DCCBs
also provide both short term and term loans
27
NABARD
APEX/STATE CO-OPERATIVE BANK
DCCBs IN THAT STATE
RBI
Regulatory Environment:
National Bank for Agriculture and Rural Development (NABARD) is the apex
institution entrusted with a pivotal role in policy planning and providing refinancing
facilities to rural financial institutions to augment their resource base.
Financial Performance In Recent Past:
DCCBs as a whole continued to register losses during 2002-03 as well (Table IV.14
& IV.15). Interest income accounted for nearly 95 per cent of the total income, while
interest expenditure accounted for nearly two-thirds of total expenditure. During
2002-03, out of 339 reporting CCBs, 234 made profits amounting to Rs.734 crore,
while 105 DCCBs made losses to the tune of Rs.859 crore.
Table IV.14: Financial Performance ofDistrict Central Co-operative Banks(As at end-March)
(Amount in Rs. crore)
Item 2002 2003 Variation of(3) over (2)
Absolute Percen-tage
1 2 3 4 5
A. Income (i+ii) 11,546 11,808 262 2.3(100.0) (100.0)
i) Interest Income 10,911 11,188 277 2.5(94.5) (94.8)
ii) Other Income 635 620 -15 -2.4(5.5) (5.2)
B. Expenditure 11,579 11,933 354 3.1(i+ii+iii) (100.0) (100.0)i) Interest Expended 7,693 7,711 18 0.2
(66.5) (64.6)ii) Provisions and 2,065 2,286 221 10.7
Contingencies (17.8) (19.2)iii) Operating Expenses 1,821 1,936 115 6.3
(15.7) (16.2)of which : Wage Bill 1,402 1,441 39 2.8
(12.1) (12.1)C. Profit
i) Operating Profit 2,031 2,162 131 6.5ii) Net Loss -34 -125 – –
D. Total Assets 1,07,665 1,14,833 7,168 6.7
28
Table: Select Financial Ratios of Co-operative Banks
(As at end-March)
(Per cent)
Item Scheduled UCBs SCBs CCBs
2003 2004 2002 2003 2002 2003
1 2 3 4 5 6 7
Operating Profit 1.5 1.8 2.1 2.0 1.9 1.9
Net Profit -1.1 0.6 0.3 0.9 – -0.1
Income 10.1 8.9 10.1 9.7 10.7 10.3
Interest Income 8.5 7.3 9.6 9.1 10.1 9.8
Other Income 1.7 1.6 0.5 0.6 0.6 0.6
Expenditure 11.2 8.6 9.8 8.9 10.8 10.4
Interest Expended 6.5 8.3 7.3 6.9 7.2 6.7
Operating
Expenses
6.5 5.2 0.7 0.8 1.7 1.7
Wage Bill 1.1 1.1 0.5 0.5 1.3 1.3
Provisions and
Contingencies
2.6 1.2 1.8 1.2 1.9 2.0
Spread (Net
Interest Income)
2.0 2.1 2.3 2.2 3.0 3.0
Note : Figures are percentage to Total Assets of concerned group.
29
Chapter: 4
METHODOLOGY OF THE STUDY
For completing any research work successfully there are six important steps which
need to be completed. These steps are as follows :
Step 1. Identifying and defining your problem
Step 2. Defining the objectives of research clearly
Step 3. Research design
Step 4. Collecting the data
Step 5. Performing data analysis
Step 6. Reporting and presentation
We have already completed first two steps, now let’s discuss about research design.
4.1
RESEARCH DESIGN
Based upon well-defined objectives from Step 2, a framework for the designing
marketing research program should be apparent. This step is the most
encompassing of all steps, requiring the greatest amount of thought, time and
expertise. Since the intelligence eventually gained from the research is so closely
related to the selected research design, this is the single most import step in the
research process and the step most vulnerable to the typical research errors.
Research design includes methodology selection, questionnaire design, sample
design & size and determining data analysis to be used.
Let’s discuss all these factors one by one.
30
4.1.1
Selection of research method:
The research method varies according to requirements and objectives of the
research. In this research the research method which was used was a systematic
method which means this was not at all an experimental research. The results were
to be obtained in a clearly known format. Also, the procedures to be carried out to
obtain those results were clearly known. Thus nothing in this research was
unpredictable, except the final results of analysis. Though an exploratory research
was conducted before starting the actual research to know which bank categories
are to be selected, the steps in final work were more systematic and clearly known.
