INTRODUCTION

The business of banking around the globe is changing due to integration of global financial markets, development of new technologies, universalization of banking operations and diversification in non-banking activities. Due to all these movements, the boundaries that have kept various financial services separate from each other have vanished. The coming together of different financial services has provided synergies in operations and development of new concepts. One of these is bancassurance.

Bancassurance simply means selling of insurance products by banks. In this arrangement, insurance companies and banks undergo a tie-up, thereby allowing banks to sell the insurance products to its customers. This is a system in which a bank has a corporate agency with one insurance company to sell its products. By selling insurance policies bank earns a revenue stream apart from interest. It is called as fee-based income. This income is purely risk free for the bank since the bank simply plays the role of an intermediary for sourcing business to the insurance company.

It has its genesis decades ago in France, where this channel today is the predominant source of insurance business. It has grown at different places and taken shapes and forms in different countries depending upon demography, economic and legislative prescription in that country. In some countries, bancassurance is still largely prohibited, but it was recently legalized in countries such as the United States, when the Glass-Steagall Act was repealed after the passage of the Gramm-Leach-Bliley Act. Bancassurance is a new buzzword. It originated in India in the year 2000. Following the recommendations of First Narasimham Committee, the contemporary financial landscape has been reshaped. Thus, present-day banks have become far more diversified than ever before. Therefore, their entering into insurance business is only a natural corollary and is fully justified too as insurance is another financial product required by the bank customers. INTRODUCTION

From the view point of insurance industry also the importance of bancassurance was felt necessary. With the increased pressures in combating competition, companies are forced to come up with innovative techniques to market their products and services. At this juncture, banking sector with it's far and wide reach, was thought of as a potential distribution channel, useful for the insurance companies. Thats where the bancassurance came into existence. Thus, bancassurance is poised to become a key determinator / differentiating factor in the Insurance industry as well. Given Indias size as a continent it has, however, a very low insurance penetration and low insurance density. The penetration level of life insurance in the Indian market is abysmally low at 2.3% of GDP with only 8% of the total population currently insured. As opposed to this, India has a

well-entrenched wide branch network of banking system, which only few countries in the world could match with. It is predicted by experts also that in future 90% of share of premium will come from Bancassurance business only. And almost half of the population likely to be in the 'wage earner' bracket by 2010 that there is every reason to be optimistic that bancassurance in India will play a long inning.

Currently there are more and more exchange of wedding rings between banks and Insurance Company for better business prospect in future. With the enoromous benefits for banks like increase in revenue, return on asset, customer retention, better reputation etc., the bancassurance is going to be a big revolution in the banking industry. It is against this backdrop an attempt is made to analyse the financial performance of the AXIS bank in bancassurance so far and to find out the areas where they can make use of and still need to focus in order to make AXIS bank to play a vital role in the bancassurance industry. INTRODUCTION 3 1.1 MEANING, DEFINITION AND CONCEPT MEANING: Bancassurance is a combination of two words Banc and assurance signifying that both banking and insurance products and service are provided by one common corporate entity or by banking company with collaboration with any particular Insurance company. In concrete terms bancassurance, which is also known as Allfinanz - describes a package of financial services that can fulfill both banking and insurance needs at the same time.

It is the provision of insurance (assurance) products by a bank. The usage of the word picked up as banks and insurance companies merged and banks sought to provide insurance, especially in markets that have been liberalized recently. In its simplest form, Bancassurance is the distribution of insurance products through the Banks distribution network.. It is a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services. Bancassurance tries to exploit synergies between both the insurance companies and banks. DEFINITION: The term first appeared in France in 1980, to define the sale of insurance products through banksdistribution channels (SCOR 2003). The Life Insurance Marketing and Research Associations (LIMRAs) insurance dictionary defines bancassurance as the provision of Life insurance services by banks and building societies.

According to IRDA, bancassurance refers to banks acting as corporate agents for insurers to distribute insurance products. Literature on bancassurance does not differentiate if the bancassurance refers to selling of life insurance products or non-life insurance products. Accordingly, bancassurance is defined to mean banks dealing in insurance products of both life and non-life type in any forms.But in this research the focus is entirely concentrated towards life insurance. It is also important to clarify that the term bancassurance does not just refer specifically to distribution alone. Other features, such as legal, fiscal, cultural and/or behavioural aspects also form an integral part of the concept of bancassurance (SCOR2003).

There are many definitions of bancassurance and, in essence it does depend upon the model used, and the stage of development. However, the definition of a fully developed model that is most commonly used is: 'Manufacturing and distributing cost effectively banking and insurance products to a common customer base.

CONCEPT: This concept gained importance in the growing global insurance industry and its search for new channels of distribution.However, the evolution of bancassurance as a concept and its practical implementation in various parts of the world, have thrown up a number of opportunities and challenges . Bancassurance is a relatively new concept in the global stage. Unlike banks and insurers which have been around in one form or another for centuries, bancassurance has only been around for a few decades. The concept of bancassurance was emerged in the western world when banks began to get involved in marketing of insurance business.From a purely historical perspective,many regard Barclays Life, set up in 1965 in the UK as an insurance subsidiary of the eponymous bank, as the pioneer of bancassurance. But the term bancassurance came into existence in France after 1980 to define the sale of insurance through an intermediary bank.

It has reared its head in France in the late 1970s,motivated by among other things changing customer needs due to an inadequate pension scheme that existed at that time. As the governments can no longer maintain the funding that people have begun to take a more active role in their future entitlements by looking at alternatives to pensions. Bancassurance provides not only provides an alternative to pensions but also caters to the current taste of customers, which is no longer satisfied by the traditional products offered by the insurers. As bancassurance allowed the banks to move away from income generated by the interest spreads it is viewed as a solution to alleviate the problem of poor consumer savings, squeezed margins. Thus lackluster pension schemes, poor consumer savings, squeezed margins, the need for one stop shop delivery for all financial services among the consumers, increasing importance of strategic alliance has all led to the growth of bancassurance in Europe. With the success of bancassurance model in Europe, the bancassurance, which was only a European phenomenon, is becoming popular in other continents also Bancassurance seems to have made the greatest impact in France. Almost 100% of the banks in France are selling insurance products. It is claimed that the 55% to 60% of the life insurance business in France had come through banks. In Portugal and Spain it was over 70%. In U.K it is about 30%. In Argentina, Brazil, Chile, Colombia and Mexico also the bancassurance is becoming popular. Hardly 20 % of the United states banks are selling insurance products as only recently the Glass steagell act was repealed which has prohibited the banks from entering into the financial services. In Asia: Singapore, Taiwan and Hong Kong have surged ahead in Bancassurance then that with India and China taking tentative step forward towards it. In Middle East, only Saudi Arabia has made some feeble attempts that even failed to really take off or make any change in the system.

6 RELEVANCE OF BANCASSURANCE IN THE INDIAN FINANCIAL SECTOR i)) Integration of the financial service industry in terms of banking, securities business and insurance is a growing worldwide phenomenon. The Universal Banking concept is evolving on these lines in India. ii) Banks

are the key pillars of Indias financial system. Public have immense faith in banks. iii) Share of bank deposits in the total financial assets of households has been steadily rising. iv) Indian Banks have

immense reach to households. Total of 65700 branches of commercial banks, each branch serving an average of 15,000 people. v) Banks enjoy considerable goodwill and access

in the rural regions.There are 32600 branches in rural India (about 50% of total), and 14400 semiurban branches, where insurance growth has been most buoyant.196 exclusive Regional Rural Banks in deep hinterland. vi) Banks have enormous retail customer base.Share of individuals as a category in bank accounts is steadily increasing.Rural and semi urban bank accounts constitiute close to 60% in terms of number of accounts,indicating the number of potential lives that could be covered by insurance with the upfront involvement of banks. vii) Banks world over have realized that offering value-added services

such as

insurance, helps to meet client expectations . Competition in the Personal Financial Services area is ge tting `hot in India that Banks can retain customer loyalty by offering them a vastly expanded and more sophisticated range of products. Insurance distribution can also help the bank to increase the fee-based earnings to a large extent. INTRODUCTION

viii) Fee-based selling helps to enhance the levels of staff productivity in banks. This is vitally important to bring higher motivation levels in banks in India. ix) Banks can put their energies into the smallcommission customers that

insurance agents would tend to av oid. Banks entry in distribution can help to enlarge the insurance customer base rapidly. This helps to popularize insurance as an important financial protection product. x) Bancassurance helps to lower the distribution costs of insurers. Acquisition cost of insurance customer through bank is low. Selling insurance to existing mass market banking customers is far less expensive than selling to a group of unknown customers. Experience in Europe has shown that bancassurance firms have a lower expense ratio. This benefit could go to the insured public by way of lower premiums. xi) Banks have an important role to play in the pension sector when deregulated.Low cost of collecting pension contributions is the key element in the success of developing the pension sector. Money transfer costs in Indian banking is low by international standards.Portability of pension accounts is a vital requirement which banks can fulfill, in a credible framework. REASONS FOR BANKS TO ENTER INTO BANCASSURANCE The main reasons why banks have decided to enter the insurance industry area are the following:

Intense competition between banks, against a background of shrinking interest margins, has led to an increase in the administrative and marketing costs and limited the profit margins of the traditional banking products. New products could substantially enhance the profitability andincrease productivity.

