Small savings rates may not be going down in a hurry. Make hay while the sun shines, says Sunil Dhawan It’s almost ten days since RBI had cut the repo rate by 0.5 per cent but the lending rates in the economy doesn’t seem to come down. From 7.25 per cent, the repo rate stands at 6.75 per cent now. In September 2014, it stood at 8 per cent. Overall, the repo rate has been reduced by 1.25 per cent over the last 12 months. However, the banks have reduced their base rate by around 0.30 per cent. With reduced repo rate, banks can now borrow at low cost from RBI. But, that’s not the entire story. For further lowering of base rate, banks need to bring cost of deposits lower. Liability towards existing deposits is high as such deposits have been contracted earlier.So, what is holding them back from reducing deposit rates on fresh funds? It’s the post office small savings interest rates probably. Even finance ministry officials have hinted upon the lowering of small savings rates. Lowering of interest rates understandably are favoured by corporates, markets and anybody who is a borrower. The biggest casualty are the fixed income investors especially the retired citizens who rely on fixed income for their regular income needs. Presently, banks are offering interest rates around 7.75 per cent or even lower across most tenures on the bank fixed deposits. Let’s now see how and what governs small savings rates. Unlike in the past, when government fixed the rates, nowadays, rates of PO instruments are linked to G-sec rates and are re-set each year on 1st April as per the recommendation of the Shyamala Gopinath committee report. In addition to benchmarking the rates, there are provisions in the report to take care of volatility risk if the differential between policy rate and small savings rate gets stretched. Whether the government can intervene before 1st April to align the rates with market realities will be interesting to see, keeping in mind the political fallout in reducing small savings rates.
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C. H. Unnikrishnan India’s most productive and aspiring young generation with more access to healthcare information hasn’t yet fully understood the importance of medical insurance cover, and almost half of them still buy these products just for saving tax. A latest survey conducted by the country’s top private health insurer ICICI Lombard among the Indian millennial (the population between the age group of 25 to 35 years and mostly in the best earning bracket) showed that 46 per cent of them purchase health insurance just to avail tax benefits and their awareness about health insurance as a financial protection against medical exigencies is still very low. The multi-city survey across Mumbai, Delhi, Kolkata, Bangalore, Chandigarh, Lucknow, Hyderabad and Ahmedabad, also revealed that 62 per cent of this young population are covered under a floater plan and 43 per cent of the female respondents are covered under a group medical insurance highlighting the need to create awareness about purchasing health insurance themselves. The survey has also thrown up some interesting observations on the lifestyle and financials of India’s millennial group. These include the spending pattern of this confident, aspiring and alert generation, who spend almost 69 per cent of their income every month. While 50 per cent of their income is spent on family and household items followed by EMIs (equated monthly instalments) and premiums, they also spend considerably on leisure and entertainment. However, their overall expenditure on health and medical is just 5 per cent of their monthly income, the survey revealed. It also emerged from the survey that the uninsured young generation saved less and spent more on medical expenses as compared to their insured counterparts. An ICICI Lombard internal claims data on this segment also shows that claims for the said age group are increasing year on year. The other interesting observations from the survey include that 86 per cent of young people in the target cities believe that they are fit and healthy. The insured are more confident about their health than the uninsured. While, at least 68 per cent of the overall respondents agreed that busy life has an impact on their health, a larger number is conscious of their health despite the propensity to lead an indulgent lifestyle. The study also showed that 85 per cent of the young earning population take steps to de-stress themselves through conscious efforts like regulated diet, yoga or meditation and fitness sports. “It is heartening to know from the ICICI Lombard survey that they (the targeted age group) understand the importance of good health. However, the level of health insurance awareness among the average Millennial is significantly low with limited understanding of benefits. It is critical that they are guided in terms of realizing the importance of getting insured when young and healthy,” said Sanjay Datta, chief of claims, underwriting and reinsurance, ICICI Lombard General Insurance. According to the survey, while most Millennials purchased a policy at the age of 30 years, they believe that it should be bought earlier that is 25 or at least before the age of 30. The medical insurance industry, which includes government and corporate insurance schemes and individual cover, is currently estimated at Rs 20,000 crore in India. While, the government medical insurance schemes such as ESI and other healthcare programmes are still the significantly large portion of the 25 per cent coverage (percentage of the country’s total population), the market share of private insurance companies is about 5 to 6 per cent.