Thus the research method used was a systematic research method.
4.1.2
Questionnaire design:
there was no need of a questionnaire as such, as all the required data was to be
obtained from published material or web-sites.
But before starting with data collection it was important that the data required is
clearly stated. Minimum data required for all four categories of banks was amount of
advances, Amount of Deposits & Profits for last financial year. Any relevant data
other than these which could be interpreted to get any useful information, if available
through a reliable source was to be collected. This might be, NPA, or Total Assets
Or capital etc, which might give some additional information than the premium
potential of that bank. Thus, following parameters were to be searched for the banks
Advances
Deposits
Profits.
Any data other than these that is relevant
31
4.1.3
sample design
The four categories of the banks were to be considered for the research. But no
sampling (or!00%) sampling was required for further analysis. This was because all
the banks falling under one category were to be compared for their profitability and
premium potential. Thus it was essential that all banks are taken into account while
doing the analysis.
Thus the sample size was equal to the total number of banks falling under the given category
which was as given below:
Category of banks No. of banks
SCHEDULED URBAN CO-OPERATIVE BANKS 56
REGIONAL RURAL BANKS 196
STATE CO-OPERATIVE BANKS 30
DISTRICT CENTRAL CO-OPERATIVE BANKS 370
4.1.4
Data analysis to be used:
The data which was available in published and reliable sources was different for
each category of banks. Thus the analysis was different for each category, but basic
calculations for calculation of premium potential were same for each category.
The data analysis has been discussed in details later.
32
4.2
DATA COLLECTION METHODS
The data to be collected was mostly available in published form or in web-sites of
selected organizations, thus data was in secondary form.
The data which has been published or in not directly available from initial source, is
a secondary data. Thus all data used for this study was in secondary form.
The advantages of the secondary data are as follows:
The secondary data which is in published format is reliable.
The efforts required for secondary data collection are less than primary data.
The cost and time consumed for data collection is less in case of secondary
data.
For these reasons, and also because of the easy availability, secondary data was
used for this study.
Now the data about each category of banks was available through a different
source.
For Scheduled Urban Cooperative Banks, The data was available in RBI
publications, which were available at the Urban Banks Department Of RBI.
For Regional Rural Banks the Data was again available in RBI publications, But
From Rural Development Department.
For State Cooperative Banks & District Central Cooperative Banks, the data was
available in publications of NABARD, which is the controlling body for these banks.
Also various websites of organizations like Indian Banker’s Association, NIBM etc
were referred for some data.
33
4.3
DATA ANALYSIS
Data analysis is the last but very important step in any research study to be
conducted. For each category of banks different data was available. Hence analysis
is different for each category. Let’s see how the analysis for each category was
completed in details.
4.3.1
DATA ANALYSIS OF SCHEDULED URBAN CO-OPERATIVE BANKS
In case of Scheduled Urban Cooperative Banks, Following was the data
collected,
Name Of The Category Scheduled Urban Cooperatives
Total No Of Banks 56
The Data Parameters Available1. Location
2. Addresses
3. Total assets
4. Advances
5. Deposits
6. Capital
7. Net Profit
8. Profit %
No Of Banks Selected 20
Procedure
34
35
4.3.2
DATA ANALYSIS OF REGIONAL RURAL BANKS
Name Of The Category Regional Rural Banks
Total No Of Banks 196
The Data Parameters Available1. State
2. Sponsor Bank
3. Bank Name
4. Gross Npas
5. Gross Advances
6. Gross NPA Ratio %
7. Profit
No Of Banks Selected 33
36
37
4.3.3
DATA ANALYSIS OF STATE CO-OPERATIVE BANKS
Name Of The Category State Co-operative Banks
Total No Of Banks 30
The Data Parameters Available1. Advances
2. Deposits
3. Profits
4. Share capital
5. Working Capital
No Of Banks Selected 25
38
4.3.1
DATA ANALYSIS OF DISTRICT CENTRAL CO-OPERATIVE BANKS
Name Of The Category District Central Co-operative Banks
39
Total No Of Banks 370
The Data Parameters Available
1. State
2. Advances
3. Deposits
4. Profits
5. Share Capital
No Of Banks Selected 40
40
Chapter: 5
FINDINGS OF THE STUDY
41
42
43
Chapter: 6
CONCLUSION AND SUGGESTIONS
44
Chapter:7
LIMITATIONS AND SCOPE FOR UPDATION
45
Chapter: 7
BIBLOGRAPHY
46
ANNEXURESA.DATA TABLES
DATA FOR SUCB FOR YEAR 2004-05 (Amnt in Rs Lacs)
SR NO Location Name
Total assets
Advances
Deposits
Capital
Profit
Profit %
Premium Potential
1Ahmedabad
KALUPUR COMM.
