Investors fail to renew Rs 1.9 lakh cr of insurance policies

http://www.thehindubusinessline.com/industry-and-economy/banking/investors-fail-to-renew-rs-19-lakh-cr-of-insurance-policies/article4727994.ece

A large chunk of insurance policies from private insurers lapsed because investors didn’t pay their renewal premium, data from the IRDA’s Handbook of Statistics reveal.

 The lapse ratio was as high as 51 per cent for Birla Sun Life Insurance, 49 per cent for Future Generali and at 42 per cent and 36 per cent, respectively, for ICICI Prudential and Bharti Axa Life in 2011-12.

Lapse ratio is the proportion of policies where renewal premium was not paid.

The Life Insurance Corporation has, however, maintained lapse ratios at 4-5 per cent over the last few years. 

Clubbing private players and LIC, investors didn’t renew a total of 160 lakh traditional insurance plans of the value of Rs 1.9 lakh crore (total sum assured) in 2011-12, registering a two-fold jump from 2008-09. Traditional plans include term covers, endowment policies and health insurance plans. It excludes unit linked plans (ULIPs). Had ULIPs been included the lapse ratios will be even higher.

 LACK COMMITMENT

The persistency ratio – the number of policyholders who stay with their policy for five years or more – is also low. A majority of private insurers saw less than half their policyholders staying on after the fifth year.

 Why did so many investors not renew their insurance plans? Some insurers say this is a result of investors switching plans due to changing priorities.

Saujanya Shrivastava, Chief Marketing Officer of Bharti AXA said, “Policy lapses are high mainly in the endowment segment where the policy tenure is 10 or 15 years and people lack long term commitment because of changing priorities.”

 Another side to the story could be mis-selling, where agents mis-represent the product to the prospect. The Insurance Ombudsman received a total of 1.07 lakh complaints in 2011-12 on ‘unfair business practices’ in life policies. One-third of these policyholders complained that the product was different from what was projected.

 Changing regulations that see insurers launching new products every year could also play a role.

“Insurers keep launching new products and the message that goes to consumers is that old products are not good enough. They then just try to cut losses and move away (from their older plans),” says Shashwat Sharma, Partner– KPMG (India). 

 Where does the money go?

The next big question is – what happens to the premium collected on lapsed policies?

 When a traditional policy is discontinued after three years, it attains paid-up status and the surrender value as agreed is paid back to the policyholder.

However, when a buyer stops premium payments within three years, “the money is moved to reserves and carried forward for future appropriation or made available to shareholders depending on whether it is a participating or non-participating plan,” says Anish P. Amin, Partner-PwC.

 If ULIPs are included, the lapse ratios would be even higher. In a ULIP, if premium payment is stopped within five years, the money is transferred to a separate fund that earns token returns. At the end of the fifth year, the money is paid to the policyholder.

Banks prodding student borrowers to furnish PAN

http://www.thehindubusinessline.com/industry-and-economy/banking/banks-prodding-student-borrowers-to-furnish-pan/article4714991.ece

To prevent student borrowers from doing a vanishing act after completing higher education, banks are encouraging them to apply for permanent account number (PAN) at the time of taking loans.

By asking for PAN, which is a 10-digit alphanumeric number allotted by the Income-Tax Department, banks will be able to track down those who have defaulted on loan repayments.

Though obtaining a PAN is not mandatory for student borrowers, bankers feel they should get one before completion of their course and inform the bank.

This move comes in the backdrop of banks facing stress in the case of education loans of up to Rs 4 lakh.

As per the Indian Banks’ Association’s model loan scheme, banks can neither seek margin nor security for education loans up to Rs 4 lakh.

So, if the borrower defaults, recovering the loan becomes well-nigh impossible.

“Whenever a student visits the branch for getting the next loan instalment, we encourage him/her to obtain PAN. It is up to the student to get the PAN. As responsible citizens, they should obtain PAN,” said a senior official of a public sector bank.

If a student borrower who has taken up a job after completion of his/her higher education course defaults on repaying the loan, then the PAN could come in handy for a bank to cross-check his/her financial status from the income-tax returns or even know his/her whereabouts, he added.

As on February 22, 2013, banks, mainly state-owned, had an education loan portfolio aggregating Rs 55,100 crore (against Rs 50,000 crore as on February 24, 2012).

No of fraudulent cash withdrawal cases down: Pratip Chaudhuri, SBI chief

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/no-of-fraudulent-cash-withdrawal-cases-down-pratip-chaudhuri-sbi-chief/articleshow/19974096.cms

The number of cases of fraudulent cash withdrawals through ATM card cloning has come down significantly for SBI after the bank took concrete steps, its Chairman Pratip Chaudhuri said today. 

He also said it was "unaffordable" for the bank to station a guard outside each and every ATM centres. 

"We have made good the loss (suffered by bank customers due to fraudulent withdrawal of cash). Cameras have been installed in ATMs and SMSes are being issued to customers on certain amount of withdrawal," he told reporters. 

He was responding to queries on what steps the bank had taken to prevent fraudulent withdrawal of cash from accounts of SBI customers. 

He said SBI accounts for 25 per cent of the total ATMs and 25 per cent of transactions. "We have many ATMs in semi urban and rural areas where policing arrangements are not as strong," he added. 

He added that it was not financially viable for the bank to have a guard outside each and every ATM centres. 

"If you want to provide one guard for every ATM centres for 24 hours and for 25,000 ATMs you need 75,000 guards...It becomes unaffordable," he said. 

There has been number of cases reported in the Tricity of Chandigarh, Panchkula and Mohali in the last one year or so wherein customers of SBI and its associate banks complained of fraudulent cash withdrawal from their accounts. 

Police findings had suggested that some unscrupulous persons withdrew the money by cloning the ATM cards and installing skimming machines.

