project report

PREFACE

This Study has been done in partial fulfillment of the requirements for the

award of the degree of MASTERS IN BUSINESS ADMINISTRATION during June

6th to August 5th 2005 at BAJAJ ALLIANZ GENERAL INSURANCE, Pune.

The report is titled “Study of co-operative and rural sector banks for

profitable bancassurance tie-ups” which proposes to study the banks from 4 main

categories which are allowed to conduct insurance business by RBI, for their

profitability and potential business expected from them for fruitful tie-ups with

selected banks further. The study takes advances as basis of premium potential

calculation. The study has been limited to following four categories of banks

1. Scheduled Urban Co-operative Banks

2. Regional Rural Banks

3. State Co-operative banks

4. District central co-operative banks

The documentation begins with an introduction about banc assurance and

then moves on to define the objectives of the study, methodology of the study, scope

and findings of the study.

Finally, it provides the reports and findings of the study in the form of graphs

and tables. It also states the limitations and scope for updation.

ACKNOWLEDGEMENT

1

I express my heartfelt thanks to Mr. Atanu Singh Mukherjee for being a

constant source of encouragement & for his excellent guidance and timely support.

I would like to express my gratitude to Mr. Mohammed Arif, Mr. Naveen

Singh, Mr. Gaurav Verma & Mr. Pankaj Khandewal for their valuable suggestions,

inspiring discussions and invaluable guidance that resulted in lot of improvement in

the research study.

I am deeply indebted to officials of the RBI, NABARD and other organizations

who helped me in collecting the required database for this study.

CERTIFICATE

2

This is to certify that this is the bonafide record of the research study titled

“Study of Co-Operative & Rural Sector Banks For

Profitable Bancassurance Tie-Ups”

done by

AABHA S. TALWALKAR

This study has been conducted as a part of summer training at BAJAJ ALLIANZ

GENERAL INSURANCE CO. LTD., Pune.

Approved By

Mr. Atanu Singh Mukherjee.

TABLE OF CONTENTS

CHAPTERSUB

CHAPTERCONTENTS

PAGE NO

3

1

INTRODUCTION

1.1 BAJAJ ALLIANZ

1.2 BANCASSURANCE1.3 THE STUDY

2 OBJECTIVE OF THE STUDY

3

SCOPE OF THE STUDY

3.1SCHEDULED URBAN CO-

OPERATIVE BANKS

3.2 REGIONAL RURAL BANKS

3.3 STATE CO-OPERATIVE BANKS

3.4DISTRICT CENTRAL CO-

OPERATIVE BANKS

4METHODOLOGY OF THE STUDY

4.1 RESEARCH DESIGN

4.2 DATA COLLECTION METHODS

4.3 DATA ANALYSIS

5 FINDINGS OF THE STUDY

6 CONCLUSION AND SUGGESTIONS

7 BIBLOGRAPHY

ANNEXURES

A DATA TABLES

BRBI CIRCULARS

Chapter: 1

INTRODUCTION

The project was done with Bajaj-Allianz, For Bancassurance Channel. So

let’s first understand the company and the channel.

4

1.1

ABOUT BAJAJ ALLIANZ:

THE COMPANY:

Bajaj Allianz General Insurance Company Limited is a joint venture between,

Bajaj Auto Limited and Allianz AG Of Germany. Both enjoy a reputation of expertise,

stability and strength.

THE INDIAN PROMOTERS: BAJAJ AUTO LIMITED

Incorporated in 1945,under the leadership of Mr. Rahul Bajaj, CMD Bajaj Auto

Ltd. The company has grown into the world’s 4th largest 2 & 3 wheeler

manufacturer. It has a network of over 375 dealers across India. It also has a strong

distribution network in over 60 cities. The company is AAA rated.

THE GERMAN PROMOTER: ALLIANZ GROUP

Allianz is the leading insurance company in the world.

Headquartered in Munich, Germany, established in 1890.

With over 700 subsidiaries and 117,000 employees in over 70 countries worldwide.

The company has

recently announced acquisition of DRESDNER.

Allianz provides some form of insurance coverage to almost half the fortune 500

companies.

The company is AA+ rated.