CO-OP BANK 135366 45765 73120 1141 2369 1.75 114.4125
2 Mumbai THANE JANATA
SAHAKARI BANK 96680 51131 77632 780 1520 1.57 127.8275
3 Mumbai
GREATER BOMBAY CO-OP
BANK 72279 36244 55380 644 1037 1.41 90.61
4 Mumbai
PUNJAB & MAHARASHTRA
CO-OP BANK 102039 53741 85661 1272 1317 1.29 134.3525
5 Mumbai
BOMBAY MERCANTILECO-OP BANK 289238 93117 161178 1953 3703 1.28 232.7925
6 Mumbai
BASSEIN CATHOLIC
CO-OP BANK 87366 34505 72671 2093 1118 1.28 86.2625
7Ahmedabad
RAJKOT NAGRIK
SAHAKARI BANK 116986 48533 71173 768 1311 1.12 121.3325
8Ahmedabad
SURAT PEOPLE'S
CO-OP BANK 85095 33832 62681 1313 920 1.08 84.58
9 Mumbai COSMOS CO-OP
BANK 281624 119336 226283 3437 3006 1.07 298.34
10 Mumbai
NORTH KANARA G.S.B.
CO-OP BANK 88450 40627 74705 1294 874 0.98 101.5675
11 Mumbai BHARAT CO-OP
BANK 101323 55617 84749 1702 985 0.97 139.0425
12 Mumbai
SHAMRAO VITHAL
CO-OP BANK 172938 93274 144930 1947 1709 0.96 233.185
13Ahmedabad
MAHASANA URBAN
CO-OP BANK 57810 35797 37610 1913 502 0.87 89.4925
14 Mumbai
DOMBIVLI NAGARIK
SAHAKARI BANK 66780 34213 53065 979 580 0.87 85.5325
15 Mumbai ABHYUDAYA CO-
OP BANK 196692 73225 151857 1827 1323 0.67 183.0625
16 NagpurAKOLA URBAN CO-OP BANK 70386 44145 58663 985 466 0.66 110.3625
17 Mumbai SARASWAT CO-
OP BANK 511059 222360 366061 3044 2935 0.57 555.9
18 Nagpur
AKOLA JANATA COMM. CO-OP
BANK 62380 37269 51434 1198 318 0.51 93.1725
19 Mumbai JANAKALYAN
SAHAKARI BANK 130526 76785 112707 2449 601 0.46 191.9625
20 Nagpur
KHAMGAON URBAN CO-OP
BANK50857 30244 41207 808 161 0.41 75.61
47
DATA FOR SCB FOR YEAR 2003-4 (Amnt in Rs Lacs)
Sr No Name of bank Advances Deposits ProfitsShare capital
Working Capital
premium Potential
1 MAHARASHTRA 1283135 1123823 27190 20725 15207193207.837
5
2 UTTAR PRADESH 370180 307917 2728 5788 432134 925.45
3 TAMIL NADU 331374 292442 1575 3558 416455 828.435
4 PUNJAB 312223 103138 2101 2992 266371 780.5575
5 HARYANA 267182 94974 3 3780 226632 667.955
6 ANDHRA PRADESH 252568 135963 300 18910 553185 631.42
7 GUJARAT 195853 305014 419 1632 410805 489.6325
8 KARNATAKA 172445 172791 1055 2599 284238 431.1125
9 MADHYA PRADESH 156015 139419 159 6524 254750 390.0375
10 RAJASTHAN 133569 99189 1504 4103 197064 333.9225
11 KERALA 126032 232676 612 2269 263351 315.08
12 ORISSA 85166 88614 1037 4382 178796 212.915
13 CHHATTISGARH 83322 73020 90 1334 79118 208.305
14 WEST BENGAL 41266 207679 817 1505 264531 103.165
15HIMACHAL PRADESH 21687 150674 1764 740 193083 54.2175
16 GOA 18233 48607 21 683 65390 45.5825
17 PONDICHERRY 17363 14954 177 558 19718 43.4075
18 DELHI 11691 55430 1616 227 68409 29.2275
19 BIHAR 8678 73034 126 2031 130057 21.695
20 MEGHALAYA 2449 36547 299 387 44570 6.1225
21 MIZORAM 2102 10475 22 220 13489 5.255
