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BANKS VS. INSURANCE COMPANIES…
WHICH HAS A BETTER BRAND NAME?
BANKING & INSURANCE
MITALEE NEGANDHI- 73
PRIYANKA RAJA- 85
BHARGAVI RAO- 86
KANISHI SHAH - 97
INTRODUCTION:
BANKS-
A Bank can be described as a Corporate Entity created under the companies act 1956 and
registered with RBI under The Banking Regulations Act of 1949. This registration gives the
entity the right to use the term ‘BANK” in the name and to accept deposits and give loans on
interest against all categories of assets. In simple words -A bank is a financial institution where
you can deposit your money. Banks provide a system for easily transferring money from one
person or business to another. Using banks and the many services they offer saves us an
incredible amount of time, and ensures that our funds "pass hands" in a legal and structured
manner.
INSURANCE:-
In law and economics, insurance is a form of risk management primarily used to hedge against
the risk of a contingent, uncertain loss. 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; an insured or policyholder is the person or entity buying the insurance policy. The
insurance rate is a factor used to determine the amount to be charged for a certain amount of
insurance coverage, called the premium. Risk management, the practice of appraising and
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 large, possibly devastating loss. The insured receives a
contract called the insurance policy which details the conditions and circumstances under which
the insured will be compensated.
Evolution Of Insurance Industries:
It is believed that the first insurance policy was issued in England in 1583. The 1st insuarance
company in India was set up in 1818 in CALCATTA, It was known the ‘Oriental life Insuarance
Company. Later, in 1823, the Bombay Life Insurance Company was set up, this was followed
by Madras Equitable Life insurance Society in 1829. All the above life insurance companies
were set up by Europeans. they were set up to provide financial help to the widows of
Europeans. These companies provided services to Europeans and charged extra premium on
Indian lives. The first Indian company insuring Indian lives at standard rates was Bombay
Mutual Life Insurance Company.
LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5
crore from the Government of India.
The first General Insurance Company established in the year 1850 in Calcutta by the British.
History of banking
The first banks were probably the religious temples of the ancient world, and were probably
established in the third millennium B.C. Banks probably predated the invention of money.
Deposits initially consisted of grain and later other goods including cattle, agricultural
implements, and eventually precious metals such as gold, in the form of easy-to-carry
compressed plates. Temples and palaces were the safest places to store gold as they were
constantly attended and well built. As sacred places, temples presented an extra deterrent to
would-be thieves. There are extant records of loans from the 18th century BC in Babylon that
were made by temple priests/monks to merchants.
Banking in India originated in the last decades of the 18th century. The first banks were The
General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now
defunct. The oldest bank in existence in India is the State Bank of India, which originated in the
Bank of Calcutta in June 1806. This was one of the three presidency banks, the other two being
the Bank of Bombay and theBank of Madras, all three of which were established under charters
from the British East India Company. For many years the Presidency banks acted as quasi-
central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank
of India, which, upon India's independence, became the State Bank of India.
Nationalisation :
The RBI was nationalized on January 1, 1949 in terms of the Reserve Bank of India. A second
dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the
nationalization was to give the government more control of credit delivery. With the second dose
of nationalization, the GOI controlled around 91% of the banking business of India. Later on, in
the year 1993, the government merged New Bank of India with Punjab National Bank. It was the
only merger between nationalized banks and resulted in the reduction of the number of
nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a
pace of around 4%, closer to the average growth rate of the Indian economy.
Liberalisation
In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization,
licensing a small number of private banks. These came to be known as New Generation tech-
savvy banks, and included Global Trust Bank (the first of such new generation banks to be set
up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI
Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of
India, revitalized the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks, private banks and
foreign banks.
Nationalised Banks
Allahabad Bank
State Bank of India
Bank of India
Dena Bank
Indian Bank
Punjab National Bank
Axis Bank
HDFC Bank
ICICI Bank
ING Vysya Bank
Karnataka Bank
Kotak Mahindra Bank
The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949
can be broadly classified into two major categories, non-scheduled banks and scheduled banks.
Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership,
commercial banks can be further grouped into nationalized banks, the State Bank of India and its
group banks, regional rural banks and private sector banks (the old/ new domestic and foreign).