INTRODUCTION

Financial benefits to a bank performance can flow in a number of

ways, as briefly outlined

below: -

Increased income generated , in the form of commissions and/or profits from the business (depending upon the relationship) -

Reduction of the effect of the bank fixed costs , as they are now also spread over the life insurance relationship. -

Opportunity to increase the productivity of staff, as they now have the chance to offer a wider range of services to clients

Customer preferences regarding investments are changing . For medium-term and long-term investments there is a trend away from deposits and toward insurance products and mutual funds where the return is usually higher than the return on traditional deposit accounts.This

shift in investment preferences has led

to a reduction in the share of personal savings held as deposits, traditionally the core element of profitability for a bank which manages clients money. Banks have sought to offset some of the losses by entering life insurance business.Life insurance is also frequently supported by favourable tax treatment to encourage private provision for protection or retirement planning. This preferential treatment makes insurance products more attractive to customers and banks see an opportunity for profitable sales of such products.

Analysis

of available information

on the

customer financial and social situation can be of great help in discovering customer needs and promoting or manufacturing new products or services.Banks believe that the quality of their client information gives them an advantage in

INTRODUCTION

distributing products profitably, compared with other distributors (e.g. insurance companies).

The realization that joint bank and insurance products can be better for the customer as they provide more complete solutions than traditional standalone banking or insurance products .

Banks are experiencing the increased mobility of their customers, who to a great extent tend to have accounts with more than one bank. Therefore there is a

strong need for customer loyalty to an organization to be enhanced.

Client relationship management has become a key strategy. To build and maintain client relationships,banks and insurers are forming partnerships to provide their clients with a wide range of bank and insurance products from one source.

It is believed that as the number of products

that a customer

purchases from an organization increases the chance of losing that specific customer to a competitor decreases.

WHY IS BANCASSURANCE MORE SUITED TO LIFE INSURANCE PRODUCTS? Traditionally, much fewer non-life insurance products are distributed through bancassurance than life insurance products. There are several reasons for this: The main reason may be the complementary nature of life insurance and banking products: bank employees are already familiar with financial products and quickly adapt to selling insurance-based savings or pension products; On the other hand, the non-life market requires special management and selling skills, which are not necessarily prevalent in bancassurance. In addition, such

INTRODUCTION

10

competencies require significant investment in training and motivation, and therefore additional costs; Life insurance products are generally long-term products, which require customers to have complete confidence in the institution that invests their money. And we now know that, in many countries, banks have a better image and are more trusted than insurance companies; Bank advisers can use their knowledge of their custo mers finances to target their advice towards specific needs. This is a major advantage in life insurance and less important in personal injury insurance; Some professionals also refer to the claims management aspect of personal injury insurance, which could have a negative impact on brand image. This would seem to explain why for a long time bancassurance operators hesitated to offer these types of product. ADVANTAGES OF BANCASSURANCE : Everybody is a winner in bancassurance. For banks it mainly acts as a means of product diversification and additional fee income; for insurance company it acts as a tool for increasing their market penetration and premium turnover and for customer it acts as a bonanza in terms of reduced price, high quality products and delivery to doorsteps. Hence it is a win-win solution for everyone who involved. To the bankers :

In a situation of constant asset base the bank can increases Return on Assets (ROA)by increasing their income, by selling insurance products through their own channel. It can cover operating expenses and make operating expenses profitable by leveraging their distribution and processing capabilities

INTRODUCTION

11

Can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell insurance products.

By acting as a one stop shop for all financial services, they can improve overall customer satisfaction resulting in higher customer retention levels

Banks enjoy significant brand awareness within their geographical region providing for a lower per lead cost when advertising through print, radio and television. The advantage of a bank over traditional distributors is the lower cost per sales lead made possible by their sizeable loyal customer base.

Can establish sales oriented culture among the employees To the customers :

Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc.

Enhanced convenience on the part of the insured

Easy access for claims, as banks is a regular go.

Innovative and better product ranges To the insurers :

Insurers can exploit the banks' wide network of branches for distribution of products. The penetration of banks' branches into the rural areas can be utilized to sell products in those areas.

Customer database like customers' financial standing, spending habits, investment and purchase capability can be used to customize products and sell accordingly. INTRODUCTION

12

Since banks have already established relationship with customers, conversion ratio of leads to sales is likely to be high. Further service aspect can also be tackled easily. Factors that appear to be critical for the success of bancassurance are

Strategies consistent with the bank's vision, knowledge of target customers' needs, defined sales process for introducing insurance services, simple yet complete product offerings, strong service delivery mechanism, quality administration, synchronized planning across all business lines and subsidiaries, complete integration of insurance with other bank products and services

Another point is the handling of customers. With customer awareness levels increasing, they are demanding greater convenience in financial services.

The emergence of remote distribution channels, such as PC-banking and Internet-banking, would hamper the distribution of insurance products through banks.

The emergence of newer distribution channels seeking a market share in the network. Bancassurance training for bank employees: The bank employees will need to be trained in the following aspects of the insurance business:

Features of the insurance products sold

How to identify and approach a potential customer

Basic insurance needs

Handling basic objections

Other distribution channels and products

INTRODUCTION

13

Expected roles

Procedures

Remuneration and incentive schemes

Cultures

Customer service Continuous training and supervision : Apart from initial training, there should be further training to support the development of the agent or employee. Some ways in which this can be done are:

Agency meetings

Bank branch meetings

Area banking meetings

In-house magazine

Training circulars

Area sales seminars

Company library

Video tapes

Certified courses

Lectures

Training material booklets

Remuneration of bank employees : Any commission payable by the insurance company is, as a principle, to be credited to the bank profit center for the bancassurance operation. The bank management sets the commission level for each manager and employee engaged in the bancassurance operation.

Selling in the bank branches (by employees or by financial advisers): For simple packaged products: employees could be rewarded with gifts and/or salary increments based on their selling performance in promoting both banking and insurance products.

INTRODUCTION

14

Such performance could be quantified via the use of a points system where by the various products are allocated as a number of points.

Warm leads : In return for providing warm leads, the bank will get a share, say 50%, of the normal first year commissions.

A basis is needed for allocating this amount between branch staff (who provide the warm leads) and the bank owners. A possible basis would be: 25% 25% 50%. The structure shown above generates benefits as follows:

Financial rewards for employees who generate warm leads

Financial rewards for managers and other staff of the bank branch who have supported bank activities while the assurance business was being generated. Group awards or bonuses are more desirable when the contribution of the individual employee is either difficult to distinguish or depends on group cooperation

. INTRODUCTION

15

1.2

A) NEED FOR THE STUDY

Todays banking business is not the one we have seen in the past. It h as become much more diversified. With the shift in the customer preferences from deposits to investments, intense competition etc., the banks saw their profit margin declining. Thus it has become imperative for the banks to retain the customer by providing more value added services under one roof as well as to find alternative ways to generate more income. As bancassurance provides the best possible solution to all these, most of the banks nowadays have started selling insurance products to its customers. AXIS bank is also having a tie up with Bajaj Allianz Life Insurance for selling Life insurance products to its retail customers. Hence there is a need for the study to know whether AXIS bank has been benefited out of bancassurance by way of financial analysis and to suggest the areas where they can make use of and converge the attention of the bank if any, is required.

INTRODUCTION

16

1.2 B) STATEMENT OF THE PROBLEM

To understand the financial impact of bancassurance in AXIS bank and to suggest the ways and means to improve the existing performance by way of collecting responses from the customers. INTRODUCTION

17

1.2

C) BENEFITS TO THE ORGANIZATION

Through the study the bank can know its financial performance in bancassurance and whether it is contributing to the overall progress of the bank or not.

The study would enable AXIS bank to know the general opinion of customers about insurance and bancassurance so as to know whether any awareness need to be created about the same.

The study would enable AXIS bank to know how far their initiatives in promoting Bajaj Allianz life Insurance products have reached its customers.

It would also enable the bank to know whether they have established a strong relationship with the customers, as it is important for bancassurance.

It would also enable the bank to know the number of persons who are planning to take a life insurance policy in their near future so that it can take the advantage of the same.

The bank can also know the willingness of the customers in accepting AXIS bank as their distribution channel in case of obtaining Bajaj Allianz Life Insurance policy in future.

Finally, it provides the opportunity for the bank to know the areas where they need to give much emphasis and uplift themselves in order to occupy a key role in the area of bancassurance.

INTRODUCTION

18

1.2

D) SCOPE OF THE STUDY

The study focuses on the financial performance of AXIS bank in bancassurance and its contribution to the

overall progress of the bank with respect to life insurance alone.

The study analyses the awareness of the customer and the viewpoints of the customer about insurance as well as bancassurance.

The study also measures the initiatives taken by AXIS bank in endorsing Bajaj Allianz Life insurance products.

The study also throws light on the relationship building by AXIS bank with its customers, as it is the deciding factor for considering the bank as a one-stop shop for all their financial solutions.

It also indicates the persons who are willing to take life insurance policy in the immediate future and the reasons for taking the same.

It also pinpoints the willingness of the customer in accepting AXIS Bank, as their distribution channel, in case of their choice is Bajaj Allianz Life Insurance for obtaining a policy

INTRODUCTION

19

1.3

OBJECTIVES OF THE STUDY

Primary objective:

It is to make an analysis on the financial performance of AXIS bank in bancassurance with specific reference to life insurance and to suggest the ways and means to improve the existing performance by way of collecting responses from the customers. Secondary Objectives : .