THE BAJAJ ALLIANZ DIFFERENCE:

The reasons for the early success of Bajaj-Allianz in India are as follows:

5

Business strategy aligned to client’s needs and trends in Indian and global

economy/ industry.

Customer oriented; rather than business line oriented.

Wide basket of products.

Internationally experienced core team, majority with local background.

Fast, decentralized decision-making.

Long-term commitment to market and clients.

Bajaj Allianz General Insurance received The Insurance Regulatory

And Development Authority (IRDA) certificate of registration (R3) on May 2nd,

2001 to conduct General Insurance Business (including health insurance

business) in India. The company has an authorized and paid up capital of Rs

110 Crores. Bajaj Auto holds 74% and Allianz, AG, Germany, holds the

remaining 26%. In its first year of operations, the company has acquired the No. 1

status among the private non-life insurers. As on 31st march 2003, Bajaj Allianz

General Insurance maintained its leadership position by garnering a premium income

of rs.300 Crores. Bajaj Allianz also became one of the few companies to make a

profit in its first full year of operations.Bajaj Allianz today has a network of 42

offices spread across the length and breadth of the country. From Surat To

Siliguri And Jammu To Thiruvananthapuram, all the offices are

interconnected with the head office at Pune.In the first half of the current

financial year, 2004-05, Bajaj Allianz garnered a premium income of Rs. 405 Crores,

achieving a growth of 84% and registered a 52% growth in net profits of Rs.20 Crores

over the last year for the same period. In the financial year 2003-04, the premium

earned was Rs.480 Crores, which is a jump of 60% and the profit zoomed by 125% to

Rs. 21.6 CroresTHE GROWTH OF BAJAJ ALLIANZSince it’s inception in 2001,

the company has shown a remarkable growth, both in its profits and premium

collection.

6

1.2

ABOUT BANCASSURANCEAsia used to rely predominantly on agents

for distribution of insurance products. But multi-channel distribution is

becoming increasingly popular. The Regulatory environment is becoming

more conducive to the development of Bancassurance in Asia.Banks and

insurers in Asia are highly motivated to develop

Bancassurance.DEFINITIONIn its simplest form, Bancassurance is the

distribution of insurance products by Banks.

As a strategy adopted by banks or insurance companies aiming to operate in

the financial services market in a more or less integrated manner.

It is an attempt to exploit synergies between insurance companies and banks

to make full use of the bank’s customer databases to develop customer

centric service and generate higher returns for both banks and insurance

companies.SCOPEWhile Bancassurance is more suitable to life products, for good

reasons it is also relevant to Asia’s Non-life insurance markets.BENEFITS OF

BANCASSURANCE FOR BANKSBanks are drawn to the idea of

Bancassurance to secure an additional source of income and to leverage on

their customer bases.

1. Banks can sell complete range of financial services and increase customer

satisfaction and retention.

7

2. Bancassurance helps banks to reduce risk-based capital requirement for the

same level of revenue.

3. By using Bancassurance as an additional service, banks can work towards an

integrated financial services tailored to the life cycle of customer.

4. Through Bancassurance banks can access funds that are otherwise kept with

insurers.BENEFITS OF BANCASSURANCE FOR INSURERSBy using

Bancassurance in an effective manner, insurers can tap into the huge

customer base of banks.

1. As Bancassurance develops into an effective distribution system on it’s own,

the insurers can reduce their reliance on agents.

2. Through bancassurance, insurers can also share services with banks.

3. As Bancassurance ensures the direct interaction with bank customers,

insurers can develop new products to suite banks customers.

4. This helps in giving maximum customer satisfaction, which ultimately

increases good will and reputation of the company in customers.

5. For new insurance companies, Bancassurance can establish market

presence rapidly without building network of agents.The Bancassurance

channel gives an important advantage, which is Cost Advantage

8

BENEFITS OF BANCASSURANCE FOR CONSUMERS

1. Lower premium-lower distribution cost can be passed on to customer by way

of lower premium.

2. Customers can get a product specially designed to their requirement.

3. Consumer will reap major benefits from lower premium and better service.

4. The integration of two essential services, i.e. banking and insurance, means

lesser wastage of time, energy and other resources.

