With the government increasing the FDI limit to 49 per cent, there is a keen sense of anticipation within the Indian insurance industry that is expecting a flush of foreign investment in the sector. However, valuation of insurance companies is still a relative novelty for investment analysts in India as the industry has historically been isolated from the analysts’ radar.A joint study by CII and Towers Watson, titled Indian Insurance Sector: In Pursuit of Value demonstrates the measurement of value from insurance business and chronicles the industry's experience to date in being able to deliver stakeholder value for both consumers and providers of insurance.Sanjiv Bajaj, Chairman, CII National Committee on Insurance and Pensions and Managing Director, Bajaj Finserv Ltd, said “The government has done a commendable job with FDI in creating a conducive environment for the sector to realise its full potential and unlock value. It is now critical for all the stakeholders, led by the insurance companies, to make a concerted effort in building a value creating and value delivering industry, thus staking claim to its rightful position among the most promising insurance markets in the world.The study sheds light on sources of profits for insurers and through stylized case studies, illustrates possible paradoxes in the analysis of long term life insurance business for the shrewd investor.Despite recent challenges – including a raft of regulatory changes, growing competition, mis-selling and a prolonged economic slowdown - that have all required insurers to constantly reassess their business strategies, the study has highlights that insurers remain upbeat about the industry's prospects and have emerged anew seeking growth, momentum and value.Key challenges for the insurance sectorDistribution appears to have posed maximum challenges for the insurance sector in the recent past, yet continues to be seen as the major driver of value in future. A majority of the bigger challenges faced by life insurers have either been related directly to distribution channels - for example, retention and productivity of agency force and managing third-party distribution tie-ups or indirectly (such as, managing policy persistency). Similarly, the balance of power being significantly in favor of the distributors was one of the major challenges faced by the non-life insurance companies as well.The inability to balance growth with profits was cited as one of the key challenges faced by non-life companies. Inefficiency prevalent within the insurance sector is again one of the key challenges that need to be overcome for all stakeholders, including policyholders, investors and distributors, to realize the true potential of the business.Setting the right KPIsThe study highlights historical focus on short term KPIs by focusing disproportionately on just new business growth and premium incomes that may have hampered long term value creation for the sector that would emerge with a robust back-book. A key requirement for implementation of business optimization strategies is ensuring alignment of the KPI of the senior management of insurance companies with shareholder objectives.
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The Hong Kong central bank said on Friday (31 July) it has fined State Bank of India's Hong Kong branch HK$7.5 million ($1 million) for breaching the city's anti money-laundering and counter terrorism financing rules. The fine marks the first time the Hong Kong Monetary Authority (HKMA) has taken disciplinary action under Hong Kong's Anti Money-Laundering Ordinance brought into force in 2012. The HKMA said between April 2012 and November 2013 State Bank of India (SBI) Hong Kong failed to perform a series of key anti money-laundering checks, including doing due diligence on 28 corporate customers, monitoring existing business relationships, and verifying whether its customers were politically exposed persons. Besides paying the fine, the bank must also submit an independent report to the HKMA, which is Hong Kong's banking regulator, outlining the remedial action it will take to tackle these internal control failings, it said. "It is important to note that neither the HKMA nor the external consultants found any instances of problem accounts or suspicious transactions during the period in question, or the years following," SBI said in a statement. "We fully support the HKMA’s efforts to ensure high standards of due diligence and monitoring among Hong Kong’s financial institutions. As noted by the HKMA, we have undertaken very positive and intensive remediation work to address their findings, which refer to procedures and policies in place during 2012 and 2013.” The HKMA has stepped up efforts to crack down on money laundering in recent years following fears raised by international regulators that the city's controls were not strong enough.(Reuters)