To analyze the financial performance of AXIS bank in bancassurance and its contribution to the overall progress of the bank using ratio analysis.

To analyze the initiatives taken by the AXIS bank in endorsing the Bajaj Allianz Life Insurance products.

To assess the relationship building factors of AXIS bank, which is significant for bancassurance.

To know the customer preferences in selecting AXIS bank as a distribution channel in case of their willingness to obtain Bajaj Allianz Life Insurance policy in future.

INTRODUCTION

20

1 .4

LIMITATIONS OF THE STUDY

Time has played a biggest constraint that the research could not be carried comprehensively as the duration of the study was only 3 months.

out

As the research contains the Secondary data for making a financial analysis the accuracy and reliability of the analysis depends on reliability of figures derived from financial statements.

The sample size for collecting the primary data was meager as it includes only 100 respondents, hence the conclusion would not be a universal one.

Personal biases and prejudices of the customers may also affect the study.

Inspite of the limitations, the study was effective in analyzing the performance of AXIS bank in bancassurance with specific reference to life insurance.

INTRODUCTION

21

1.5 A) INDUSTRY PROFILE

Banks are among the main participants of the financial system in India . Banks in India can be categorized into non-scheduled banks and scheduled banks. Scheduled banks constitute of commercial banks and 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). During the first phase of financial reforms, there was a nationalization of 14 major banks in 1969. This crucial step led to a shift from Class banking to Mass banking. Since then the growth of the banking industry in India has been a continuous process. It has become an important tool to facilitate the development of the Indian economy. During the second phase of reforms, in the early 1990s, the then Narasimha Rao government embarked on a policy of liberalisation and gave licences to a small number of private banks , which came to be known as

New Generation tech-savvy banks , which included banks such as UTI Bank(now re-named as Axis Bank) (the first of such new generation banks to be set up), AXIS Bank andICICI Bank. This move, along with the rapid growth in the economy of India, kickstarted the banking sector in India, which has seen rapid growth with strong contribution from private banks and foreign banks. Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total INTRODUCTION

22

assets of the banking industry , with the private and foreign banks holding 18.2% and 6.5% respectively. There are 70324 bank offices in India and each bank office serves around 16000 peop le. Its a huge banking infrastructure and among best banking network in world. Current scenario: As far as the present scenario is concerned the banking industry is in a transition phase. The Public Sector Banks, which are the mainstay of the Indian Banking system account, are unfortunately burdened with excessive Non Performing assets massive manpower and lack of modern technology.

while on the other hand the private sector banks are consolidating themselves through mergers and acquisitions.

On the other hand the Private Sector Banks in India are witnessing immense progress They have pioneered Internet banking, mobile banking, phone banking, ATMs. etc., They are forging ahead and rewriting the traditional banking business model by way of their sheer innovation and service.

The banks today are more market driven and market responsiv e. The top concern in the mind

of every bank's CEO is increasing or at least maintaining the market share in every line of business against the backdrop of heightened

competition. With the

entry of new players and multiple channels, customers have become more discerning and less "loyal" to banks . This makes it imperative that banks provide best possible products and services to ensure customer satisfaction. To address the challenge of retention of customers, there have been active efforts in the banking circles to switch over to customer-centric business model . The success of such a model depends upon the approach adopted by banks with respect to customer data management and customer relationship management.

INTRODUCTION

23

There has been an increase in the bank focus on retail segment with the economic slow down. Retail banking has become the new mantra

for banking

industry . Banks are now realizing that one of their best assets for building profitable customer relationships especially in a developing country like India is the branch. Branches are in fact a key channel for customer retention and profit growth in rural and semi-urban set up.. Branches could also be used to inform and educate customers about other, more efficient channels, to advise on and sell new financial instruments like consumer loans, insurance products, mutual fund products, etc. Thus, all the above led to the practice of bancassurance . The Reserve

Bank of India being the regulatory authority of the banking system, with the reorganization of the need for banks to diversify their activities at the right time, permitted them to enter into

insurance sector as well . It has issued a set of detailed guidelines setting out various ways for a bank in India to enter into insurance sector. IRDA has also felt the necessity of introducing an additional channel of distribution, which is the Bancassurance to reach out more people. It started picking up after Insurance Regulatory and Development Authority (IRDA) passed a notification in October 2002 on 'Corporate Agency' regulations. Legal Requirements : In India, the banking and insurance sectors are regulated by two different entities (banking by RBI and insurance by IRDA) and bancassurance being the combinations of two sectors comes under the purview of both the regulators. Each of the regulators has given out detailed guidelines for banks getting into insurance sector. Highlights of the guidelines are reproduced below:

RBI guideline for banks entering into insurance sector provides three options for banks. They are: INTRODUCTION

24

Joint ventures will be allowed for financially strong banks wishing to undertake insurance business with risk participation;

For banks which are not eligible for this joint-venture option, an investment option of up to 10% of the net worth of the bank or Rs.50 crores, whichever is lower, is available;

Finally, any commercial bank will be allowed to undertake insurance business as agent of insurance companies. This will be on a fee basis with no-risk participation. The Insurance Regulatory and Development Authority (IRDA) guidelines for the bancassurance are:

Each bank that sells insurance must have a chief insurance executive to handle all the insurance activities.

All the people involved in selling should under-go mandatory training at an institute accredited by IRDA and pass the examination conducted by the authority.

Commercial banks, including cooperative banks and regional rural banks, may become corporate agents for one insurance company.

Banks cannot become insurance brokers . Currently there has been an increase in the number of tie-ups with banks and insurance companies. Some of the models practiced by the banks in India are I) Referral model ii) Corporate agency model iii) Insurance as a fully integrated model etc., INTRODUCTION

25

Some of the Bancassurance tie-ups in India are as follows : TABLE 1.1 : SOME OF THE BANCASSURANCE TIE-UPS IN INDIA

Ins urance Company

Bank

Birla Sun Life Insurance Co. Ltd.

Bank of Rajasthan, Andhra Bank, Bank of Muscat, Development Credit Bank, Deutsche Bank and Catholic Syrian Bank

Dabur CGU Life Insurance Company Pvt. Ltd

Canara Bank, Laksh mi Vilas Bank, American Express Bank and ABN AMRO Bank

HDFC Standard

Life Insurance Co. Ltd.

HDFC

bank, Union Bank of India, saraswat bank.

ICICI Prudential Life Insurance Co Ltd.

Lord Krishna Bank, ICICI Bank, Bank of India, Citibank, Allahabad Bank, Federal Bank, South Indian

Bank, and Punjab and Maharashtra Co operative Bank.

Life Insurance Corporation of India

Corporation Bank, Indian Overseas Bank, Centurion Bank, Satara District Central Co operative Bank, Janata Urban Co operative Bank, Yeotmal M ahila Sahkari Bank, Vijaya Bank, Oriental Bank of commerce.

Met Life India Insurance Co. Ltd.

Karnataka Bank, Dhanalakshmi Bank and J&K Bank

SBI Life Insurance Company Ltd.

State Bank of India

Bajaj Allianz General Insurance Co. Ltd.

Karur Vysya Bank a nd Lord Krishna Bank

Royal Sundaram General Insurance Company

Standard Chartered Bank, ABN AMRO Bank, Citibank, Amex and Repco Bank.

United India Insurance Co. Ltd.

South Indian Bank

Thus, the present day banks are more diversified than ever before. They cannot restrict themselves to traditional banking. As bancassurance prospects in India are brighter that banks in India can make use of the situation to gain profitable business venture.

INTRODUCTION

26

1.5 (B) COMPANY PROFILE About AXIS BANK : Axis Bank was established in 1993 and was the first private sector bank to start operations after the Government of India allowed entry of private banks. Previously called UTI Bank, Axis Bank was promoted by Unit Trust of India (UTI-I), Life Insurance corporation of India (LIC), General Insurance Corporation (GIC) and its four subsidiaries, New India Assurance Company, Oriental Insurance Corporation, National Insurance Company and United Insurance Company. The name of the Bank was changed in 2007 as there was brand confusion because many unrelated shareholder entities such as UTI Securities, UTI Technological Service and UTI Investor Services were also sharing the UTI brand. Moreover, the name was changed to connote stability and solidarity as well as was in line with the banks expanding operations across geographical boundaries. Staring with one branch in Ahmedabad in 1994, the bank now has 835 branches including extension networks (31 st March 2009) across 30 States and 4 Union Territories. The bank also has overseas offices in Singapore, China, Hongkong and Dubai. The bank's broad products and services include consumer banking, NRI business, retail loans, corporate banking, treasury, capital markets and financial advisory services. It divides its business into five segments viz. large corporates, SMEs, agri-business, channel financing and structured products. The bank's retail assets constituted 23 per cent of total advances at the end of March 2008. Housing loans accounted for 57 per cent of total retail assets. Auto loans constituted 7 per cent of its retail loans The bank divides its advances into three focus areas i.e. agricultural, mid--corporate and SMEs. During 2007--08, the bank's agricultural advances grew by

INTRODUCTION

27

35 per cent to Rs.5,507 crore. Its advances to SMEs reported a whopping 74 per cent growth to Rs.11,536 crore. The bank maintains a healthy asset quality with 81 per cent of its corporate advances having a rating of at least `A' as at the end of March 2008. The bank pruned its net stressed assets consistently from 1.92 per cent in 2002--03 to 0.36 per cent by end of 2007--08.