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Somesh ChandraThe success of any idea or business is determined by how well it resonates with consumers. While the initial stages necessitate a considerable push from the business until the idea finally hooks consumers, ultimately it needs to evoke substantial interest to drive adoption. Typically this journey is marked by three to four stages – seeding of the idea, building interest/recall and ultimate adoption followed by consumer loyalty. In short, the critical shift replacing the initial push from business to the ultimate pull from the consumer is what will determine success. The growth rate of any sector/industry is largely dependent on how rapid is the switch from push to pull. The more rapid the switch, the higher the rate of growth. Speaking of the health insurance industry in particular, for the longest time, it has been predominantly a push category with health insurance players adopting different channels and strategies to drive health insurance adoption among consumers. It is only recently that there has been a gradual shift. The increasing demand for health insurance from consumers is steadily changing the industry dynamics. Reason Why Health Insurance Remained A Push Category For LongSomesh ChandraOne of the major reasons is clearly the lack of awareness of benefits of health insurance in the long term. Category understanding remained low with a significant section of the country plagued with misconceptions such as health insurance only being relevant for the elderly or being too complicated with several hidden clauses. Some of the common myths that came out from a recent study, Max Bupa Health Insurance Pulse 2015 are listed below 1. The need for health insurance 50 per cent of the respondents thought that health insurance is for the old and 48 per cent thought that they don’t need health insurance since they are healthy. This impression of consumers could be due to the fact that Indians might be overly optimistic about their health as the report found 58 per cent not worried about their health in the near future and 72 per cent saying that they are in very good health. People also seemed to be quite bullish about their ability to foot old age retirement health costs, with 59 per cent saying that they have enough savings for that purpose. 2. Comparison with life and accident covers71 per cent felt that since they get health benefits from their life cover they don’t need a separate health insurance plan. Clearly, the absence of consumer awareness prevented more consumers from reaching out for comprehensive health insurance coverage. 3. The utility of health covers Of the total number of respondents, 71 per cent were unsure of the benefits derived from health insurance while 62 per cent thought that there is no benefit by renewing. Also, 64 per cent weren’t aware of day care and OPD coverage, with only 20 per cent being aware of maternity coverage, even as 66 per cent were unaware of relationships such as brothers- and sisters-in-law being covered under the same policy. Further, 65 per cent also didn’t see differentiation among health insurance offerings. The last two responses can primarily be attributed to the absence of adequate awareness about the enhanced features and protection offered by health insurance products. 4. Importance of staying insuredOnly 50 per cent of the respondents claim to have renewed their policies. The low awareness about benefits like no claim bonus and loyalty programmes at renewal was likely to be a major cause for this. 5. Premiums affordability as a purchase barrierDespite increasing awareness about health insurance, affordability of premiums was still the top purchase barrier for 20 per cent intending to purchase, followed by 13 percent citing the absence of return. The ShiftIn spite of mere 7 per cent penetration among the Indian population, there is evidence that Indian consumers are evolving on many fronts. As is evident from the study, health insurance consumers are evolving from being price conscious to being value conscious. Most of the owners still feel inadequately protected with growing awareness about increasing cost of hospitalization and incidence of illnesses across age groups being on the rise. People are beginning to see health insurance as a health protection tool rather than just a savings or investment option. 1. Growing awareness A significant 70 per cent of the respondents thought that health insurance is more important than life insurance. A majority of the people (57 per cent) felt that health insurance plans provided by their employers were inadequate and 94 per cent said that health insurance will take care of their healthcare expenses. 2. Growing sum insured Along with increasing awareness, the health insurance coverage is increasing with respondents surveyed owning large covers. The average sum insured of respondents is Rs 6.5 lakh for which they are paying an annual premium of Rs 12,000. This is more than the Rs 2-3 lakh coverage range not so many years ago. Rising healthcare costs and access to more modern and expensive healtcareh facilities seem to be the possible reasons for this shift. 3. Shift to family covers There seems to be an unmistakable shift from individual to family health covers. Of the total, 60 per cent respondents indicated that they are seeking coverage for the whole family. 4. Growing preference for value over price focus Unlike in the past, consumers now seem to be looking for much more than just affordable premiums. As many as 69 per cent said that they expect health insurance to pay for all healthcare needs, while 47 per cent sought multiple benefits such as OPD and maternity, even as 43 per cent were looking for personalized services. Only 31 percent are looking at just affordable premiums when looking at health insurance options. 