BANCASSURANCE STRUCTURE:

Bancassurance is a distribution strategy opted by insurance companies in

collaboration with banks. The type of tie-up between these two entities can differ

according to the requirements of both. But there are four basic types of

bancassurance, which are seen in market with small variations. These four types are

as explained below;

BANCASSURANCE MODELS IN ASIA

9

1. DISTRIBUTION AGREEMENTBank distributes insurance products

(standalone/bundled) in return for a fee.

No or little sharing of customer database.

Limited investment.

2. STRATEGIC ALLIANCE

A higher degree of integration in products development/service/channel

management.

Possible sharing of customer database

Requires investment in IT and sales personnel.

3. JOINT VENTURE

Clear mutual ownership of products and customers.

Sharing of customer database.

Requires strong and long-term commitment from both sides.

4. FINANCIAL SERVICES GROUP

Operations and systems can be fully integrated.

A high capability to leverage on banks existing customer and other services

provisions.

One stop financial services.

Potential for fully integrated products.

POTENTIAL OF BANCASSURANCE IN ASIA:

10

Bancassurance could bolster Asia’s life and non-life premium by 5.5% and

1.5% respectively, by 2006, and account for 13% and 6% of life and non-life

insurance distribution.

Strong growth potential of Asia’s insurance market should enhance the

potential for bancassurance.

SWOT ANALYSIS- Bancassurance in INDIA

The high population numbers in India is one major aspect, which will help

Bancassurance to gain success here.

Apart from size of market success of Bancassurance also depends on

The regulatory environment

No of bank branches & infrastructure

Maturity of insurance market.

Competition among distribution channels.

Let’s analyze India to understand the Bancassurance in India better.

STRENGTH

• Large number of bank branches reaching even remote areas.

• Regulatory changes are favorable to Bancassurance development.

WEAKNESS

• Restriction on foreign share ownership limits the choice of bancassurers.

• Weak customer database and infrastructure support.

OPPORTUNITY

• Foreign insurer entering the Indian market is keen to use bank branches as

their main distribution channel.

THREATS

• Some of the current Bancassurance deals may fall through when operational

obstacles begin to emerge.

1.3

ABOUT THE STUDY

11

The study, which was conducted by me, was for bancassurance. It basically

aimed at studying the current operating banks, target selected categories and then

further proceed to select top banks in given category to work for successful and

profitable bancassurance relationship with these selected banks.

For any business to be profitable and successful, the foundation on which it

stands must be sound and strong. Proper analysis of the environment and selection

among the available choices, based on that analysis is the key for early success of

any business.

The customers of the banks in India is the targeted market for the

bancassurance business and their analysis must start with the analysis of bank’s

performance first. An insurance giant like Bajaj Allianz must take the decisions about

bancassurance tie-ups with proper care and only after proper analysis. This was the

reason why I found my job very challenging. The first step in successful marketing of

any product is analysis of targeted customers followed by setting up of proper

distribution system. As my project dealt with both these aspects, it is a marketing

project in true sense.

Now let’s understand what steps were followed to complete this study:

Deciding on bank categories to be selected to limit the scope of

the project :

This step was essential as the choice available in India is very vast. Only

those banks, which are allowed by RBI to conduct the insurance business, had to

be analyzed for their performances. Also, the priority sector banks were mainly

focused as reaching the rural areas through banks is one of the main objectives

of bancassurance in India.

Hence following categories were selected:

1. SCHEDULED URBAN CO-OPERATIVE BANKS

2. NON-SCHEDULED URBAN CO-OPERATIVE BANKS

3. REGIONAL RURAL BANKS

4. STATE CO-OPERATIVE BANKS

5. DISTRICT CENTRAL CO-OPERATIVE BANKS

These categories are discussed in details in the scope of project later.

12

Collecting the data of all the banks:

This step proved to be the most difficult step, as the data for individual banks

under each category was not available readily. Different methods of data collection

were required for collecting data for each category. The data to be collected was

mainly about financial performance of individual banks including the advances and

deposits of these banks for latest financial year. The organizations like RBI,

NABARD, and NIBM were the main sources of data.