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ICICI Bank Ltd, India's biggest private sector lender by assets, reported a marginally better-than-expected 12 per cent rise in quarterly profit and said its bad-loan ratio fell sequentially, sending its shares more than 5 per cent higher. Net profit rose to 29.76 billion rupees ($465 million) for its fiscal first quarter to June 30, from 26.55 billion rupees reported a year earlier, the lender, which is also listed in New York, said in a statement. Analysts on average had expected ICICI Bank to report a net profit of 29.2 billion rupees, according to data compiled by Thomson Reuters. Gross bad loans as a percentage of total loans fell to 3.68 per cent from 3.78 per cent in the March quarter although they were higher than the 3.05 per cent reported a year earlier. Indian banks have seen their bad loans almost double in the past three years as a weak economy limited companies' ability to service debt. While the dominant state-run lenders account for the majority of the bad loans, private sector lenders like ICICI have also seen their troubled loans rise. Brokerage Ambit said this week it expected the pressure on ICICI's asset quality to continue with fresh addition of bad loans and increased slippages from restructured loans. ICICI's first-quarter net interest income grew 14 percent over a year earlier, while non-interest income rose 5 percent . Net interest margin rose to 3.54 per cent from 3.4 per cent a year earlier. Retail loans grew 25 per cent, faster than the 15 percent increase in overall credit. Shares in ICICI Bank were trading 5.8 per cent higher by 12:35 IST GMT in a Mumbai market that gained 1.26 per cent. The stock has underperformed the bank Nifty and the Nifty this year.
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Kotak Mahindra Bank, India's fourth-biggest private sector lender by assets, expects its credit costs to jump this fiscal year as it makes more provisions related to its purchase of smaller local rival ING Vysya Bank, it said on Thursday. Kotak Mahindra agreed in November to buy ING Vysya for $2.4 billion in what was the country's biggest bank takeover. The operations were combined effective April 1. Kotak Mahindra's credit costs will be about 80 basis points for the fiscal year to March 2016, compared with 30 basis points last year, Managing Director Uday Kotak said after the lender reported a 56 percent decline in its first-quarter profit. "A significant amount of provisioning requirements of the combined company are behind us. Going forward, for the rest of three quarter between July and March, we expect incremental credit cost of about 0.50 per cent on the combined balance sheet," Kotak said. Provisions including for bad loans and employee retirement benefits jumped 22 times from a year earlier, dragging down Kotak Mahindra's net profit to 1.89 billion rupees ($29.52 million) for the three months to June 30, from 4.29 billion rupees a year earlier. The lender had taken "some of the tougher calls" on provisioning which will continue for the rest of this fiscal year, billionaire Kotak told a news conference, adding he saw credit costs coming down to a "normalised" level from next year. "This merger is extremely value accretive and we see significant benefits flowing through as we go into future," Kotak said. Gross bad loans as a percentage of total loans rose to 2.31 percent in the June quarter compared with 1.85 percent in the March quarter. Provisions totalled 3.05 billion rupees. Kotak Mahindra has moved the stressed loans that came to it through the ING Vysya acquisition to an internal "bad bank" and is focusing on recovery, Dipak Gupta, a joint managing director at the lender said. (Agencies)
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Looking for a term plan that can be more customised? Here’s an online term plan with several options to choose from, a joint life cover and cover till age 75. Sunil Dhawan writes PNB Metlife has recently launched a term plan titled ‘Mera Term Plan’, which would only be available online. The life insurance needs are best me through a pure term plan as they come at low cost and offer high sum assured. However, not all of us have the similar kind of requirements when it comes to financial protecting the family members. Mera Term Plan makes an attempt to provide several options within the same plan so as to cater to varying needs of the individual. Unlike most other term plan offerings in the market today, this plan addresses four distinct needs in an individual’s life through these four versions – - A lump sum pay out to nominee in case of death. - A lump sum pay out plus a regular monthly income for 10 years- A lump sum pay out plus increasing monthly income- A lump sum pay out plus a regular monthly income till child turns 21- In addition, there are few other optional benefit that one can add-on to any of the four versions of Mera Term plan – Joint life benefit and the Life stage protection. Only of these can be added to the main