These banks have over 67,000 branches spread across the country.
Current Scenario
The industry is currently in a transition phase. On the one hand, the Public Sector Banks, which
are the mainstay of the Indian Banking system, are in the process of shedding their flab in terms
of excessive manpower, excessive non Performing Assets (NPAs) and excessive governmental
equity, while on the other hand the private sector banks are consolidating themselves through
mergers and acquisitions.
PSBs, which currently account for more than 78 percent of total banking industry assets are
saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling revenues from traditional
sources, lack of modern technology and a massive workforce while the new private sector banks
are forging ahead and rewriting the traditional banking business model by way of their sheer
innovation and service. The PSBs are of course currently working out challenging strategies even
as 20 percent of their massive employee strength has dwindled in the wake of the successful
Voluntary Retirement Schemes (VRS) schemes.
One of the means of private sector banks to compete with PBS is through Mergers and
Acquisitions. Over the last two years, the industry has witnessed several such instances. For
instance, HDFC Bank’s merger with Times Bank, ICICI Bank’s acquisition of ITC Classic,
Anagram Finance and Bank of Madura. The UTI bank- Global Trust Bank merger however
opened a Pandora’s box and brought about the realization that all was not well in the functioning
of many of the private sector banks.
The growth in the Indian Banking Industry has been more qualitative than quantitative and it is
expected to remain the same in the coming years. Based on the projections made in the "India
Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts
that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets
of all scheduled commercial banks by end-March 2010 is estimated at Rs 40,90,000 crores. That
will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in
2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during
the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95
and 2002-03. It is expected that there will be large additions to the capital base and reserves on
the liability side.
6 Bank owned insurers- HDFC Standard Life, ICICI Prudential, ING Vysya, Metlife, OM
Kotak, SBI Life
7 Independent Insurers- Bajaj Allianz , Birla Sun Life, Aviva, Max New York Life, Tata
AIG, Reliance Life and Sahara Life
LIC – The state Insurer is the dominant player with over 70% of the market share
Total Life Market Size at Rs. 250 billion (USD 5.5. Bn)
Banks
Credit creation:
Banks provide credit for the economy. Credit is available for individual entrpreneurs, industry,
agriculture, trade etc.Banks also provide loans to individuals as consumer credit, mortgage loan.
Insurance also provides credit but to a very limited extent mostly by way of long-term
infrastructure funding.Banks are thus the financial lifeline for a country's economy and its
people.
In Their quest of rapid economic development, it is essential for the developing countries have
found it essential to divert resources to areas that are considered most productive in some social
sense.
Commercial banks can influence pace and pattern of development by the efficiency with which
they mobilize and allocate savings and by the direction of their allocation of these savings.
2. Interdependence
a) Accepting deposits
The most important activity of a commercial bank is to mobilize deposits from the public. People
who have surplus income and savings find it convenient to deposit the amounts with banks.
Depending upon the nature of deposits, funds deposited with bank also earn interest. Thus,
deposits with the bank grow along with the interest earned. If the rate of interest is higher, public
are motivated to deposit more funds with the bank. There is also safety of funds deposited with
the bank.
i) Current Deposit
Also called ‘demand deposit’, current deposit can be withdrawn by the depositor at any time by
Fixed deposit
The term ‘Fixed deposit’ means deposit repayable after the expiry of a specified period. Since it
is repayable only after a fixed period of time, which is to be determined at the time of opening of
the account, it is also known as time deposit. Fixed deposits are most useful for a commercial
bank. Since they are repayable only after a fixed period, the bank may invest these funds more
profitably by lending at higher rates of interest and for relatively longer periods. The rate of
interest on fixed deposits depends upon the period of deposits. The longer the period, the higher
is the rate of interest offered. The rate of interest to be allowed on fixed deposits is governed by
rules laid down by the Reserve Bank of India
Recurring Deposits
Recurring Deposits are gaining wide popularity these days. Under this type of deposit, the
depositor is required to deposit a fixed amount of money every month for a specific period of
time. Each instalment may vary from Rs.5/- to Rs.500/- or more per month and the period of
account may vary from 12 months to 10 years. After the completion of the specified period, the
customer gets back all his deposits alongwith the cumulative interest accrued on the deposits.