22ANDAMAN AND NICOBAR 927 15229 124 99 18590 2.3175
23 SIKKIM 731 1122 1 891 2337 1.8275
24ARUNACHAL PRADESH 567 10704 76 166 16150 1.4175
25 CHANDIGARH 318 8918 234 63 10293 0.795
DATA FOR DCCB FOR YEAR 2003-04 (Amnt in Rs Lacs)
48
Sr No State Name of bank Advances Deposits Profits
Share Capital
Premium Potential
15 MAHARASHTRA KOLHAPUR 330458 139456 1654 6540 826.145
16 MAHARASHTRA PUNE 162055 227355 2172 8596 405.1375
17 MAHARASHTRA SANGLI 143853 94748 782 4154 359.6325
3 TAMILANADU SALEM 106592 87905 435 1873 266.48
18 MAHARASHTRA NASIK 99735 113538 246 4621 249.3375
19 MAHARASHTRA SHOLAPUR 84765 113971 2319 6244 211.9125
20 MAHARASHTRA SATARA 75808 110850 2051 2640 189.52
4 TAMILANADU CHENNAI 72722 107018 5555 8764 181.805
5 TAMILANADU VILLUPURAM 64572 26489 476 1523 161.43
33 GUJARAT BHAVANAGAR 61922 29262 400 1752 154.805
34 GUJARAT SABARKANTHA 58402 44291 150 550 146.005
35 GUJARAT SHRI 58316 62655 850 1518 145.79
6 TAMILANADU KANCHEEPURAM 56374 35781 67 2255 140.935
21 MAHARASHTRA NAGPUR 54727 62480 30 1338 136.8175
7 TAMILANADU COIMBATORE 54694 36790 203 2138 136.735
36 GUJARAT AHMEDABAD 52907 152531 1056 4417 132.2675
30 KARNATAKA KANARA 49580 34950 211 969 123.95
10 PUNJAB LUDHIANA 48137 26794 1081 713 120.3425
39ANDHRA PRADESH KRISHNA 46765 1513 813 5291 116.9125
37 GUJARAT VALSAD 45443 20307 105 448 113.6075
11 PUNJAB SANGRUR 44305 20490 451 829 110.7625
12 PUNJAB NAWANSHAHR 42636 36913 1154 210 106.59
13 PUNJAB PATIALA 42336 18917 375 856 105.84
28 KERALATHIRUVANANTHAPURAM 40592 56743 398 1503 101.48
8 TAMILANADU MADURAI 39077 43252 6 1618 97.6925
31 KARNATAKA BIDAR 38855 24905 328 1120 97.1375
22 MAHARASHTRA RAIGAD 38391 49289 502 822 95.9775
2 UTTAR PRADESH MEERUT 34909 32316 1078 779 87.2725
24 MAHARASHTRA MUMBAI 34889 230671 1270 3513 87.2225
38 GUJARAT SURAT 34272 114000 451 303 85.68
9 TAMILANADU KANYAKUMARI 33906 16036 318 993 84.765
32 HARYANA KARNAL 33149 10697 171 1162 82.8725
1 UTTARANCHAL NAINITAL KOTDWAR 32697 12303 953 406 81.7425
40ANDHRA PRADESH ELURU 31547 890 986 3238 78.8675
25 MAHARASHTRA THANE 31287 96109 901 761 78.2175
49
29 KERALAKANNUR(CANNANORE) 31251 35528 356 1055 78.1275
26 MAHARASHTRA LATUR 30972 39098 706 2227 77.43
14 PUNJAB HOSHIARPUR 30240 37453 670 356 75.6
27 MAHARASHTRA RATNAGIRI 30013 39795 774 1479 75.0325
DATA FOR RRBs FOR YEAR 2003-04 (Amnt in Rs Lacs)
50
No StateSponsor bank Bank Name
Gross NPAs
Gross Advances
Gross NPA Ratio % Profit
Premium Potential
1 KERALA CANARASOUTH MALABAR GRAMIN BANK 5109 75443 6.77 1854 188.6075
2 KARNATAKA SYNDICATE MALAPRABHA GRAMIN BANK 6522 60975 10.7 1714 152.4375
3 KARNATAKA CANARATUNGABHADRA GRAMIN BANK 4171 55814 7.47 1810 139.535
