India’s Central Bank has been steadily raising interest rates in 25 bps increments as inflation has raged at more the double digits for more than a year.However it has not stopped the inflation from coming down as high commodity prices keep the inflation at 9% which is much more than the target of 3-5% inflation rates.With Bernake money printing fueling oil and food prices globally,it looked unlikely that RBI’s timid measure would bring the inflation down anytime soon.So this time the Central Bank has thrown the kitchen sink at the problem raising the interest rates by 50 bps to 7.25% which is much more than what the market was expecting.The Central Bank also raised the interest rate on savings rate from 3.25% to 4% which was not expected by anyone.Note the low interest rate on savings bank had been a huge money spinner to top Indian banks which have large deposits of this low interest rate savings deposits.
SBI and HDFC Bank which are the 2 of the largest banks in the country have protested against the RBI proposal to free up the interest rate given on savings account in India.Note RBI fixes the rate at which money deposited in saings account earns interest currently for all banks in India.The current rate is 3.5% which is way below the near double digit inflation rate being experienced in India.Most Indians deposit their savings in bank saving and fixed deposit accounts as there is no widespread equity or debt investment culture in the country.This allows banks with a large retail depositer base to earn supernormal profits by paying pathetic interest rates on savings account and lending that money at 12-13%.While the public sector banks have to serve a lot of priority sectors private banks have no such concerns.This leads to high NIM for private banks leading to huge profit growth each year.This has made investing in top banks in India such an attractive proposition.
Private Banking in India has become one of the fastest growing businesses in the country with a rising wave of millionaires forming an attractive target segment for MNC banks looking for growth.Top Indian Banks have given spectacular returns driven by India’s 8% GDP growth and increasing financial penetration.Note Private Banking or Wealth Management business involves providing taxation,wealth managment,investment,insurance and other financial products under one umbrella to wealthy customers.The private banking customers recieve privileged services from the banks who provide a one stop contact person in the shape of a “relationship manager”.Compare this to normal banking customers who face namelss contact centre operators with little knowledge.Most of the foreign banks in India like Barclays,Standard Chartered,Citibank which have a big presence in India have been hiring aggressively and targeting wealthy customers through a big marketing spend.However the services being given leave a lot to be desired.”Trust” is the biggest quality in a banking relationship as a customer trusts his life savings and in this quality these banks have failed miserably.
The Government of India issued an Ordinance on 19th January, 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. In 1972 with the General Insurance Business (Nationalization) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.Now more than 20 life insurance companies in India have started operations with the industry size expected to reach a mammoth $350-400 billion by 2020. Before that, the industry consisted of only two state insurers: Life Insurance Corporation of India, LIC and General Insurers (General Insurance Corporation of India, GIC). GIC has four subsidiaries
General Insurance covers all the non-life insurance types such as Motor Insurance,Health Insurance,Calamity Insurance,House Insurance etc.The biggest money earner for General Insurance Companies is Health Insurance and its associated policies like Disability Insurance etc.Having health insurance is important for several reasons. Uninsured people receive less medical care and less timely care, they have worse health outcomes, and lack of insurance is a fiscal burden for them and their families.
Government General Insurance Companies are the best ones to take health insurance policies because of a simple fact that do not cheat and harass you like the private insurance companies whose only aim is to earn a quick profit.Given the pathetic system of contract enforcement in India this become especially important as legal cases can go remain stuck in the justice system for years.Just like LIC is the best life insurance company in India because of the TRUST factor so are the Four government health insurance companies because of their government ownership and lack of overarching profit motive.
In India, Insurance is a national matter, in which life and general insurance is yet a booming sector with huge possibilities for different global companies, as life insurance premiums account to 2.5% of India’s GDP. The Indian Insurance sector has gone through several phases and changes, especially after 1999, when the Govt. of India opened up the insurance sector for private companies to solicit insurance, allowing FDI up to 26%. Since then, the Insurance sector in India is considered as a flourishing market amongst global insurance companies. However, the largest life insurance company in India is still owned by the government.The Insurance Industry has grown (premium as percentage of GDP) from 2.3 per cent in 2001 to 5.2 per cent in 2011.The report estimates the total insurance premium at approximately Rs $350-400 billion in 2020 with Life Insurance making 90% of the premiums.The profitability of the industry is negative as they have spent their energies in expanding their base in a rapidly growing market without concentrating on the margins leading to a cumulative loss by private insurers of around $3.5 billion.However the huge size of the insurance market which has been estimate at an astounding $350 billion in premium by 2020 is attracting companies in droves.Almost all major global insurance companies have a presence in India through JV (as government regulations only allow 26% holding).Major Indian Banks and Finance Companies too have a presence in the sector through JV with foreign partners who bring the expertise.