policy. Joint Life BenefitIn these times, it’s common for both spouses to be working. However, most such working couple avoid taking life insurance citing reason that they are not financially dependent on each other. Financial planners suggest life cover even for working couples. The one earning more should be taking high coverage to provide for at least 80 per cent of household expenses. Joint life option ensures that life cover for surviving spouse continues even if the policyholder dies. All future premiums for your partner’s cover will be waived off. The maximum cover under joint-life for the spouse is limited to 50 per cent of primary policyholder’s coverage and is capped at Rs. 50 lakh. For homemakers, it’s capped at Rs 25 lakh. Life Stage Protection As one ages, responsibilities increase too. At different life stage there are financial obligations to be fulfilled. Buying additional coverage requires medical underwriting and may get declined because of adverse health record. Life stage protection option gives you opportunity to buy an additional cover as per the then prevailing age and premium without any medical examination on the following circumstances. On marriage, one may add cover equal to 50 per cent of the original cover and on first and second child, another 25 per cent can be added up to a maximum of Rs 50 lakh. The end note: A term plan appear to be the simplest insurance product. However, instead of buying it solely on the basis of lowest premium may not be the best way. Buy a term plan that helps you meet your foreseeable requirements. Reviewing your requirements therefore is important as one ages. Mera term plan is one such plan that could help you not only act as an income replacement tool but also ensure funds are properly utilized by surviving family member in addition to providing life stage protection. sunil@businessworld.in For more on personal finance stories:http:/businessworld.in/tags/sunil-dhawan
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India's second-biggest state-run lender by assets Bank of Baroda forecast growth in troubled loans to slow in the coming quarters due to its moves to curb risk, as it posted a quarterly profit that beat estimates and sent its shares soaring.The bank, however, cautioned that the bad-loans pain was not entirely over, with some its peers such as Bank of India, the third-biggest state-run lender, reporting a spike in its bad loans for its fiscal first quarter.Mumbai-based Bank of Baroda reported on Thursday a net profit of Rs 10.52 billion ($164.50 million) for the three months to June 30 that was about 23 per cent lower than the year-ago quarter but higher than analysts' average estimate of Rs 9.29 billion.Even as its gross bad loans as a percentage of total loans rose to 4.13 per cent from 3.72 per cent in the previous quarter, Bank of Baroda said the additions to bad loans during the quarter had been lower than its initial expectations."I would love to say that we have seen the worst of the NPAs (non-performing assets) and the restructured and the stressed assets," Bank of Baroda Chief Executive Ranjan Dhawan told a news conference."But I am conscious of the fact that other banks have also declared very high levels of stressed assets. So I feel that the pain is not entirely over," he said.Kotak Securities analyst Saday Sinha said Bank of Baroda's stressed loans at 8.2 per cent were lower than its peers and called it a "positive".Indian banks' bad-loan ratio has almost doubled in the past three years amid weak economic growth that limited companies' ability to service debt. State-run lenders, who dominate India's banking sector, account for majority of the sour debt.Bank of Baroda is lending selectively to companies and is instead expanding faster in retail loans, Dhawan said. The bank is staying away from commodities, particularly steel, he said. Steelmakers have been hit by weak prices and surging imports from China."We are very very choosy, we hardly take any steel account," Dhawan said, adding other sectors the bank was "careful" about lending to included textiles, infrastructure and real estate.Bank of Baroda shares were up 9.5 per cent on Thursday afternoon, after rising as much as 10.5 per cent.($1 = Rs 63.9500)(Reuters)