4UTTAR PRADESH SYNDICATE PRATHAMA BANK 3080 49093 6.27 3662 122.7325
5 AP SYNDICATE RAYALSEEMA GRAMIN BANK 2596 45118 5.75 2150 112.795
6 KERALA SYNDICATENORTH MALABAR GRAMIN BANK 6584 44986 14.63 1130 112.465
7 TAMILNADU I.O.B PANDYAN GRAMIN BANK 1762 43360 4.06 1375 108.4
8 AP S.B.I SRI VISAKHA GRAMIN BANK 4038 36449 11.08 530 91.1225
9 ASSAM U.B.I PRAGJYOTISH GRAMIN BANK 6698 32002 20.93 340 80.005
10UTTAR PRADESH S.B.I
GORAKHPUR KSHETRIYA GRAMIN BANK 9858 31807 30.99 1322 79.5175
11 WEST BENGAL U.B.I GAUR GRAMIN BANK 3733 28851 12.94 94 72.1275
12 WEST BENGAL U.B.I MALLABHUM GRAMIN BANK 4928 27715 17.78 13 69.2875
13 HARYANA SYNDICATE GURGAON GRAMIN BANK 1600 27269 5.87 3261 68.1725
14 AP S.B.I NAGARJUNA GRAMIN BANK 3041 26278 11.57 611 65.695
15 AP SYNDICATE PINAKINI GRAMIN BANK 1688 25986 6.49 845 64.96516 ORISSA I.O.B PURI GRAMIN BANK 3075 25850 11.9 48 64.625
17 AP SYNDICATESREE ANANTHA GRAMIN BANK 1903 25841 7.36 1738 64.6025
18 KARNATAKA SYNDICATE BIJAPUR GRAMIN BANK 2372 24920 9.52 1368 62.3
19 KARNATAKA S.B.I KRISHNA GRAMIN BANK 4084 23763 17.18 536 59.4075
20 AP INDIANSHRI VENKETESHWARA GRAMIN BANK 718 22721 3.16 376 56.8025
21UTTAR PRADESH CANARA
ALIGARH KSHETRIYA GRAMIN BANK 2999 20420 14.69 1403 51.05
22 HARYANA P.N.BHARYANA KSHETRIYA GRAMIN BANK 1291 19921 6.48 792 49.8025
23 KARNATAKA CANARACHITRADURGA GRAMIN BANK 1381 18890 7.31 553 47.225
24 AP S.B.I MANJIRA GRAMIN BANK 3017 17926 16.83 358 44.815
25 RAJASTHAN S.B.B.J MARWAR GRAMIN BANK 964 17824 5.41 549 44.56
26 TAMILNADU U.B.I TRIPURA GRAMIN BANK 6530 17809 36.67 205 44.5225
27 ORISSA I.O.B DHENKANAL GRAMIN BANK 1158 17486 6.62 288 43.715
51
28 BIHAR P.N.BBHOJPUR ROHTAS GRAMIN BANK 3408 17404 19.58 1525 43.51
29 AP S.B.H SRI SARASWATHI GRAMIN BANK 1350 17394 7.76 509 43.485
30 ORISSA B.O.I BAITARANI GRAMIN BANK 1239 17250 7.18 115 43.125
31 WEST BENGAL U.C.O MAYURAKSHI GRAMIN BANK 1198 16894 7.09 .. 42.235
32HIMACHAL PRADESH P.N.B HIMACHAL GRAMIN BANK 969 16550 5.86 288 41.375
33 RAJASTHAN P.N.BALWAR-BHARATPUR ANCHALIK GRAMIN BANK 640 16211 3.95 972 40.5275
All Regional Rural Banks 320151 2216058 14.45 5540.145
B.RBI CIRCULARSCIRCULAR-I
Entry of Urban Co-operative Banks into insurarance business
52
RBI/2004-05/351
BPD.PCB.Dir. 35/09.112.00/2004-05
24 January 2005
The Chief Executive Officers of all
Primary (Urban) Co-operative Banks
Dear Sir
A reference is invited to our circular UBD.NO.BPD.PCB.Cir.9/09.112.00/ 2003-04 dated August 18, 2003 allowing financially strong Scheduled Primary (Urban) Co-operative Banks having a minimum net worth of Rs.100 crore as per the latest RBI Inspection Report and complying with certain other norms to undertake insurance business as corporate agent without risk participation.