Axis Bank Ltd.

Subsidiaries

Axis Private Equity Ltd.

Axis Sales Ltd.

Axis Trustee Services Ltd.

Consistent growth : The banks net profit ha s grown by over 30% YoY in 36 out of the last 38 quarters. Also the two quarters in which the profit did not grow was on account of write-off of extraordinary items (G-Sec valued on mark to market basis). The net profit has grown by over 60% YoY in each of the last eight quarters. The important performance indicators such as ROA, CAR, NPA and NIM have remained strong over the last five years. Axis Bank comes very near to HDFC Bank in terms of important efficiency parameters. As can be from the table above, the share of current account saving account deposits in the total deposits (CASA) is higher in case of HDFC Bank. Also HDFC Bank scores higher in terms of margins (NIM). However, looking at the returns generated on networth (ROE) and the growth in advances and

deposits, Axis Bank appears to be gearing up well to reduce the gap existing in the margins as well as the total balance sheet size. Expanding footprint, expanding balance sheet : The bank has continued to expand its geographical coverage across the country. Over the last five years, the total number of branches including extension centers of the bank has increased from 339 in FY05 to 835 in FY09 whereas ATMs have increased from 1,599 to INTRODUCTION

28

3,595. Also during Q1FY10, the bank added 26 new branches including extension centers and 128 ATMs. This has helped the bank particularly in the acquisition of low cost retail deposits, retail assets, lending to agriculture, SME and mid-corporates as also the sale of thirdparty products. The banks balance sheet has increased at a CAGR of 43.65% over the last five years Key Positives

Market leadership position in the travel card segment

Market leader in the prepaid cards segment

Second largest merchant acquirer in the country

Leadership position in private placement of bonds and debentures till 31st December 2008

High quality of its assets

The Banks Non -Performing Assets (NPAs) are among the lowest in the industry. Post its rebranding exercise in 2007 the bank has continued to do well and the change in name has not aff ected the banks business. In fact in FY2008 it saw its customer acquisition grow at a robust rate of 67% over the last year to over 9.9 million customer accounts The above business groups are supported by the following groups :

Audit & Compliance

Credit & Market Risk

Finance, Administration & Legal

Human Resources

Information Technology

Operations

29

2.0 REVIEW OF LITERATURE

2. 1 Bancassurance - A Global Breakdown :

It is important to outline the impact that bancassurance has had on differing regions around the world, as well as looking at the major regulations that impact the further growth of bancassurance. Below, is provided with a brief synopsis of bancassurance markets in certain key areas. EUROPE : Bancassurance is a construct of Europe (France in particular) and this perhaps helps explain why it is such a phenomenal success within certain European markets. Largely the 1989 Second Banking Coordination Directive motivated the large influx of banks into insurance within Europe in recent years. Currently, the penetration levels are fairly stable in Europe, since bancassurance in the majority of Western European countries (France, Netherlands, Portugal and Spain) has reached what studies such as Swiss Re. (2002 ) argue to be maturity. These penetration levels will only pick up once bancassurance manages to fully infiltrate Central and Eastern European countries such as Hungary and Poland, and the Baltic nations. Currently, the final major hurdle for bancassurance in Western Europe seems to lie in the U.K. where a predominantly strong insurance board still attempts to resist the bancassurance trend even in the face of widespread deregulations. FRANCE : In France, the success of bancassurance is mitigated by a favorable tax treatment on life insurance products, lack of competition within the insurance industry, and an inadequate pension scheme (Bonnet and Arnal (2000). The pioneer of bancassurance in France is argued to be Credit Mutual, which created its own life and nonlife subsidiaries in the early 1970s ( Sakr (2001)).

41

Bancassurance has seen the most success in the life insurance market, something that is true for every nation, increasing from 52% in 1995 to account for 69% of life insurance business n 2000 ( Durand (2003 ), and Turner (1998)). However, as of late, the banking networks market share of the life insurance market has remained fairly stagnant, actually dropping over the years to 66% market share in 2001 and 61% in 2003 ( Falautona and Marsiglia (2003), Datamonitor (2003)). This resulted from a combination of falling stock market prices and the banking network bearing the brunt of lower transfer prices according to Benoist (2002). This means that banking and insurance companies are overseen separately within the country. For a conglomerate, the regulator will depend on who is the parent of the two. UNITED KINGDOM:

Bancassurers have faced a tougher time in trying to penetrate the U.K. market, thanks in large to a combination of restrictive regulations and a powerful insurance governing body. The first move for bancassurers came in 1985 when Standard Life purchased a stake in the Bank of Scotland. Changes in legislation soon followed in 1986 and 1988, which made it legal for banks to market insurance products and set up their own insurance subsidiaries ( Sakr (2001)). Even then, the main type of union between the two was a joint venture, since the banks placed an emphasis on maintaining the knowledge of the insurer. Twenty years later, researchers argue that bancassurance is still in its infancy within the U.K., currently accounting for 15% of new insurance premiums issued ( Benoist (2002), It is argued that restrictive regulations were detrimental to the growth of bancassurance within the country and that due to the lack of experience the correct model for the U.K. is still to be found ( Hubbard (spring 2001)). Two benefits of the regulatory system in the U.K. are firstly, that it is based on one almighty regulator that overseas the different factors of the financial services

42

industry (the financial Services Authority). This leads to more streamlined regulations than in other countries that employ functional form regulatory systems. SPAIN : Spain has one of the most developed markets in bancassurance (Datamonitor (2003)) . Current penetration of bancassurers is over 75% of life insurance business and an ever-increasing proportion of the non-life business. In Spain, the evolution of the bancassurance market is fostered by the phenomenal growth within the insurance services industry (life insurance alone has seen 30% growth per annum over the past 15 years (Durand (2003)). The development of bancassurance in the Spanish market was facilitated by the well-established network of regional building societies, and also the cultural mentality that it is correct to take on risks (Goddard (1999)).

BRAZIL : In Brazil the laws are in the bancassurers favor, and the banks within the country control more than 65% of the insurance market (Nigh and Saunders (2003)), a size that rivals the leading bancassurers in Europe. Furthermore, in Brazil, bancassurers are assisted by regulations that ban the development of agent networks (Benoist (2002)).

NORTH AMERICA : The North American financial services market is the largest in the world and bancassurance has developed in a differing manner in this region depending on the country in question. In Canada,

there has been consolidated regulation for more than 15 years and banks are legally allowed to own insurance companies, but limitations are placed on the products that can be provided (Dorval (2002)). While in Mexico, bancassurance has been a flourishing industry due largely to the role played by banks in the creation of pension funds since the 1997 pension reforms.

43

Bancassurance in the U.S. has, in contrast, faced a very tight regulatory and legislative environment for many decades. The formation of financial conglomerates was greatly hindered by the Banking Act of 1933 (Glass-Stegall Act) and the Bank Holding Company Act of 1956. Only in 1999 did laws become more favorable to banks offering insurance products, with the passing of the Gramm-Leach Bliely Act. However, due to the divergence between the state and federal laws regarding banks offering insurance products, bancassurers still face a hard time ahead in relation to regulations and attempting to overcome powerful lobbies that aim to maintain existing hierarchies (Boot (2003)). Currently, only around 7% of Americans purchase their insurance products through bank branches (Thomson (summer 2002b)). However, with the ever-continuing regulatory changes such as the demutualization of insurance companies coupled with an ageing population, it is widely believed that there will be strong growth potentials for bancassurers in a mature market such as the U.S. ASIA AND THE PACIFIC : Bancassurance in the Asian region has been relatively slow to take off, with the exception of countries such as Australia, Hong Kong and Singapore where regulations have been considerable lenient ( Swiss Re. (2002)). The trend in the majority of mainland Asian countries has been for a bank to form ties with a foreign insurer in order to begin bancassurance operations with around 80% of these being life insurers, and the financial structure of the operation tends to be in the form of a distributional agreement. Since bancassurance is still in its infancy in most Asian countries, it is very susceptible to global changes

Most countries within Asia have only recently begun allowing the formation of bancassurance operations with the main players listed below. Certain countries within the region are still holding out against the onslaught of the bancassurance trend. Vietnam still restricts banks from offering life insurance products, while South Korea has made certain rules that make it difficult to begin a bancassurance operation within the country

44

2.2 Quantitative works of major Researchers related to bancassurance

Compared to the vast amount of descriptive work that has been published in the field of bancassurance, there is only a limited amount of empirical studies conducted on the effects that bancassurance actually has on the company

once implemented . This was largely due to the lack of information that resulted from poor company disclosure statements and inadequate collections of national statistics. As these problems are being rectified, researchers into the bancassurance practice are making more and more empirical research; nevertheless, it is still in its early stages. The following aims at highlighting the major quantitative findings of certain researchers that have performed research

into

the union of banks and insurers . The majority of past studies have focused mainly on the risk and profitability effects

resulting from the union of a banking and non-banking firm. One of the earliest studies in this area was performed by Boyd and Graham