5. More early-life purchases The average age of the health insurance consumer is getting lower, with the study finding the average age to be 32 years showing that younger people are willing to get into the category fold. Fortunately for India, developments in the last 24 months have actually taken health insurance nearer to the consumers. In the recent Union Budget 2015, tax deductions for health insurance premiums under Section 80D have been raised from Rs 15,000 to Rs 25,000 for individuals and from Rs 20,000 to Rs 30,000 for senior citizens. Equally significant development is the parliamentary approval of the Insurance Bill which, besides allowing enhanced foreign direct investment limit of 49 per cent from 26 per cent, also recognizes health insurance as a distinct entity. These developments, along with steps taken by the regulator, Insurance Regulatory and Development Authority of India (IRDAI), such as standardization of 46 most commonly used definitions, any age enrollment and lifelong renewal eased those approaching their senior years from their worries of being devoid of a health insurance cover when it is most required. With the overall health insurance ecosystem moving in favour of consumers, along with the gradual shift in consumer understanding of the importance of health insurance, we should see the industry growing at a faster pace and more Indians adopting health insurance.Enhanced awareness about health plans and their features, along with tangible renewal and other benefits like loyalty rewards and health checks offered in policies by health insurance companies can go a long way in clearing the clouds of myths and misconceptions in the minds of consumers. Once this is accomplished, health insurance as a category will truly transition from a push to pull industry. The author, Somesh Chandra, is COO & CQO at Max Bupa
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A short and crisp explanation from Tarun Chugh, MD & CEO, PNB MetLife as to why benefit-based health plan is right for you Health insurance, often referred to as mediclaim in India, covers expenses related to hospitalisation. They are a form of indemnity policies whereby claims are settled through tie-ups with hospitals or by submitting hospitalisation bills to the insurer for reimbursement. Tarun ChughBenefit-based health plans on the other hand, pay a fixed amount upon the diagnosis of a critical illness. The amount can act as a substitute for income when you are unable to work. These types of plans elevate the financial burden of the family by providing additional funds for medical expenses and treatment. Take for example Askhar, a man that have planned meticulously for his family’s financial needs. In his portfolio, he has a health insurance policy to protect himself and his family against unexpected medical emergencies. Unfortunately, Askhar suffered a heart attack and had to undergo a heart by-pass surgery. Thanks to the health insurance plan he bought, Askhar’s medical expenses like doctor’s fees, room charges, diagnostics and medicine are covered. However, his health plan wasn’t able to cover losses from missed business opportunities, costs of his family travelling to be with him and costs incurred during his recovery from the heart surgery. Askhar’s case is not uncommon. In India, conventional mediclaim and health plans only covers 14% of all expenses due to major illnesses. This means that, the remaining costs that an individual need to bear can still be quite hefty. This simple illustration demonstrates how both the benefit-based policies and indemnity plans work hand in hand to provide a more comprehensive health coverage. So, when considering your health coverage needs, do look at how a benefit-based policy can help you to safeguard financial uncertainties as well.
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In India, the size of the mortality protection gap is significant, at $8,555 billion in 2014, having grown by 11 per cent per annum between 2004 and 2014, revealed by Mortality Protection Gap study by Swiss Re.The report showed that for every $100 needed for protection, only &7.8 of saving and insurance is in place for a typical Indian household, leaving a massive protection gap of $92.2.Insurance has grown strongly in India but from a very low base. In 2014, India had life an insurance penetration rate of 2.6 per cent of gross domestic product. The study showed the sum insured per working person with dependents in India was still low at $2,101 in 2014 (about Rs 1.3 lakh). India ranked ninth with respect to per capita sum insured in 2014, among 13 Asia-Pacific markets examined in this study.The study showed the size of the gap for the 13 Asia-Pacific markets stands at a staggering $58 trillion in 2014, compared to $42 trillion in 2010.This represents the difference between the cover typically required by a family and the resources they have available should a wage-earner pass away suddenly. While the gap has increased slower in the past four years, it is still worryingly high and underlines the fragile nature of financial security for many families in the region.This study compares and contrasts the mortality protection gap and its trend across the Asia-Pacific region. It provides insights into the stages of development of protection products in different markets and quantifies growth opportunities for life insurance.In China, the protection gap has increased by an average of 17 per cent between 2004 and 2014, reaching $32,074 billion in 2014 from $6,540 billion in 2004. In India, the gap was $3,067 billion in 2004, which has since risen gradually in the last decade to $8,555 billion in 2014.According to Clarence Wong, Chief Economist Asia, in Swiss Re, the increase of the foreign investment limit in Indian insurers to 49 per cent from 26 per cent in 2015 will help to bolster capital of the Indian insurance market and support a stronger drive to close the protection gap.It is evident from India’s Mortality Protection Gap that there is an enormous need for long-term protection products. This is an important issue that needs to be addressed immediately. Government and the industry must work jointly on this for the overall financial well-being of the country.(BW Online Bureau)