Analysis of the collected data for profitability and potential:

All the data, which was collected, was further analyzed on basis of premium

potential, which is a function of total advances. Premium potential is the approximate

premium amount that can b collected if the advanced assets are insured with Bajaj

Allianz. Thus here we predict approximate business that a given bank can give

based on its advances in given year. As advances for next year (i.e.2005-6) are

obviously not available, we compared the banks performances for last financial year

(i.e.2004-5). Also non-performing assets, deposits and profits were taken into

account while analyzing this data. The top 20 banks according to their premium

potential are found out from each category, which were further analyzed based on

other parameters as mentioned above.

Conclusion and suggestions:

As actual tie-ups with the selected banks was beyond the scope of the project

due to time restrictions, my project ends with recommendations about which banks

seem to be good for Bancassurance tie-ups. Thus the last step of my study was to

suggest top performing banks from each category, which can be considered for

future tie-ups by Bajaj Allianz.

Thus the study has been done mainly with the aim selecting the banks from

given categories of banks and further analyzing their performance to ensure

profitable tie-ups.

13

Chapter: 2

OBJECTIVE OF THE STUDY

14

Any research study can be started only after defining the objective of the study very

clearly and precisely. The objectives of this study are as defined below:

1. To decide the scope of study with clear grouping of banks to be analyzed.

2. To collect the data about these banks for following parameters from reliable

sources:

Advances.

Deposits

Net profits

Location

Address

3. To analyze collected data for profitability and potential.

4. To select specific number of banks from each category for bancassurance tie-

ups.

Chapter: 3

SCOPE OF THE STUDY

15

Before proceeding with the data collection one important step in any research is to

decide and delimit the scope of the study. In this study it became further more

important as the field of banking in India is very well developed and offers many

options as banks have been categorized in various ways. Many types of banks and

similar financing companies exist in India and analyzing performances of all banks is

not possible due to time restrictions as a summer trainee.

Also all banks and similar institutions are not allowed to conduct insurance business

in Indian regulatory environment. Thus deciding on which banks to analyze was the

main task.

This was decided on basis of following parameters:

Whether they are allowed to conduct insurance business.

Whether the customer base of these banks can be the targeted customer

group for general insurance products.

The locations at which these type of banks are saturated.

The type of business conducted mainly by these type of banks.

The availability and reliability of data.

According to these parameters, following categories were finalized for further

analysis:

SCHEDULED URBAN CO-OPERATIVE BANKS

REGIONAL RURAL BANKS

STATE CO-OPERATIVE BANKS

DISTRICT CENTRAL CO-OPERATIVE BANKS

Though NON SCHEDULED URBAN CO_OPERATIVE BANKS were included in

study initially, due to non-availability of required data, they were not included in final

analysis.

Let’s understand the categories one by one to understand the scope of the study in

details.

16

3.1

SCHEDULED URBAN CO-OPERATIVE BANKS

PARAMETER

Number of banks 56

Regulating body RBI, Urban Banks Department

Permission to conduct insurance

business

Granted

Locations Mainly urban and semi-urban

localities

Availability of data Available.

The Structure Of Urban Co-Operative Banking System:

Co-operative Banks are organized and managed on the principal of co-operation,

self-help, and mutual help. They function with the rule of "one member, one vote".

Co-operative Banks function on "no profit, no loss" basis. Co-operative banks, as a

principle, do not pursue the goal of profit maximization.

In Urban co-operative banks, most are non-scheduled while only 56 are scheduled

UCBs. Scheduled UCBs constitute those UCBs, which have been included in the

Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes

only those banks in this schedule, which satisfy the criteria laid down, vide section

42 (60 of the Act.

Being a part of the second schedule confers some benefits to the bank in terms of

access to accommodation by RBI during the times of liquidity constraints.

At the same time, however, this status also subjects the bank certain conditions and

obligation towards the reserve regulations of RBI.

The Business Performed By UCBs:

Urban Co-operative Banks (UCBs) play an important role as financial intermediaries

in urban and semi-urban areas catering to the needs of the non-agricultural sector,

18

particularly small borrowers. Co-operative bank performs all the main banking

functions of deposit mobilization, supply of credit and provision of remittance

facilities. Co-operative Banks provide limited banking products and are functionally

specialists in agriculture related products. However, co-operative banks now provide

housing loans also. UCBs provide working capital loans and term loan as well. The

scheduled UCBs, however, can lend up to Rs 3 lakh for housing purposes. The

UCBs can provide advances against shares and debentures also. The urban and

non-agricultural business of these banks has grown over the years.