(1986). They conducted a risk-of-failure analysis and looked at two periods around a new Federal Reserve policy (1974s go-slow policy). they found that bank holding companies (BHCs)

involvement in non-banking activities is significantly positively correlated with the risk of failure over the period 1971-1977, while the period 1978-1983 showed no significance , thus indicating that the new policy had a considerable impact on bank holding company (BHC) expansion into non-banking activities. Boyd and Graham (1988) followed their 1986 study with a paper that used a simulation approach, whereby they simulated possible mergers between banking and non-banking companies which were then compared to existing BHCs in order to determine whether the risk of bankruptcy will increase of decrease should expansion be allowed in to the non-banking industry, and also to determine the concurrent effect on company profitability. Their main finding was that the risk of bankruptcy only declined should the BHC expand into the life insurance practice. Brewers (1989 ) study finds similar risk reduction benefits existing however cannot specify whether they originate as a

45

result of diversification, regulation or efficiency gains. Boyd, Graham and Hewitt (1993) build on Boyd et al. (1988) by conducting a simulation study. They

once again conclude that mergers of BHCs with insurance companies may reduce risk , whereas those with securities or real-estate firms will not. Saunders and Walter (1994) and Lown, Osler, Strahan and Sufi (2000) use a similar method to Boyd and Graham (1988) and obtain similar results with more current data. Estrella (2001) examines diversification benefits for banks by using proforma mergers. In contrast to previous studies that incorporate accounting data, Estrella uses market data and a measure of the likelihood of failure that is derived through the application of option pricing theory to the valuation of the firm. the findings indicate that banking and insurance companies are likely to experience gains on both sides in the majority of the cases. The other major series of studies on banks expansion into non-banking activities focus on the wealth effects of such a move. Cybo-Ottone and Murgia (2000) analyzed the stock market valuations of mergers and acquisitions in the European banking industry over the period 1988-1997, and found the existence of significant positive abnormal returns associated with the announcement of product diversification of banks into insurance. Furthermore, they found that country effects do not significantly affect their overall results, suggesting a homogeneous stock market valuation and institutional framework across Europe. Carow (2001) looked at the abnormal returns of bank and insurance companies following the changing legislation brought about as a result of the Citicorp-Travelers Group merger, and discovered that investors expect large banks and insurance companies to gain significantly

from the legislation removing barriers to bancassurance

. In an event study released later in the same year, Carow (Mar 2001) found in support the contestable market theory that insurance companies became worse off and banks had no long-term gains following legislations further supporting bancassurance within the U.S.Cowan, Howell and Power (2002) conducted a similar event study surrounding four separate court

46

rulings and discovered that on average only larger, riskier BHCs with fee-based income gain the most, while smaller, riskier insurers sustain the highest wealth losses . Fields, Fraser and Kolari (2005) find that bancassurance mergers are positive wealth creating events by examining abnormal return data. They further deduced that scale and scope economies were a contributing factor in these results. As always, the opponents are there. Amel, Barnes, Panetta and Salleo (2004) and Strioh (2004) found that consolidation in the financial sector is beneficial up to a relatively small size in order to reap economies of sale, and that there is no clear evidence supporting cost reductions stemming from improvements in managerial efficiencies. Strioh (2004) finds non-banking income volatile and that there is little evidence of diversification benefits existing. But, the majority of the

past studies have found risk reduction and wealth creating benefits associated with the expansion of banks into the insurance industry. Article 2.3

Title :

INSURERS UPBEAT ON BANCASSURANCE CHANNEL

Bancassurance is likely to generate approximately 35% of private insurers premium income by 2008 , according to

an analysis of Indias bancassurance sector by Watson Wyatt Worldwide , a leading global insurance consulting firm.

 India Bancassurance Benchmarking Study2006/7 is the first of its kind survey in the Indian market, and part of an Asia-wide analysis focused on bancassurance distribution. It sets out to define bancassurance performance standards and benchmarks against a cross section of industry practices, processes and productivity indicators. Watson Wyatt has analyzed the bancassurance channel from the perspective of banks, life insurers and non-life insurers separately in the report.

47

Mr. Graham Morris, Director, Watson Wyatt Worldwide said: the purpose of the survey was to focus and understand how banks and insurers develop strategies for selling life and non-life insurance products through the vast network of bank branches in India and the practical issues they face in implementing the sales pro cess. Watson Wyatt had chosen India as the first country in Asia to do the Benchmarking Survey considering the vibrant

growth of this alternative channel

in the country compared to the other Asian markets . A total of 25 banks covering PSU, Private, and Foreign banks had participated in the Survey, along with almost all private life and general insurers licensed in the country. Nearly 90% of interviewed life insurers are expecting an increase of over 75% in new business premium income for the current financial year from the bancassurance channel, despite the fact that they consider lack of sales culture on the part of banks branch staff as a key issue in the success of bancassurance. The lack of a clear bancassurance vision on the part of the bank partner is the most visible reason for the slow progress in cross selling of insurance, despite the bank partners having impressive branch networks or large customer bases. The quality of bank customer data is frequently poor and the absence of simple CRM tools in most banks makes it difficult to launch specific initiatives to cross sell insurance products . Public sector banks in the country, which control more than 90% of the total customers, are seem to be inefficient in recording

basic data about customers

and managing available information.

Growth in bancassurance in India will fall short of its potential unless the perceived lack of sales culture and vision begin to get addressed by

the banks. An understanding of theses differences will facilitate the mutual goal of increasing bancassurance as the leading channel in insurance distribution in India, said Mr. R.Krishnamurthy, Managing Director, Distribution Practice, Watson Wyatt Insurance Consulting of the India office. Ban ks have overwhelmingly expressed a leaning towards insurers with bancassurance expertise and showing evidence of their commitment. On product

48

design and development, they seem to demand more attention from insurers to involve the bank management team.

The brand image of the bank partner, its willingness to bring about a cultural change and involving the entire branch network are the vital factor s that life insurers consider when entering into a bancassurance tie-up. While developing their bancassurance strategy, general insurers consider increasing new business and tapping new markets as the key factors. 100% of respondents ranked gaining support and commitment from the banks management as the critical factor in building successful bancassurance operations. Both bankers and insurers are bullish about the future outlook of

bancassurance with nearly a quarter of respondents predicting that the overall share of bancassurance would be about 50% or more in the life segment in the year 2010. About 30% of the life insurers have indicated that by the year 2010, rural insurance business would constitute between 16-20% of their total bancassurance new business premium. Life insurers have also expressed overwhelming support to innovative changes in the bancassurance channel, such as banks having multiple insurer relationships, exclusive bancassurance products for deepening insurance penetration and simpler training requirements for the bank staff to qualify as insurance salespersons. There is no doubt that bancassurance in India will play a major role as the insurance sector develops. India has the unique experience of drawing strong regulatory support for this channel. Coupled with the growing awareness of

banks to leverage on their branch network and customer strengths, the insurance selling opportunities would get widely tapped at bank branches in the years ahead.

Source : Business line dated Wednesday, 19 December 2008,

49

3.0 RESEARCH METHODOLOGY INTRODUCTION : Research is an academic activity and as such the term should be used in technical sense. According to Clifford Woody research comprises defining and redefining problems, formulating hypothesis or suggested solutions, collecting, organizing and evaluating data; making deduction and reaching conclusion; and at last care fully testing the conclusions to determine whether they fit the formulating hypothesis. The main aim of the research is to find out the truth which is hidden and which has not been discovered as yet. OBJECTIVES OF RESEARCH:

1.

To gain familiarity with a phenomenon or to achieve new insights into it. 2.

To portray accurately the characteristics of a particular individual, situation or group 3.

To determine the frequency with which something occurs or with which it is associated with something else 4.

To test a hypothesis of a casual relationship between variables RESEARCH DESIGN:

Research design is the arrangement of conditions for collection and analysis of data in manner that aims to combine relevance to the research purpose with economy in procedure of data. It is a blue print specifying every stage of action in the course of research. The research design adopted in this study for secondary data, is exploratory and analytical in nature. Exploratory research aims to gain familiarity and new insights into any phenomenon while analytical research

aims at analyzing the current scenario and thereby using that to project the futureRESEARCH METHODLOGY

50

performance. This research aims at studying the historical performance of the company in bancassurance and it also evaluates the future prospects of the company

Descriptive research design

is used

for collecting primary data. It is concerned with the research studies with a focus on the portrayal of the characteristics of a group or individual or a situation. The main objective of such studies is to acquire knowledge. The major purpose of Descriptive research is description of the state of affairs, as it exists at present. SAMPLING : Sampling may be defined as a selection of some part of an aggregate or totality on the basis of which a judgment or inference about the aggregate or totality is made. SAMPLING DESIGN :

A sampling design is a definite plan for obtaining a sample given population. There are different methods of sampling. Here Convenience sampling technique has been used.