Miscellaneous Deposits
Banks have introduced several deposit schemes to attract deposits from different types of people,
like Home Construction deposit scheme, Sickness Benefit deposit scheme, Children Gift plan,
Old age pension scheme, Mini deposit scheme, etc.
i) Loans
A loan is granted for a specific time period. Generally, commercial banks grant short-term loans.
But term loans that is, loan for more than a year, may also be granted. The borrower may
withdraw the entire amount in lumpsum or in instalments. However, interest is charged on the
full amount of loan. Loans are generally granted against the security of certain assets. A loan
may be repaid either in lumpsum or in installments.
ii) Advances
An advance is a credit facility provided by the bank to its customers. It differs from loan in the
sense that loans maybe granted for longer period, but advances are normally granted for a short
period of time. Further the purpose of granting advances is to meet the day to day requirements
of business. The rate of interest charged on advances varies from bank to bank. Interest is
charged only on the amount withdrawn and not on the sanctioned amount.
a) Cash Credit
Cash credit is an arrangement whereby the bank allows the borrower to draw amounts upto a
specified limit. The amount is credited to the account of the customer. The customer can
withdraw this amount as and when he requires. Interest is charged on the amount actually
withdrawn. Cash Credit is granted as per agreed terms and conditions with the customers.
b) Overdraft
Overdraft is also a credit facility granted by bank. A customer who has a current account with the
bank is allowed to withdraw more than the amount of credit balance in his account. It is a
temporary arrangement. Overdraft facility with a specified limit is allowed either on the security
of assets, or on personal security, or both.
c) Discounting of Bills
Banks provide short-term finance by discounting bills, that is, making payment of the amount
before the due date of the bills after deducting a certain rate of discount. The party gets the funds
without waiting for the date of maturity of the bills. In case any bill is dishonoured on the due
date, the bank can recover the amount from the customer.
Typ
Life insurance
LIFE INSURANCE
Life insurance or life assurance is a contract between the policy owner and the insurer, where the
insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the
insured individual's or individuals' death or other event, such as terminal illness or critical illness.
In return, the policy owner agrees to pay a stipulated amount at regular intervals or in lump
sums. There may be designs in some countries where bills and death expenses plus catering for
after funeral expenses should be included in Policy Premium. As with most insurance policies,
life insurance is a contract between the insurer and the policy owner whereby a benefit is paid to
the designated beneficiaries if an insured event occurs which is covered by the policy. To be a
life policy the insured event must be based upon the lives of the people named in the policy.
Property (eg.Builder
General insurance or non-life insurance policies, including automobile and homeowners policies,
provide payments depending on the loss from a particular financial event. General insurance
typically comprises any insurance that is not determined to be life insurance.
PROPERTY INSURANCE
Property insurance provides protection against most risks to property, such as fire, theft and
some weather damage. This includes specialized forms of insurance such as fire insurance, flood
insurance, earthquake insurance, home insurance or boiler insurance. Property is insured in two
main ways - open perils and named perils. Open perils cover all the causes of loss not
specifically excluded in the policy. Common exclusions on open peril policies include damage
resulting from earthquakes, floods, nuclear incidents, acts of terrorism and war. Named perils
require the actual cause of loss to be listed in the policy for insurance to be provided. The more
common named perils include such damage-causing events as fire, lightning, explosion and theft.
MARINE INSURANCE
Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo
by which property is transferred, acquired, or held between the points of origin and final
destination.
Cargo insurance is a sub-branch of marine insurance, though Marine also includes Onshore and
Offshore exposed property (container terminals, ports, oil platforms, pipelines); Hull; Marine
Casualty; and Marine Liability.
MISCELLANEOUS INSURANCE
Miscellaneous Insurance exists to help people gain a good understanding of the various kinds of
insurance coverage's that are available to people today. Insurance has become a very important
part of many people's lives as they realize the need to provide protection for different areas of
their everyday life. There is a wide variety of types of insurance coverage available today.