2. On a review it has been decided to allow Scheduled Primary (Urban) Co-operative Banks having a minimum net worth of Rs.50 crore instead of Rs.100 crore as at present, to undertake insurance agency business without risk participation. Other terms and conditions stated in our circular dated August 18, 2003 referred to above would remain unchanged. We reiterate that no UCBs should undertake insurance agency business without obtaining prior permission of the Reserve Bank of India.
3. It has also been decided to allow all Primary (Urban) Co-operative Banks to undertake insurance business on a referral basis, without any risk participation through their network of branches. Under the referral arrangement, banks provide physical infrastructure within their select branch premises to insurance companies for selling their insurance products to the bank's customers with adequate disclosure and transparency, and in turn earn referral fees on the basis of premia collected. The above permission is subject to the following conditions:
i. The bank should comply with the IRDA regulations for undertaking referral business with insurance companies.
ii. The bank should not adopt any restrictive practice of forcing its customers to go in only for a particular insurance company in respect of assets financed by the bank. The customers should be allowed to exercise their own choice.
iii. The bank desirous of entering into referral arrangement, besides complying with IRDA regulations, should also enter into an agreement with the insurance company concerned for allowing use of its premises and making use of the existing infrastructure of the bank. The agreement should be for a period not exceeding three years at the first instance and the bank should have the discretion to renegotiate the terms depending on its satisfaction with the service or replace it by another agreement after the initial period. Thereafter, the bank will be free to sign a longer term contract with the approval of its Board.
53
iv. As the participation by a bank's customer in insurance products is purely on a voluntary basis, it should be stated in all publicity material distributed by the bank in a prominent way. There should be no 'linkage' either direct or indirect between the provision of banking services offered by the bank to its customers and use of the insurance products.
v. The risk, if any involved in referral arrangement should not get transferred to the business of the bank.
The banks need not obtain prior approval of the RBI to undertake referral business.
4. Please acknowledge receipt of the circular to our Regional Offices.
Yours faithfully
(N.S. Vishwanathan)
Chief General Manager
CIRCULAR-IIEntry of Regional Rural Banks into insurarance business
RBI/2004-05/464RPCD.CO. RRB.BC. No.99/03.05.33(G)/2004-05
54
May 12, 2005
Chairmen of all Regional Rural Banks/ All Sponsor Banks
Dear Sir,
A reference is invited to our circular RPCD.CO.RRB.BC.No.51/ 03.05.33(G)/2004-05 dated October 27, 2004, allowing Regional Rural Banks (RRBs) complying with certain norms to undertake insurance business as corporate agents without risk participation.
2. On a review, it has now been decided to allow all RRBs to undertake insurance business on a referral basis, without any risk participation through their network of branches. Under the referral arrangement, banks provide physical infrastructure within their select branch premises to insurance companies for selling their insurance products to the bank's customers with adequate disclosure and transparency, and in turn earn referral fees on the basis of premia collected. The above permission is subject to the following conditions:
(i) The bank should comply with the IRDA regulations for undertaking referral business with insurance companies.
(ii) The bank should not adopt any restrictive practice of forcing its customers to go in only for a particular insurance company in respect of assets financed by the bank. The customers should be allowed to exercise their own choice.