CONVENIENCE SAMPLING : This method of sampling involves selecting the sample elements using some convenient method without going through the rigor of sampling method. The researcher may make use of any convenient base to select the required number of samples.Accordingly, the area selected for the study was kilpauk, chennai. RESEARCH METHODLOGY

51

SAMPLE SIZE : Sample size refers to the number of items to be selected for the universe to constitute a sample. The total sample size was taken to be 100. METHODS OF DATA COLLECTION :

NATURE OF DATA : There are two types of data namely primary and secondary data. PRIMARY DATA : Primary data is the data collected for the first time through field survey. This has been used to collect the data for the purpose of this study. METHOD OF PRIMARY DATA COLLECTION The method followed in obtaining the primary data was through the structured questionnaire. The researcher had used a

Questionnaire for obtaining the primary data for analysis. A questionnaire is a form prepared and distributed to secure responses to certain questions. Here a well-structured questionnaire has been prepared with all the important details regarding bancassurance. It has both open ended and close-ended questions. PILOT STUDY : Before a questionnaire is finalized it should be field-tested. As such, pilot study has been done. That is after the questionnaire was drafted, to decide whether it is comprehensive or not, it is used with a few (10) respondents Their responses are studied and it has been helpful in changing the questionnaire like giving more instructions to the respondents for filling up, re-sequencing the questions, addition and deletion of questions etc., RESEARCH METHODLOGY

52

SECONDARY DATA : It refers to the information or facts already collected. Such data are collected with the objective of understanding the past status of any variable. Here, secondary data has been used for making a financial analysis. METHOD OF SECONDARY DATA COLLECTION:

Annual reports

Journals and Magazines

Internet

Annual reports of AXIS bank have been used for making an analysis on the financial performance of AXIS bank in bancassurance. And the data pertinent to bancassurance like articles, previous researches, etc., has been collected from journals & magazines as well as Internet. RATING SCALES :

Summated rating scale : In this method, the attitude of people is classified into specific points with approximately equal attitude value. The respondents to questions indicate the degree of agreement or disagreement through their response. Based on the response of all the questions, the attitude of the respondents is determined. This scale has been used for the following question no: 10,15,17,18,21. TOOLS USED : As the research

contains both primary and secondary data it includes both financial statement analysis and statistical analysis. 1.

FINANCIAL STATEMENT ANALYSIS : Financial statements refer to the formal and original statements prepared by a business concern to disclose its financial information. They are useful only when they are analyzed and interpreted. The basis for financial planning, analysis andRESEARCH METHODLOGY

53

decision-making is the financial information. Financial information is needed to predict, compare and evaluate the firms earnings ability. In this research, financial statements like annual reports of AXIS bank from the year 2003-2006 has been used for making an analysis on the financial performance of AXIS bank in bancassurance and its contribution to the overall progress of the bank. Ratio analysis , one of the

most important techniques of financial statement analysis has been used in this research.

RATIO ANALYSIS:

An analysis of financial statements based on ratios is known as ratio analysis. Ratio analysis is the process of computing, determining and presenting the relationship of items. Some of the ratios used in this research are: Business ratios : They are used for comparing changes in the business from period to period. With the help of this, one can pinpoint improvements in performance or developing business areas. Some of the ratios used in this study are:

Non-interest income as a percentage of total revenue : Non interest income is the revenue earned by the bank apart from the interest income. Hence, calculation of this ratio would reveal the contribution of non-interest income to the total revenue of the bank. It can be find out by using the formula:

Non-interest income

Total revenue

Non-interest income as a percentage of operating profit : This would reveal the percentage of non-interest income contribution to the operating profit.It can be find out by using the formula:

Non-interest income

Operating profit

RESEARCH METHODLOGY

54

Non-interest income as a percentage of working funds : This would indicate the percentage of non-interest income contribution to the working funds. It can be calculated by using the formula: Non-interest income Working funds

Return On Assets (Average) : This ratio is calculated to measure the productivity of assets. A comparison of net income and average total assets, the ROA ratio reveals how much income management has been able to squeeze from each rupees worth of a company's assets

Return On Assets (Average) = Net Income

Average total assets

Business per employee : This is used to find out the productivity of the employees. This is calculated based on the average employee numbers. And business is the total of net advances and deposits. (Net of inter bank deposits) Business per employee = Total of net advances and deposits Average employee numbers

Profit per employee : This is also used to find out the productivity of the employees in terms of profit. This is also calculated based on the average employee numbers.

Percentage of net non-performing assets to customer assets : This is used to find out the percentage of net non-performing assets to customer assets. This can be obtained by using the formula: Net Non Performing Assets Customer Assets RESEARCH METHODLOGY

55

Percentage of net non-performing assets to gross advances:

This is used to find out the percentage of net NPAs to gross advances. This can be obtained by using the formula: Performing Assets Gross advances Capital Adequacy Ratio : Capital adequacy ratios are a measure of the amount of a bank's capital expressed as a percentage of its risk weighted credit exposures. It is also called as Capital to Risk Weighted Assets Ratio (CRAR) .It determines the capacity of the bank in terms of meeting the time liabilities and other risk such as credit risk, operational risk, etc. In the most simple formulation, a bank's capital is the "cushion" for potential losses, which protect the bank's depositors or other lenders.. Capital Adequacy Ratio = Total capital funds Risk weighted assets and contingents STATISTICAL TOOLS USED : This constitutes an integral part of research analysis. Hence any analysis of data compiled should be subjected to relevant analysis so that meaningful conclusions could be arrived at. Net Non

The statistical tools applied in this research are:

Correlation co-efficient

Chi-square test

Percentage analysis. CORRELATION COEFFICIENT

In a bivariate study distribution we may be interested to find out if there is any correlation or covariance between the two variables under study. If the change in one variable affects a change in the other variable, the variables are said to be correlated. If the two variables deviate in the same direction i.e. if the increase (or decrease) in one results in a corresponding increase (or decrease) in the other, correlation is said to be direct or positive. ButRESEARCH METHODLOGY

56

if they constantly deviate in opposite directions i.e., if increase (or decrease in one results in corresponding decrease (or increase) in the other, correlation is said to be negative. xy/n (x/n) (y/n)

Correlation coefficient = ..

x/n (x/n) y/n (y/n)

CHI-SQUARE TEST:

When certain observed values of a variable are to be compared with the expected value the test static, = (O - E)

2 E Where Oi = observed frequency Ei = Expected frequency For more accuracy, Yates correction is used and the formula used is given below: = (O - E) 2 E Power of association test : When the calculated value in the test is greater than the tabulated value, we accept the alternative hypothesis Hi. In this case, power of association test is applied in order to show the strength of association, where N = sample size. Based on the power of Association Test, the value indicates the fair relationship between the variable. PERCENTAGE ANALYSIS : These are the measures of central tendency. It is used to describe relationships. It can be used to compare the relative terms, the distribution of 2 or more series of data, since the percentage reduces everything to a common base and thereby to allow meaningful comparison to be made. Percentage Analysis = No. Of respondents * 100 Total No. Of respondents ANALYSIS AND INTERPRETATION DATA

57

4.0 DATAANALYSIS AND INTERPRETATION

4.1 Secondary data analysis

: Secondary data analysis, the imperative part of this study has been undertaken to analyse the performance of AXIS bank in bancassurance so far and the contribution of bancassurance to the progress of the bank in the form of increase in ROA, revenue etc., using ratio analysis. Since AXIS bank has started earning revenue for the sale of insurance policies from 2005 that the analysis includes from the year 2005-2008. TABLE 4.1.1 AXIS BANKS EARNINGS FOR THE SALE OF BAJAJ ALLIANZ LIFE INSURANCE POLICIES FROM 2005-2008 Year

2005 06

2006 07

2007 -

08

Revenue earned

for

the sale of insurance policies

16,99 lacs

88,14 lacs

112,09 lacs

CHART 4.1.1

Revenue earned for the sale of insurance policies 16.99 88.14 112.09 0 20 40 60 80 100 120 2004-052005-062006-07 Revenue (in lacs)

INFERENCE

: From the above, it can be seen that there has been an impressive growth in the revenue over the years for the sale of Bajaj Allianz life insurance policies by AXIS bank.

DATA ANALYSIS AND INTERPRETATION

58

TABLE 4.1.2

RETAIL SEGMENT PROFIT FROM THE YEAR 2007 TO 2008 : Retail banking segment is undertaking bancassurance. And it is the fastest growing banking business segment. One of the reasons

being the banks dealing with the sale of insurance policies to its retail customers. It has been mentioned even in the director report of AXIS bank . Thus a glimpse at its profit would be imperative.

Year

2005 06

2006 07

2007 08

Profit earned by

the retail segment of AXIS

bank

520,64 lacs

701,67 lacs

875,71 lacs

CHART 4.1.2:

INFERENCE : From the above, it can be observed that there has been a phenomenal increase in the profit of retail segment from 2005-2008, which symbolizes the bancassurance contribution.

DATA ANALYSIS AND INTERPRETATION

59

TABLE 4.1.3

RETAIL SEGMENT ASSETS FROM THE YEAR 2005 TO 2008 : Retail segment asset can also be increased by way of bancassurance operation. Let us take a look at its asset position from the year 2005-06 to 2007-08. Year

2005 06

2006 07

2007 -

0 8

Retail assets

24,469,93

38,571,09

50,100,34

CHART 4.1.3

INFERENCE : From the

above, we can infer that there has been a phenomenal increase in the growth of retail assets over the years that it indicates the contribution of bancassurance to it.

TABLE 4.1.4: OPERATING EXPENSES FROM THE YEAR 2005 TO 2008 : Bancassurance will lead to a reduction in the operating expenses of the bank as it can have the opportunity of economies of scale. Thus let us took a look at the operating expenses of AXIS bank from the year 2005-06 to 2007-08.