Co-operative bank do banking business mainly in the agriculture and rural sector.

However, UCBs, SCBs, and DCCBs operate in semi urban, urban, and metropolitan

areas also.

Regulatory Environment:

The urban co-operative banks are regulated and supervised by State Registrars of

Co-operative Societies, Central Registrar of Co-operative Societies in case of Multi-

state co-operative banks and by Reserve Bank. The Registrars of Co-operative

Societies of the States exercise powers under the respective Co-operative Societies

Act of the States in regard to incorporation, registration, management,

amalgamation, reconstruction or liquidation. In case of the urban co-operative banks

having multi-state presence, the Central Registrar of Co-operative Societies, New

Delhi, exercises such powers. The banking related functions, such as issue of

license to start new banks / branches, matters relating to interest rates, loan policies,

investments, prudential exposure norms etc. are regulated and supervised by the

Reserve Bank of India under the provisions of the Banking Regulation Act,

1949(AACS).

19

Financial Performance In Recent Past:

During 2003-04, scheduled UCBs witnessed several positive developments

pertaining to balance sheet, profit and income, and asset quality. The deposits and

advances of scheduled UCBs continued to grow during 2003-04. The net profit of

the scheduled UCBs showed a substantial growth of 40.4 per cent, while the net loss

of UCBs declined by 69.1 per cent. Tier I capital of scheduled UCBs as a group

increased considerably to Rs.297 crore in 2003-04 from a negative Rs.10 crore in

2002-03. It may be noted that the negative Tier I capital shown for the year ended

Non-performing assets declined both in absolute as well as percentage terms. The

decline in net NPAs was higher due to increased provisioning.

Items 2003 2004 Variation

Amount in Rs.

crore

Amount in Rs. crore (in per cent)

Number of Scheduled UCBs 56 55 –

Paid up capital 608 707 16.2

Reserves (excluding loan loss

provisions)

2,195 2,488 13.4

Tier I capital -10 297 –

Tier II capital 434 529 21.7

Deposits 36,024 39,305 9.1

Investment in Government and other

approved securities

10,806 13,954 29.1

Loans and Advances 22,941 23,962 4.5

Gross NPAs 6,927 6,892 -0.5

Net NPAs 3,827 3,509 -8.3

Net Profit 354 497 40.4

Net Loss 326 101 -69.1

Accumulated Losses 2,276 2,320 1.9

Note: Based on UCB returns. Reserves include statutory reserves and other reserves and provisions

not in the nature of outside liabilities.

20

3.2

REGIONAL RURAL BANKS

PARAMETER

Number of banks 196

Regulating body RBI, Rural Planning And Credit

Department.


business

Granted

Locations Mainly rural and remote localities


The Structure RRBs:

These banks are state-sponsored, regionally based and rural-oriented. Regional

Rural Banks (RRBs) were established in India under the Regional Rural Banks Act,

1976. As per recommendations of the Working Group on Rural Banks, the first five

RRBs were established on 2 October 1975 under a Presidential ordinance, which

followed the promulgation of the Act in April 1976. By 1987, the number of RRBs

had grown to 196. Regional Rural Banks (RRBs) are India’s state-owned

development finance vehicles charged with serving the rural poor, especially micro

entrepreneurs, in the agricultural and nonfarm sectors. Originally established to drive

the moneylender “out of business” and bridge the capital gap supposedly unfilled by

the rural cooperatives and commercial banks, these “social banking” institutions

have expanded remarkably throughout the country during the last two decades.

RRBs have played a key role in rural institutional financing in terms of geographical

coverage, clientele outreach and business volume as also contribution to

development of the rural economy.

The Business Performed By RRBs:

22

The RRBs have been identified as scheduled banks under the Reserve Bank of

India Act, 1934 and are authorized to transact banking business as defined in the

Banking Regulation Act, 1949. The RRBs were required, in particular, to undertake

the business of providing credit facilities to the poorer sections of rural society,

generally referred to as the ‘Target Group’. More than 50 per cent of the rural credit

is disbursed by the co-operative banks and Regional Rural Banks (RRBs).