Women's Bank to begin operations in November

http://www.financialexpress.com/news/womens-bank-to-begin-operations-in-november/1112959/0

The blueprint of the country's first Women’s Bank is ready and the venture is likely to start off with six branches across the country by November. With an initial outlay of Rs 1,000 crore, the bank will open with six branches — one each in the four metro cities, while a fifth would be in central India and the sixth in the north east. It would expand subsequently to 25 branches within a span of one year and scale up to 300 over the next four to five years."

"Locations are nearly finalised and the Mumbai branch will be in Bandra Kurla Complex and the one in Delhi will be opened in Parliament Street,” said a senior government official.

To be set up as a public sector bank, the proposed bank will differentiate itself from its state-owned counterparts in terms of lending exclusively to women-run businesses and self help groups. It would, however, include male employees in its payrolls. “We can’t have it manned exclusively by women. It will certainly have men employees as well,” the official said. But to cut down on hiring and recruitment costs, the finance ministry will allow lateral movement of employees from other public sector banks as well. But the plan is to keep staff at a minimum and depend more on technology to ramp up services. “To start off with, it will be a small set up. So the idea is to have as few employees as possible and use technology to provide world class services,” the official said.

But the name of the bank is still a mystery, with a final call likely to be taken by finance minister P Chidambaram. The proposal of a Women’s Bank was mooted by Chidambaram as part of Budget 2013-14 and is aimed at fulfilling one of the UPA’s key agenda of providing gender empowerment and financial inclusion. Soon after, the finance ministry had set up a six member expert committee under former Canara Bank chairman MBN Rao to finalise the road map for setting up the bank.

It would expand subsequently to 25 branches within a year and scale up to 300 over the next four-five years

SBI Chairman says not looking at group consolidation for now

http://www.thehindubusinessline.com/industry-and-economy/banking/sbi-chairman-says-not-looking-at-group-consolidation-for-now/article4689398.ece

State Bank of India on Monday made it clear that it was not looking at consolidation of any of its associate banks with itself for now.

But the issue has not gone off its radar and may well be taken up for consideration after July, Pratip Chaudhuri, SBI Chairman, told Business Line here. He was in the Capital to attend the board meeting of State Bank of Bikaner & Jaipur (SBBJ).

Chaudhuri, however, maintained that there was good economic logic in going for consolidation of its associate banks with SBI.

In recent years, two of SBI’s erstwhile associate banks — State Bank of Saurashtra and State Bank of Indore — were merged with it.

The other five stand-alone associate banks of SBI are State Bank of Patiala, State Bank of Hyderabad, State Bank of Mysore, State Bank of Bikaner & Jaipur and State Bank of Travancore.

RBI to incentivise banks for reporting counterfeit notes

http://www.business-standard.com/article/finance/rbi-to-incentivise-banks-for-reporting-counterfeit-notes-113050500084_1.html

The Reserve Bank will introduce a scheme of incentives for banks to encourage them to report detection of counterfeit notes.

"In view of the recommendation of the DPSC for addressing the menace of counterfeit notes, it has now been decided that in order to encourage banks to report counterfeit notes, detected by them, a scheme of incentives for banks will be introduced," RBI Governor D Subbarao has said in the Monetary Policy Statement for 2013-14.

The Department-related Parliament Standing Committee (DPSC) on Ministry of Home Affairs in a report has recommended the RBI to constantly upgrade security features in high value currency notes and strengthen mechanisms for detection of counterfeit notes.

The existing penalty for non-detection and non-reporting of counterfeit notes by banks is also being revisited, the Governor said.

The RBI will release the detailed guidelines regarding this by the end of June.

Subbarao said incorporating new security features or new designs in the banknotes to stay ahead of counterfeiters is an ongoing process and the process of incorporation of better and improved security features has been initiated by the government in consultation with the RBI and other stakeholders.

As per the RBI data, in 2011-12 as many as 521,000 counterfeit notes were detected in the system.

The recent advances in printing technology have greatly aided production of counterfeit notes which is posing serious threats to the currency and financial system.

Opening new banks will not be a 'cakewalk':

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/opening-new-banks-will-not-be-a-cakewalk-rbis-deputy-governor-kc-chakrabarty/articleshow/19700882.cms

 RBI Deputy Governor KC Chakrabarty today said opening of new banks will not be easier this time around unlike in 1993-94 period, when a number of new lenders came up.

"This time opening of (new) banks is not so easy because we have got PSL (priority sector lending) norm which is mandatory and 25 per cent of the branches have to be opened in unbanked sectors," he said at an event here late evening.

"It will not be a cakewalk as it happened in 1993-94," he added.

The last time new banks were allowed was in 2002-03 when two licences were issued. In the first wave of privatisation of the banking sector, 10 players were allowed to start operations in the mid-1990s and these included ICICI Bank, HDFC Bank and IDBI Bank, among others.

Justifying the government's decision to grant new licences, the Deputy Governor emphasised on the need for more banks in the country to reach out to the unbanked population.

"We have less number of banks. Competition is less. That's why we are looking for issuing new licenses."

Chakrabarty pointed out that purpose of giving new banking licences is to further the cause of financial inclusion and aspirants with sound model will be given priority.

"That (financial inclusion) is what the objective is. But the issue is that these new licenses, if you see the guidelines exclusively says that it is for those people who want to further the objective of financial inclusion. Those (aspirants) who have a model, will be given the priority."

Referring to number of banking licences that will be issued, he declined to give any number.

Asked about the need of tailor-made banks which cater to specific requirements, the Deputy Governor said the regulator is looking at fit-all-size model as of now.

RBI released its final guidelines for new banking licensing in February this year, asking aspirants to submit applications by July 1, 2013.