Year

2005 06

2006 07

2007 -

08

Operating expenses

1,085,40

1,691,09

2,420,80

DATA ANALYSIS AND INTERPRETATION

60

CHART 4.1.4 :

INFERENCE :

From the chart, we can observe that there has been an increase in the operating expenses of the bank. Since, AXIS bank is only in its infant stage in bancassurance, it can perform more to reduce the same in the long run.

TABLE 4.1.5: NON-INTEREST INCOME AS A PERCENTAGE OF TOTAL REVENUE : As bancassurance revenue leads to an increase in the non-interest income, the non-interest income as a % of total revenue from the year 2005-2007 is as follows: Year

2005 06

2006 07

2007 -

08

Non interest income

651,34

1,123,98

1,516,23

Total revenue

3,744,83

5,599,32

8,405,25

Ratio

17.39

20.07

18.03

DATA ANALYSIS AND INTERPRETATION

61

Chart 4.1.5:

INFERENCE : From the above, it can be observed that non-interest income as a% of total revenue though increased in the year 2005,it has been decreased in the year 2006.

TABLE 4.1.6 :

NON-INTEREST INCOME AS A % OF OPERATING PROFIT : Non-interest income as a contribution to the % of operating profit from the year 2005-2008 is shown as below:

Year

2005 06

2006 07

2007 08

Non interest income

651,34

1,123,98

1,516,23

Operating profit

1,156,02

1,733,84

2,562,86

Ratio

56.34%

64.82%

59.16%

DATA ANALYSIS AND INTERPRETATION

62

Chart 4.1.6:

INFERENCE : From the above, it can be observed that non-interest income as a% percentage of operating profit has been increasing from 2005 to 2006.But it has been decreased in the year 2007-08. Note:

Operating profit

= (interest income + other income interest expense operating expense amortization of premia on investments - profit/(loss) on sale of fixed assets).

Business ratios (As per the directors report of AXIS bank)

TABLE 4.1.7 :

NON INTEREST INCOME AS A % OF WORKING FUNDS : Non-interest income as a % of working funds is shown as below:

Year

2005 -

06

2006 07

2007 08

Non interest income as a % of working funds

1.44%

1.79%

1.76%

DATA ANALYSIS AND INTERPRETATION

63

Chart 4.1.7 :

INFERENCE : From the chart it can be observed that non-interest income as a% percentage of working funds though increased in the year 2006,it has been decreased in the year 2008.

TABLE 4.1.8 :

RETURN ON ASSETS (AVERAGE): The best opportunity for the banks, which undertakes bancassurance operation is that, it can increase its return on assets. Hence, the return on assets of the bank from 2005-2008 is as follows:

Year

2005 06

2006 07

2007 08

Return on Assets (Average)

1.47%

1.38%

1.33%

DATA ANALYSIS AND INTERPRETATION

64

Chart 4.1.8 :

INFERENCE : From the above, it can be observed that the return on assets of the bank has been decreased from the year 2005

2008. TABLE 4.1.9 ;

BUSINESS PER EMPLOYEE : The business per employee from 2005-2008 is as follows: Year

2005 06

2006 07

2007 08

Business Per Employee

806

758

607

Chart 4.1.9:

DATA ANALYSIS AND INTERPRETATION

65

INFERENCE : From the above, it is clear that the business per employee of the bank over the years has been on the decreasing trend.

TABLE 4.1.10 PROFIT PER EMPLOYEE : Profit per employee from 2005-2008 is as follows:

Year

2005 06

2006 07

2007 08

Profit per employee

8.80

7.39

6.13

Chart 4.1.10 :

INFERENCE : From the above, it can be observed that profit per employee of the bank over the years has been on the decreasing trend. RBI guidelines : As per the RBI guidelines for the banks to enter

into the insurance sector, The CRAR of the bank should not be less than 10 per cent, and the level of Non Performing Assets (NPAs ) should be reasonable. Hence, analysis of such ratios is also important.

DATA ANALYSIS AND INTERPRETATION

66

Capital adequacy ratio: Capital adequacy ratio from the year 2005-2008 can be shown as follows: (As the total capital includes tier-1 and tier-2, it can be viewed separately.)

TABLE 4.1.11

Tier 1 capital :

Year

2005 06

2006 07

2007 08

Tier 1 capital

3,96,216

5,149,91

6,352,71

Risk weighted assets and contingents

41,27,103

60,217,62

74,081,92

Ratio

9.60%

8.55%

8.57%

TABLE 4.1.12

Tier 2 capital

Year

200 5 06

2006 07

2007 08

Tier 2 capital

1,054,73

1,720,71

3,339,99

Risk weighted assets and contingents

41,27,103

60,217,62

74,081,92

Ratio

2.56%

2.86%

4.51%

Where, Tier

 1 capital

includes paid up capital, statutory reserve, general reserve, balance in profit and loss account and amalgamation reserve. From this, outstanding deferred tax asset, if any, is deducted. Tier 2 capital includes general loan loss reserves, investment fluctuation reserve and subordinated debt.

DATA ANALYSIS AND INTERPRETATION

67

TABLE 4.1.13

Total Capital :

Year

2005 06

2006 07

2007 08

Total capital

5,016,89

6,870,62

9,692,70

Risk weighted assets and contingents

41,27,103

60,217,62

74, 081,92

Ratio

12.16%

11.41%

13.08%

Chart 4.1.11

INFERENCE : From the above, it can be seen that the capital adequacy ratio though decreased in the year 2006,it has been increased in the year 2007-08. TABLE 4.1.14:

PERCENTAGE OF NET NON PERFORMING ASSETS TO CUSTOMER ASSETS : The percentage of net non-performing assets to customer assets is shown as below from the year 2005-2008:

Year

2005 06

2006 07

2007 08

Percentage of net non performing assets to customer assets

0.20%

0.36%

0.38%

DATA ANALYSIS AND INTERPRETATION

68

Chart 4.1.12 :

INFERENCE : From the above, it is clear that the percentage of net non-performing assets to customer assets has been increasing from the year 2005-2008 TABLE 4.1.15 PERCENTAGE OF NET NON-PERFORMING ASSETS TO NET ADVANCES : The percentage of net non-performing assets to net advances from the year 2005-2008 are shown as follows: Year

2005 06

2006 07

2007 0 8

Percentage of net non performing assets to net advances

0.24%

0.44%

0.43%

Chart 4.1.13 :

DATA ANALYSIS AND INTERPRETATION

69

INFERENCE :

From the above, it can be observed that the percentage of net non-performing assets to net advances has been increased from the year 2005 to 2006 and it has been decreased in the year 2008. TABLE 4.1.16

PERCENTAGE OF GROSS NON-PERFORMING ASSETS TO GROSS ADVANCES : The percentage of gross non-performing assets to gross advances from the year 2004- 2006 are shown as follows:

Year

2005 06

2006 07

2007 0 8

Percentage of gross non performing assets

to gross advances

1.69%

1.32%

1.32%

Chart 4.1.14:

INFERENCE : From the above, it can be observed that the percentage of gross non-performing assets to gross advances has been decreasing from the year 2005

2008.

DATA ANALYSIS AND INTERPRETATION

71

4.2 PRIMARY DATA ANALYSIS:

Based on the objective, a well-structured questionnaire was framed and the following clearly represents all the related data and their interpretations in a detailed form with statistically proven inferences. TABLE 4.2.1

AGE FACTOR :

INFERENCE : From the above table it can be inferred that 12% of the respondents belongs to 20-25 Age limit, 20% of the respondents belongs to 25-30 Age limit, 24% of the respondents belongs to 30-35 Age limit, 26% of the respondents belong to 35-40 Age limit and the remaining 18% of the respondents belongs to above age 40. Hence the majority of the respondents fall in to the category of 35-40 Age limit. TABLE 4.2.2

GENDER :

INFERENCE : From the above table it can be observed that 76% of the respondents are Male and 24% of the respondents are female. Hence the majority of the respondents are Male. AGE LIMIT

NO. OF RESPONDENTS

PERCENTAGE

20 25

12

12

25 30

20

20

30 35

24

24

35 40

26

26

Above 40

18

18

TOTAL

100

100

GENDER

NO. OF RESPONDENTS

PERCENTAGE

Male

76

76

Female

24

24

TOTAL

100

100

DATA ANALYSIS AND INTERPRETATION

72

TABLE 4.2.3

OCCUPATION

OCCUPA TION

NO. OF RESPONDENTS

PERCENTAGE

Salaried

49

49

Businessman

34

34

Retired

15

15

Others

TOTAL

100

100

INFERENCE : From the above table it is observed that 49% of the respondents are salaried, 34% of the respondents are involved in business, and 14% of the respondents retired and a less percentage of 2 have fallen into the category of others includes professionals. Thus, majority of the respondents are Salaried. TABLE 4.2.4

MARITAL STATUS :

MARITAL STATUS

NO. OF RESPONDENTS

PERCENTAGE

Single

28

28

Married

72

72

TOTAL

100

100

INFERENCE :

From the above table, it can be seen that 28% of the respondents are single and 72% of the respondents are married. Hence the majority of the respondents are married. TABLE 4.2.5

DATA ANALYSIS AND INTERPRETATION

73

NO. OF CHILDREN

INFERENCE : From the above table it can be seen that 68% of the respondents who have got married are having children and 4% of the respondents are not having so far . TABLE 4.2.6 ANNUAL INCOME :