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Yes bank on Wednesday (29 July) said that its net profit grew 27.7 per cent to Rs 551.20 crore for the quarter ended June 30, 2015, on higher net interest income. Bank’s net profit during the April-June quarter of the previous fiscal was Rs 431.54 crore. Its net interest margin (NIM), the key gauge of profitability, expanded to 3.3 per cent in the first quarter of the current fiscal, from 3 per cent in the year-ago period, Yes Bank said in a filing on BSE. Net interest income of the bank rose by 42.2 per cent, year-on-year, to Rs 1,059.80 crore, it said. Total income also increased to Rs 3,797.02 crore in the first quarter of 2015-16 as against Rs 3,093.19 crore in the same period of previous fiscal. However, bank’s asset quality slipped during the period under review, with gross Non-Performing Assets (NPAs) rising to 0.46 per cent of the gross advances as against 0.33 per cent a year ago. Similarly, net NPAs or bad loans also inched up to 0.13 per cent, from 0.07 per cent of net advances. Yes Bank’s total advances grew by 35.1 per cent to Rs 79,665.60 crore and total deposits grew by 25.2 per cent to Rs 95,315.90 crore as on June 30, 2015. “Yes Bank…has posted another satisfactory quarter of consistent results, which is reflected in strong loan growth, NIM expansion and continued resilience in asset quality,” said Rana Kapoor, Managing Director and CEO Yes Bank.The RBI approval for setting up IFSC unit in GIFT city in Gujarat will significantly enhance Yes Bank’s international banking product offerings for the Bank’s corporate clientele while enabling long term foreign currency fund raising for the bank at competitive rates, he said. “Also, RBI’s recent approval for the Bank to act as primary dealer will further complete our product suite in becoming a complete Rupee Debt House,” Kapoor added. Yes Bank stock was up 2.59 per cent at Rs 815.25 on the BSE after it declared results for the first quarter.(PTI)
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Tarun Chugh – Managing Director & Chief Executive Officer, PNB MetLife Insurance talks to BW|Businessworld's Sunil Dhawan about industry trends, company’s online presence and the impending danger from frauds in life insurance industry. At a time when the digital is getting a push, are insurance companies making use of technology and how?If you look at the capital deployment and cost spread of an insurance company, bulk of the expenses for the insurance company is at the front-end and the balance at the back-end. However when we look at the capital deployment for technology, the bulk of the investments is towards the back-end for most companies, including ours. While that may have been required earlier to set up systems, but now we need to invest more in building technology to develop the sales and post sales processes. Of late, huge progress has been made in this area. We have started to pilot tablets in Delhi and Mumbai, for filling up application forms and are doing the KYC requirement online. We are linking up the form-filling stage with the back-end including that of medical underwriting. We will soon incorporate the ‘need analysis’ section into the system. Last week we launched our e-commerce platform. The premium is lower when one purchases directly from the company website as the distribution costs are minimal. This is in line with IRDAI guidelines. Being a life insurance company, what made you launch an online health plan? And you do not have an online term plan? I wanted to start a little differently. Everybody has a term plan but we thought of initially launching a health plan online which by itself is an innovation inthe market. It is a critical illness plan with return of premium feature, which helps a family replenish their finances in case of a critical illness. It covers 35 critical illnesses and the total premium is returned to policyholder if there is no claim during the period. Life insurance council is considering setting up a fraud unit. How serious is the fraud in Indians insurance industry?Fraud is a very serious issue in the BFSI sector. In 2010 when insurance guidelines changed and sum assured (life cover) had to be minimum ten times of the first year premium to get tax benefits under section 10 10(D), we suddenly had instances of fraud go up. Frauds around death claims is a huge concern for the industry. To combat this, all companies are getting together and working together to create a centralised database of such frauds. There has also been fraud around surrenders that the industry is suffering. We recently discovered this in North India and filed an FIR which led to some of these people getting arrested. On surrender, proceeds typically go through NEFT to policyholder’s account. Due to our Risk Management Framework, we found that this was getting diverted to a different bank account. As per available industry data, complaints on unfair business practices was pegged at 1,68,482 for FY1012-13 for life insurance sector. This has shown an increase of 10% over the same period last year. Going forward, what should be the role of regulator in shaping the future of insurance industry from here? I think the regulator is in a very sweet spot after a long time. With the Insurance Bill coming through, the Regulator is more empowered. We can already see that in the recent guidelines around distribution and penalties. And for the first time in years IRDAI is fully staffed. Our product approvals are faster now. I believe that the industry can record a growth of 5-7 per cent only by introducing operational efficiencies.
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