(iii) The bank desirous of entering into referral arrangement, besides complying with IRDA regulations, should also enter into an agreement with the insurance company concerned for allowing use of its premises and making use of the existing infrastructure of the bank. The agreement should be for a period not exceeding three years at the first instance and the bank should have the discretion to renegotiate the terms depending on its satisfaction with the service or replace it by another agreement after the initial period. Thereafter, the bank will be free to sign a longer term contract with the approval of its Board.
(iv) As the participation by a bank's customer in insurance products is purely on a voluntary basis, it should be stated in all publicity material distributed by the bank in a prominent way. There should be no 'linkage' either direct or indirect between the provision of banking services offered by the bank to its customers and use of the insurance products.
(v) The risk, if any, involved in referral arrangement should not get transferred to the business of the bank.
The banks need not obtain prior approval of the RBI to undertake referral business.
3. Please acknowledge receipt of the circular to our Regional Offices.
55
Yours faithfully
(G. Srinivasan)Chief General Manager
CIRCULAR-IIIEntry of State Cooperative Banks (SCBs) / District Central Cooperative Banks
(DCCBs) into insurarance business
RBI/279/2004-05
56
RPCD.CO.NB. BC.No. 59/03.03.116/2004-05 November 18,
2004
Chairmen of all State Cooperative Banks/District Central Cooperative Banks
Dear Sir,The issue of permitting Scheduled State Cooperative Banks/District Central Cooperative Banks to undertake insurance business has been examined and it has been decided to permit scheduled or licensed SCBs and licensed DDCCBs to undertake insurance business as corporate agent without risk participation subject to their fulfilling the following terms and conditions:(i) The bank should be having a minimum positive networth [real or
exchangeable value of paid-up capital and reserves as defined in Section 11 of the Banking Regulation Act, 1949(AACS)] of Rs. 100 crore as per the latest NABARD Inspection Report;
(ii) The bank should have earned net profit for the last three years and should not have any accumulated losses;
(iii) The Gross NPA of the bank should not be more than 10 per cent;(iv) The bank should not have violated prudential norms including
individual and group exposure norms fixed by RBI / NABARD; (v) The bank should have complied with the instructions issued by RBI /
NABARD on loans and advances to directors / relatives, firms etc;(vi) No premium collection accounts will be allowed to be opened with the
bank and hence, premium collected should be directly paid to the insurance companies;
(vii) The bank should comply with regulations of Insurance Regulatory and Development Authority (IRDA) for acting as corporate agent;
(viii) The bank should submit an undertaking to the effect that banking business will not in any way get contaminated / affected on account of acting as agent of insurance companies;
(ix) The bank should not adopt any restrictive practice of forcing its customers to go in only for a particular insurance company in respect of assets financed by the bank and the customers should be allowed to exercise their own choice;
(x) The bank should obtain prior permission from the concerned Regional Office of RBI before taking up the insurance agency business. The application should be routed through the concerned regional office of NABARD with their recommendation.
2. The SCBs /DDCCBs fulfilling the above norms and desirous of undertaking insurance business as corporate agents, may forward their applications along with certified copy of the Board Resolution in support thereof and details of their financial position as at the end of the previous quarter to the respective Regional Office of RPCD through the concerned Regional Office of NABARD. No SCB/DCCB should undertake insurance business without obtaining prior permission of the Reserve Bank of India.
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3. Permission granted to SCBs /DDCCBs to undertake insurance business on non-risk participation basis as indicated above will be subject to their obtaining necessary authorisation / licence from IRDA. The SCBs /DDCCBs are advised that our permission should not be construed as a permission to adjust the dues of the insured from out of the proceeds of insurance claims. As regards the adjustment of dues of these banks against the insurance claims, it is to be decided on the tri- partite agreement amongst insured, insurer and the agent.4. Please note that the permission granted to an SCB/DCCB for taking up insurance agency business as indicated above, will be normally valid for two years subject to review before expiry of the said period. The SCB/DCCB has to get the approval renewed from the respective Regional Office of RPCD subject to its fulfilling the terms and conditions of the permission. If an SCB/DCCB fails to fulfil the terms and conditions at any time subsequent to grant of permission, the same will be liable to be withdrawn.5. Please acknowledge receipt of this circular to our respective Regional Office.Yours faithfully
(C.S.Murthy)Chief General Manger-in-Charge
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