However, over a period of about 25 years, several changes have taken place in the

focus and operations of these banks in the wake of the of financial sector reforms in

the country. The RRBs have a special place in the multi-agency approach adopted

to provide agricultural and rural credit in India. The RRBs were established “with a

view to developing the rural economy by providing, for the purpose of development

of agriculture, trade, commerce, industry and other productive activities in the rural

areas, credit and other facilities, particularly to small and marginal farmers,

agricultural laborers, artisans and small entrepreneurs, and for matters connected

therewith and incidental thereto”(RRBs Act, 1976). Their equity is held by the Central

Government, concerned State Government and Sponsor bank in the proportion of

50:15:35.

The rural orientation of RRBs is evident from the fact that their rural and semi-urban

branches constituted over 97 per cent of their branch network.

RRBs, with their wide outreach in rural India, region-centric banking activities and

close relationship with the local authorities and population, were expected to cater to

the credit requirements of the rural areas and provide necessary banking

infrastructure. Though the RRBs have been able to mobilize small savings of the

rural sector, they have been relatively less successful in enhancing the flow of credit

to the targeted rural poor.


NABARD is responsible for regulating and supervising the functions of co-operative

banks and RRBs. In this direction NABARD has been taking various initiatives in

association with Government of India and the Reserve Bank to improve the health

of co-operative banks and Regional Rural Banks. The Board of Supervision (BoS)

23

for SCBs, DCCBs and RRBs constituted by NABARD in 1999 to provide guidance

and direction to the Bank on matters relating to supervision.


Aggregate deposits of RRBs increased from Rs.4, 151 crore in 1990 to Rs.56, 350

crore by March, 2004 owing mainly to their geographical spread and opening of new

branches in unbanked areas. The advances of RRBs increased from Rs.3, 554

crore to Rs.26, 114 crore during the above period. Notwithstanding the sharp

increase, RRBs advances constituted just around 2 per cent of the banking systems

credit portfolio. The share of RRBs in total agriculture credit (given by scheduled

commercial banks, cooperatives and RRBs) has remained at around 9 per cent,

despite their strong rural outreach. The average per branch advances increased

from Rs.25 lakh in March 1990 to Rs.154 lakh in March 2003. There are wide state-

wise differences in credit deployment by RRBs.

During the year 2003-04, 163 RRBs earned profits amounting to Rs.953 crore while

33 RRBs incurred losses to the tune of Rs.184 crore. Ninety RRBs had accumulated

losses as on March 31, 2004. Aggregate accumulated losses of RRBs amounted to

Rs. 2,725 crore during the year 2003-04. Of the 90 RRBs having accumulated

losses, 53 RRBs had eroded their entire owned funds and also a part of their

deposits (i.e., to the extent of Rs.1, 660 crore or 11.75 per cent of the total deposits

of these banks).

The spotlight of forthcoming Union Budget will be on regional rural banks and

cooperative banks. Finance Minister P Chidambaram is expected to announce a

detailed restructuring package for 196 RRBs and 2,104 urban cooperative banks

and reposition them to step up credit flow into the rural sector. The government is

also set to redefine the role of NABARD in the Budget.

24

3.3

STATE CO-OPERATIVE BANKS

PARAMETER

Number of banks 30

Regulating body RBI, NABARD


business

Granted

Locations All states.


The Structure SCBs:

The short-term rural co-operative credit system in India comprising State co-

operative banks (SCBs) at the apex (State) level, district central co-operative banks

(DCCBs) at the intermediate (district) level and primary agricultural co-operative

Societies (PACS) at the grass root (village) level, is designed essentially to provide

for short-term credit needs for production purposes. SCBs and DCCBs have over

the years grown substantially in terms of coverage and outreach, and at end-March

2003, their number stood at 30 and 367, respectively. Most of the SCBs and DCCBs

were established prior to March 1, 1966, the date from which the Banking Regulation

Act, 1949 was made applicable to the co-operative banks. Of these, only 13 SCBs

and 73 DCCBs have been granted license by the Reserve Bank since 1966.

The Business Performed By SCBs:

The State Co-operative Banks (SCBs), Central Co-operative Banks (DCCBs) can

normally extend housing loans up to R 1 lakh to an individual. SCBs and DCCBs

also provide both short term and term loans


25

National Bank for Agriculture and Rural Development (NABARD) is the apex

institution entrusted with a pivotal role in policy planning and providing refinancing

facilities to rural financial institutions to augment their resource base.