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Close on the heels of his biggest ever rate cut in India, Reserve Bank of India (RBI) Governor Raghuram Rajan warned central bankers across the world against competitive monetary easing and pitched for a collective action.Rajan also pitched for free trade, open markets and well-capitalised multilateral institutions to overcome the global economic slowdown which could lead to high political tensions.Speaking at a function to mark the 65th anniversary of Sri Lanka's Central Bank in Colombo on Monday (5 October) , the RBI governor said, "The current 'non-system' in international monetary policy is, in my view, a source of substantial risk, both to sustainable growth as well as to the financial sector. It is not an industrial country problem, nor an emerging market problem, it is a problem of collective action. We are being pushed towards competitive monetary easing and musical crises."Last week, Rajan sprang a surprise by effecting a more-than-expected interest rate cut of half a per cent to boost the economy. The reduction came on the back on RBI cutting interest rates thrice earlier this year by 25 basis points each.Rajan said that the current economic woes of the world were affecting all nations and urgent action was needed.He warned that weak aggregate demand across the world may be leading nations to engage in a "risky competition for a greater share of it"."We are thereby also creating financial sector risks for when unconventional policies end. We need stronger well-capitalized multilateral institutions with widespread legitimacy, some of which can provide patient capital and others that can monitor new rules of the game."And each one of us has to work hard in our own countries to develop a consensus for free trade, open markets, and responsible global citizenry. If we can achieve all this even as recent economic events make us more parochial and inward-looking, we will truly have set the stage for the strong sustainable growth we all desperately need."He said there are few areas of robust growth around the world, but the present period of slow growth is particularly dangerous as both industrial countries and emerging markets need high growth to manage domestic political tensions."In an environment of such tensions, there is a tremendous pressure for growth in different countries and such countries are more likely to focus on the policies attempting to divert growth from others rather than creating new growth."(PTI)
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Paramita ChatterjeeInvestors and entrepreneurs have reasons to smile. Private equity (PE) investments in the country in the last nine months of this calendar year have not only shown an upward trend, they are poised to cross the historical highs of 2007 – the boom period of investments in India.Between January and September this year, PE firms invested $13 billion across 504 transactions in a diverse range of sectors, with IT grabbing a majority share of investment pie, as per data available with research firm Venture Intelligence. In 2007, the bumper year for investors, the capital deployed by PE and venture capital (VC) firms stood at $14.7 billion across 535 transactions. The data, however, does not include real estate investments. Within IT, internet as a sector has been evincing significant investor interest in the recent times. This has specially been possible due to the changing digital landscape over the past 1-2 years, which has prompted several budding entrepreneurs to ride on the domestic consumption wave. Take for instance the third quarter of 2015 or the July-September period alone.The mega deals in the Internet sector along with the Blackstone buyout of Internet ensured that IT & ITES companies grabbed as much as 57 per cent of the PE investment by value, attracting $3,358 million across 107 deals, the Venture Intelligence data shows. Other Internet firms that received funding worth $100 million includes music service Saavn.com, furniture e-tailer Pepperfry.com and hotels aggregator Oyo Rooms. Tata Capital, meanwhile, was reported to have committed a similar amount as part of US-based taxi hailing app firm Uber's latest fund raise.“Over the past one year in particular, there has been an explosion of online companies that have the potential to generate superlative returns,” said Arvind Mathur, President at Private Equity and Venture Capital Association (IVCA). “Sectors such as mobile and online services offer tremendous opportunity. The nature of the business here is such that on an average even if one out of 10 becomes a blockbuster, the purpose is served,” he added.In the third quarter of 2015 ended September, PE firms invested a record $5,893 million across 177 deals, up 125% over that invested in the same period last year where investors infused $2,621 million across 126 transactions.Apart from internet, other sectors that attracted funding include energy, telecom and BFSI, among others. What’s interesting is the fact that these sectors have ranged higher in terms of investments when compared to the traditional sectors like healthcare and infrastructure. While healthcare has come down drastically in the investment pie chart, interest in infrastructure seems to have completely faded. “There are a few issues in infrastructure that need to be resolved first. In fact, a lot of things are stuck due to regulatory hurdles,” said MK Sinha, managing partner and CEO of IDFC Alternatives, a leading multi-asset class investment manager in the country, in a recent interview to BW.“There are no power plants that have come up in the past 3 years. Also, no headway has been made as far as amendments are concerned in the land acquisition bill, even as the new government is doing its bit to push it. Things are over all very slow in this space,” he added.