ANNUAL INCOME

NO. OF RESPONDENTS

PERCENTAGE

<2 LAKHS

22

22

2 4 LAKHS

43

43

4 6 LAKHS

27

27

Above 6 LAKHS

TOTAL

100

100

INFERENCE : From the above table it can be seen that 22% of the respondents are earning less than 2 lakhs p.a., 43% of the respondents are earning 2-4 lakhs p.a., which is the major percentage, 27% of the respondents are earning 4-6 lakhs and the remaining respondents are earning above 6 lakhs p.a.,

TABLE 4.2.7

NO. OF CHILDREN

NO. OF RESPONDENTS

PERCENTAGE

Yes

68

68

No

N/A

28

28

TOTAL

100

100

DATA ANALYSIS AND INTERPRETATION

74

ACCOUNT HOLDER OF AXIS BANK :

INFERENCE : From the above table it is found that 86% of the respondents, which is a majority, are holding Account in AXIS Bank and 14% of the respondents are Non-Account Holders of AXIS bank. Non-a/c holders include borrowers, credit card holders and the persons dealing with investments. TABLE 4.2.8 TYPE OF ACCOUNT :

INFERENCE : From the above table it can be seen that 57% of the respondents are Saving A/C holders and 11 % of the respondents are Current A/C holders. And 18% people own both the type of accounts. And for 14% of the people this question is not applicable as they are not the account holders of AXIS bank. TABLE 4.2.9:

ACCOUNT HOLDER

OF AXIS

BANK

NO. OF RESPONDENTS

PERCENTAGE

Yes

86

86

No

14

14

TOTAL

100

100

TYPE OF ACCOUNT

NO. OF RESPONDE NTS

PERCENTAGE

Savings A/C

57

57

Current A/C

11

11

Both

18

18

N/A

14

14

TOTAL

100

100

FINDINGS, RECOMMENDATIONS AND CONCLUSION 5.1

FINDINGS

The increase in the revenue for the sale of insurance policies by AXIS bank and the increase in the retail segments profit and assets indicates that the financial performance of the AXIS bank in bancassurance has been good and the bancassurance has also contributed well to the retail segment.

Though non-interest income as a % to operating profit,total revenue and working funds were increased from 2004 to 2005,i.e., after the year they started earning revenue from bancassurance,it has been decreased in the year 2006-07.With the increase in performance in bancassurance,the same can be overcome.

It is desirable also that the bank can improve its existing performance to increase its return on assets and to reduce the operating expenses of the bank.

Business per employee and profit per employee of the bank are decreasing over the years that it can affect the sale of insurance policies that the banks immediate attention is required.

Capital adequacy ratio has been found satisfactory, as it has been above the prescribed norms of RBI that it reveals the potentiality of AXIS Bank to perform bancassurance operations. The other prescribed norm, which is NPA, also looks reasonable. But, steps can be taken to reduce the same, as its % to customer assets has been increasing over the years.

Thus, it is quite clear that AXIS Bank is expected to take still more initiatives to improve its existing performance in bancassurance. To analyse the ways and means for it, responses are collected from the customers. It also indicates the necessity of further initiatives and the areas where they need to focus andFINDINGS, RECOMMENDATIONS AND CONCLUSION

102

can cash in on the situation for better prospects. Following are the justifications from the primary data:

Though general opinion about insurance is pretty good among the people, most of the respondents are uncertain about insurance as an investment option.

Though most of the respondents are aware of Bajaj Allianz life, awareness needs to be created about the fact that AXIS bank is cross-selling Bajaj Allianz Life Policies.

Most of the respondents are not cognizant enough with the Bajaj Allianz Life Insurance policies as the initiatives taken by AXIS Bank have been inadequate. This is also proved statistically through correlation analysis.

Though the other relationship building factors are found satisfactory among most of the customers, emphasis is needed in the area of Easy and advantageous banking over other banks since it is denied by majority of the respondents. As these factors, especially the easy and advantageous banking determines the mindset of the customer in considering the bank as an integrated financial solutions, this requires immense attention by AXIS bank. The same is also proved statistically through correlation analysis.

Majority of the respondents are satisfied with the customer services provided by AXIS bank that it is a positive sign for bancassurance.

53% of the respondents are not holding any life insurance policy so far that it is clear that there are still lot of untapped source which the bank can explore and reap the harvest.

47% of the respondents choice would be Bajaj Allianz life insurance for obtaining a policy. Out of which, 30 respondents are planning to take anFINDINGS, RECOMMENDATIONS AND CONCLUSION

103

insurance policy in the immediate future .The association between this two is also proved through Chi-square test. Tax benefits, better returns, invest in child dreams, post retirement income, protecting the family in case of unfortunate occurrences are the increasing order of preference in terms of essentiality among most of the respondents in the near future for taking a policy

And out of 47 respondents who are in favour of Bajaj Allianz Life 40 respondents i.e., 85% of the respondents prefer AXIS bank to be their distribution channel. This clearly indicates the advantage the bank can make use of and if taken more initiatives it can even make more customers to buy Bajaj Allianz life insurance policies from AXIS bank . FINDINGS, RECOMMENDATIONS AND CONCLUSION

104

5.2

RECOMMENDATIONS

To strengthen the initiatives that are much needed to reach out more public and to improve its existing performance, the following can be done;

The display case can be located on the place where the customers can have a 100% chance of looking into it like cash counters, entrance etc., The number of display cases can also be increased and catchy slogans can be given.

To reach out more customers via website, AXIS bank can educate the customer by sending frequent e-mails with attractive synopsis to the e-mail ids of the customer about Bajaj Allianz life insurance policies with the link carrying them to the AXIS bank website. More pop-ups window, frequent playing of graphical displays, can also attract more customers who are visiting AXIS bank website.

Employees of the AXIS bank can also be given more training about Bajaj Allianz Life policies, as this will help them to explain and guide the customers better. Motivation, immediate rewards and better incentive packages can also help them to do better. This type of enabling sales oriented culture among the employees is the best possible way to increase the productivity among the employees that it assumes greater significance. Consequently the business per employee and profit per employee can also be increased which is currently decreasing over the years.

Emphasis can also be given to promote insurance as an investment option as most of the respondents are uncertain about it. This will also help them to reach more customers.

Most of the respondents are satisfied with the customer services that it is a positive sign. But, since customer satisfaction is no customer loyalty, they willFINDINGS, RECOMMENDATIONS AND CONCLUSION

105

prefer to accept more products with the same bank only if they find it advantageous. As most of the customers denied the easy and advantageous banking in AXIS over other banks, it is important for the bank to find out more ways to promote the same. This will definitely help the bank to convince more customers to prefer AXIS bank as their one stop shop for all their financial solutions.

Most of the customers prefer to buy insurance policy for tax benefits and better returns that the target customers can be identified.

As many of the respondents who wish to buy Bajaj Allianz Life Insurance Policy also have opted AXIS bank as their channel, the bank can make use of it and retain its customers.

Thus by doing all this, the bank can increase its fee-based income, Return on assets as well as the non-interest income, which leads to much progress of the bank. . FINDINGS, RECOMMENDATIONS AND CONCLUSION

106

5.3

CONCLUSION

The study thus points out that the financial performance of AXIS bank in bancassurance has been good and it also provides a helping hand to the overall progress of the bank. The prospect for bancassurance is also bright as AXIS bank is found to be a preferable distribution channel among the customers who wish to buy Bajaj Allianz life policy. With more initiatives and focus in the specified areas the bank can even have the potentially of making more customers to buy Bajaj Allianz Life policy from AXIS bank. With the merger of centurion bank, it can also take the advantage of more customer base and can become more competitive. Thus with its increase in the existing performance, in the upcoming years, AXIS bank will definitely play a predominant role in the bancassurance industry and there by can contribute more to the upliftment of the bank.

SCOPE FOR FURTHER RESEARCH

As this study focuses only on the limited areas of chennai, it can be extended to other areas for an in-depth analysis.

This study concentrates only on the life insurance segment that it can be broaden by including non life insurance.

Comparative analysis can also be done among the performance of banks, which undertakes bancassurance as this study focuses on the performance of AXIS bank alone .

BIBLIOGRAPHY & WEBLIOGRAPHY BIBLIOGRAPHY : BOOKS :

Reddy, T.S. & Hariprasad Reddy.Y, Management Accounting Margham Publications, Chennai, 2005 .

Lochanan Ravi .P Research Methodology Margham Publications, Chennai, Second Edition, 2003 .

JOURNALS :

Amel Dean Barnes colleen, Panetta Fabio & Sallen Carmelo Consolidation and Efficiency in the financial sector: A review of the international evidence, Journal of banking and Finance Volume No: 28, March 2000,Page numbers: 2493-2519

Browne M.J & Kim.KAn international analysis of Life insurance Demand, Journal of Risk and Insurance Volume No:60,January 1993,Page numbers: 616-634

Carow Kenneth. A Challenging Barriers between banking and Insurance, Journal of Banking and Finance Volume No: 25,April 2001.Page numbers: 1553-1571 WEBLIOGRAPHY :

www.google.co.in

www.Axisbank.com www.Axisinsurance.com www.insureegypt.com

www.insuremagic.com www.watsonwyatt.com