There was a decline in overall income and expenditure of SCBs during 2002-03.

However, the net profit increased mainly due to increase in miscellaneous income

and reduction in wage bill (Table IV.12). Out of 24 reporting SCBs, 21 have earned

profits aggregating to Rs.463 crore, while 3 made losses amounting to Rs.29 crore.

Table IV.12: Financial Performance ofState Co-operative Banks(As at end-March)(Amount in Rs. crore)

ITEM 2002 2003 VARIATION OF 2003 OVER 2002

VRIATION IN PERCENTAGE

A. Income 5,809 5,572 -237 -4.1(i+ii) (100.0) (100.0)i) Interest Income 5,508 5,229 -279 -5.1

(94.8) (93.8)ii) Other Income 301 343 42 14.0

(5.2) (6.2)B. Expenditure 5,632 5,137 -495 -8.8

(i+ii+iii) (100.0) (100.0)i) Interest Expended 4,192 3,978 -214 -5.1

(74.4) (77.5)ii) Provisions and 1,024 700 -324 -31.6

Contingencies (18.2) (13.6)iii) Operating Expenses 416 458 43 10.3

(7.4) (8.9)of which : Wage Bill 304 284 -20 -6.6

(5.4) (5.5)C. Profi

ti) Operating Profit 1,201 1,135 -66 -5.5ii) Net Profit 177 435 258 145.8

D. Total Assets 57,478 57,762 284 0.5

Notes :1. Figures in brackets are percentage to totalliabilities/assets.2.‘Reserves’ include credit balance in Profit and LossAccount shown separately by some of the banks.3.Data for SCBs in the States Rajasthan, Delhi,Jammu & Kashmir, Manipur, Bihar and Arunachal Pradesh not yet received.4.Data for 2002-03 are provisional.Source:NABARD.

26

3.4

DISTRICT CENTRAL CO-OPERATIVE BANKS

PARAMETER

Number of banks 370

Regulating body RBI, NABARD


business

Granted

Locations Mainly rural and semi-urban

localities


The Structure DCCBs:

While every state has an apex co-operative bank, All DCCBs in that state come

under purview of this apex bank. Thus the structure for this system is as given

below:

The Business Performed By DCCBs:

The State Co-operative Banks (SCBs), Central Co-operative Banks (DCCBs) can

normally extend housing loans up to R 1 lakh to an individual. SCBs and DCCBs

also provide both short term and term loans

27

NABARD

APEX/STATE CO-OPERATIVE BANK

DCCBs IN THAT STATE

RBI


National Bank for Agriculture and Rural Development (NABARD) is the apex

institution entrusted with a pivotal role in policy planning and providing refinancing

facilities to rural financial institutions to augment their resource base.


DCCBs as a whole continued to register losses during 2002-03 as well (Table IV.14

& IV.15). Interest income accounted for nearly 95 per cent of the total income, while

interest expenditure accounted for nearly two-thirds of total expenditure. During

2002-03, out of 339 reporting CCBs, 234 made profits amounting to Rs.734 crore,

while 105 DCCBs made losses to the tune of Rs.859 crore.

Table IV.14: Financial Performance ofDistrict Central Co-operative Banks(As at end-March)

(Amount in Rs. crore)

Item 2002 2003 Variation of(3) over (2)

Absolute Percen-tage

1 2 3 4 5

A. Income (i+ii) 11,546 11,808 262 2.3(100.0) (100.0)

i) Interest Income 10,911 11,188 277 2.5(94.5) (94.8)

ii) Other Income 635 620 -15 -2.4(5.5) (5.2)

B. Expenditure 11,579 11,933 354 3.1(i+ii+iii) (100.0) (100.0)i) Interest Expended 7,693 7,711 18 0.2

(66.5) (64.6)ii) Provisions and 2,065 2,286 221 10.7

Contingencies (17.8) (19.2)iii) Operating Expenses 1,821 1,936 115 6.3

(15.7) (16.2)of which : Wage Bill 1,402 1,441 39 2.8

(12.1) (12.1)C. Profit

i) Operating Profit 2,031 2,162 131 6.5ii) Net Loss -34 -125 – –

D. Total Assets 1,07,665 1,14,833 7,168 6.7

28

Table: Select Financial Ratios of Co-operative Banks

(As at end-March)