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Raghu Mohan says IDBI Bank should have opted to play it safe, but chased growthYet another bank strike is on the cards – this time over the proposed privatisation of IDBI Bank. At the heart of the issue is that IDBI Bank was made “all things to all comers” over the course of its life and the attendant mess is now sought to be cleared up through privatisation.But let it also be said here is that it should come as no surprise -- whatever the unions may say now -- that IDBI Bank has landed where it has. For no less than K C Chakrabarty as deputy governor of the Reserve Bank of India (RBI) had warned the bank that it should get its act together. And the occasion: a seminar on `IDBI’s role as Development Financial Institution’ organised by the United Forum of IDBI Officers & Employees (Kolkata, 27 September 2013)!The Trigger For The HeartburnSays S Nagarajan, general secretary of the All India Bank Officers’ Association (AIBOA): “If we state that IDBI Bank has been utilised to experiment all sorts of expressions at different points of time by the owners at the centre, it is not on excessive expressions. The result is burgeoning bad loans in the books of the bank at this point of time”.The bank’s net non-performing assets (NPA) stood at 2.88 per cent at end-March 2015 (2.48 per cent). But look at the movement in NPAs. In absolute terms, the opening balance of NPAs stood at Rs 9,960.16 crore (6,449.98 crore) at the start of the fiscal, additions during the year were Rs 6,100.81 crore (Rs 5,706.01 crore), reductions during the year were Rs 3,376 crore (Rs 2,195.83 crore) and the closing balance was Rs 12,684.97 crore (Rs 9,960.16 crore). The Timeline· IDBI was set up by the Govt of India as a “developmental financial institution”. Later, it become a RBI subsidiary· In April 2005, IDBI’s private bank arm, IDBI Bank was reverse-merged with the parent; the Centre holding 51 per cent in the merged entity· In October 2006, IDBI Bank took over United Western Bank LtdIn its Annual Report for 2014-15, IDBI Bank claims “focused and account-specific resolution strategies were implemented and progress was monitored regularly in all NPA cases. Thrust was also given to upgradation of NPAs to performing assets”.What the unions now say is that there are three entities in the belly of IDBI Bank – IDBI (a subsidiary of RBI), IDBI Bank (a new private bank); and United Western Bank (an old private bank). That all these avatars were the result of the initiatives of the authorities and there is now talk of privatising it as it is the fashion of the day. Or simply put, IDBI never got a chance to chart its own course.“In the event of non-responsiveness of the Government, AIBOA shall roll out a plan of actions to halt the moves along with the operating trade unions in IDBI Bank”, says Nagarajan.The Writing Was On The WallNow flashback to what Chakrabarty had said in Kolkata on 27th September 2013). He quoted former RBI governor Bimal Jalan: “The move towards universal banking would not provide a panacea for the endemic weaknesses of a DFI or its liquidity and solvency problems and, or operational difficulties arising from under-capitalisation, NPAs, and asset liabilities mismatches etc. The overriding consideration should be the objectives and strategic interests of the financial institution concerned in the context of meeting the varied needs of customers, subject to normal prudential norms applicable to banks”.The above flies in the face of what the unions now contend; and the point is whatever be the merits or otherwise of what the bank was put through in the past, it is the present that matters.On his part. Chakrabarty had this to say on the responsibility of unions. “You must appreciate the new operating environment that exists today and must realise that in this highly competitive market, no longer would the corporate chase you. For most of your members who have cut their teeth in an era when IDBI was a DFI with limited competition and a small universe of customers to deal with, the transition to commercial banking might be difficult, but remember, if you wish to survive as an institution in this new avatar, you must be willing to change. What is, in fact, needed is a change in mindset and you, as responsible union, have to oversee a smooth transition among the employees”.Did anybody listen then? Is anybody listening now?
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