Bancassurance
Bancassurance is the selling of insurance and banking products through the same channel, most
commonly through bank branches selling insurance. The sales synergies available have been
sufficient to be used to justify mergers and acquisitions.
Some of the sales synergies come through the extensive customer base that banks have. Some
come from opportunities to sell insurance together with some banking products. For example,
banks generally insist on life insurance for mortgage borrowers. Although borrowers are not
obliged to buy insurance from the lender, many do (despite it often being very over-priced) as it
is an easy option.
Credit cards and personal loans create opportunities for banks to sell protection insurance
(another high margin business) and the knowledge a bank has of its customers' finances creates
opportunities to sell other products.
Bancassurance has become significant. Banks are now a major distribution channel for insurers,
and insurance sales a significant source of profits for banks. The latter partly being because
banks can often sell insurance at better prices (i.e., higher premiums) than many other channels,
and they have low costs as they use the infrastructure (branches and systems) that they use for
banking.
4. Benefits to organizations
banks also provide various other services such as investment banking, assisstance in mergers and
acquisitions, raising money from piblic through ipo's.
MERCHANT BANKING
In banking, a merchant bank is a financial institution primarily engaged in offering financial
services and advice to corporations and to wealthy individuals. The term can also be used to
describe the private equity activities of banking.[1] The chief distinction between an investment
bank and a merchant bank is that a merchant bank invests its own capital in a client company
whereas an investment bank purely distributes (and trades) the securities of that company in its
capital raising role. Both merchant banks and investment banks provide fee based corporate
advisory services, including in relation to mergers and acquisitions.
portfolio management
leasing
loan syndication
project finance
issue management
INVESTMENT BANKS
An investment bank is a financial institution that assists corporations and governments in raising
capital by underwriting and acting as the agent in the issuance of securities. An investment bank
also assists companies involved in mergers and acquisitions, derivatives, etc. Further it provides
ancillary services such as market making and the trading of derivatives, fixed income
instruments, foreign exchange, commodity, and equity securities.
Unlike commercial banks and retail banks, investment banks do not take deposits.
Investment banks have multilateral functions to perform. Some of the most important functions
of investment banking can be jot down as follows:
Investment banking help public and private corporations in issuing securities in the primary
market, guarantee by standby underwriting or best efforts selling and foreign exchange
management . Other services include acting as intermediaries in trading for clients.
Investment banking provides financial advice to investors and serves them by assisting in
purchasing securities, managing financial assets and trading securities.
Investment banking differ from commercial banking in the sense that they don't accept
deposits and grant retail loans. However the dividing line between the two fraternal twins have
become flimsy with loans and securities becoming almost substitutable ways of raising funds.
Small firms providing services of investment banking are called boutiques. These mainly
specialize in bond trading, advising for mergers and acquisitions, providing technical analysis or
program trading.
6.Safety
Banks are a vehicle for people's savings and they offer safety and reasonably good interst on the
savings deposited with them, on the other hand insurance companies essentially offer protection
against life and assets.
7.Benefits to Family
Banks are used extensively by people to transfer funds to their business assosciates, relatives and
children for payment of fees etc. Banks are alomst 100% trade transaction whether domestic or
international export-import are channelised through banks. Without banks therefore it would be
virtually impossible to conduct trade and other services.Insurance companies have a far limited
role- they only sell their own insurance products.
CONCLUSION
Banks also provide various other services such as investment banking, raising money
from public through IPO's.
BIBLIOGRAPHY
http://en.wikipedia.org/wiki/History_of_banking
http://www.irda.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?
page=PageNo4&mid=2
http://en.wikipedia.org/wiki/Investment_banking
http://en.wikipedia.org/wiki/Savings_bank
http://en.wikipedia.org/wiki/Merchant_banking.
http://www.financialcrisis2009.org/forum/Insurance/How-does-insurance-affect-our-
economy-235984.htm
http://www.jstor.org/pss/1991084
http://moneyterms.co.uk/bancassurance/
http://en.wikipedia.org/wiki/Bancassurance
http://www.financialcrisis2009.org/forum/Insurance/How-does-insurance-affect-our-
economy-235984.htm
http://en.wikipedia.org/wiki/Insurance#