(Per cent)

Item Scheduled UCBs SCBs CCBs

2003 2004 2002 2003 2002 2003

1 2 3 4 5 6 7

Operating Profit 1.5 1.8 2.1 2.0 1.9 1.9

Net Profit -1.1 0.6 0.3 0.9 – -0.1

Income 10.1 8.9 10.1 9.7 10.7 10.3

Interest Income 8.5 7.3 9.6 9.1 10.1 9.8

Other Income 1.7 1.6 0.5 0.6 0.6 0.6

Expenditure 11.2 8.6 9.8 8.9 10.8 10.4

Interest Expended 6.5 8.3 7.3 6.9 7.2 6.7

Operating

Expenses

6.5 5.2 0.7 0.8 1.7 1.7

Wage Bill 1.1 1.1 0.5 0.5 1.3 1.3

Provisions and

Contingencies

2.6 1.2 1.8 1.2 1.9 2.0

Spread (Net

Interest Income)

2.0 2.1 2.3 2.2 3.0 3.0

Note : Figures are percentage to Total Assets of concerned group.

29

Chapter: 4

METHODOLOGY OF THE STUDY

For completing any research work successfully there are six important steps which

need to be completed. These steps are as follows :

Step 1. Identifying and defining your problem

Step 2. Defining the objectives of research clearly

Step 3. Research design

Step 4. Collecting the data

Step 5. Performing data analysis

Step 6. Reporting and presentation

We have already completed first two steps, now let’s discuss about research design.

4.1

RESEARCH DESIGN

Based upon well-defined objectives from Step 2, a framework for the designing

marketing research program should be apparent. This step is the most

encompassing of all steps, requiring the greatest amount of thought, time and

expertise. Since the intelligence eventually gained from the research is so closely

related to the selected research design, this is the single most import step in the

research process and the step most vulnerable to the typical research errors.

Research design includes methodology selection, questionnaire design, sample

design & size and determining data analysis to be used.

Let’s discuss all these factors one by one.

30

4.1.1

Selection of research method:

The research method varies according to requirements and objectives of the

research. In this research the research method which was used was a systematic

method which means this was not at all an experimental research. The results were

to be obtained in a clearly known format. Also, the procedures to be carried out to

obtain those results were clearly known. Thus nothing in this research was

unpredictable, except the final results of analysis. Though an exploratory research

was conducted before starting the actual research to know which bank categories

are to be selected, the steps in final work were more systematic and clearly known.

Thus the research method used was a systematic research method.

4.1.2

Questionnaire design:

there was no need of a questionnaire as such, as all the required data was to be

obtained from published material or web-sites.

But before starting with data collection it was important that the data required is

clearly stated. Minimum data required for all four categories of banks was amount of

advances, Amount of Deposits & Profits for last financial year. Any relevant data

other than these which could be interpreted to get any useful information, if available

through a reliable source was to be collected. This might be, NPA, or Total Assets

Or capital etc, which might give some additional information than the premium

potential of that bank. Thus, following parameters were to be searched for the banks

Advances

Deposits

Profits.

Any data other than these that is relevant

31

4.1.3

sample design

The four categories of the banks were to be considered for the research. But no

sampling (or!00%) sampling was required for further analysis. This was because all

the banks falling under one category were to be compared for their profitability and

premium potential. Thus it was essential that all banks are taken into account while

doing the analysis.

Thus the sample size was equal to the total number of banks falling under the given category

which was as given below:

Category of banks No. of banks

SCHEDULED URBAN CO-OPERATIVE BANKS 56

REGIONAL RURAL BANKS 196

STATE CO-OPERATIVE BANKS 30

DISTRICT CENTRAL CO-OPERATIVE BANKS 370

4.1.4

Data analysis to be used:

The data which was available in published and reliable sources was different for

each category of banks. Thus the analysis was different for each category, but basic

calculations for calculation of premium potential were same for each category.

The data analysis has been discussed in details later.

32

4.2

DATA COLLECTION METHODS

The data to be collected was mostly available in published form or in web-sites of

selected organizations, thus data was in secondary form.

The data which has been published or in not directly available from initial source, is

a secondary data. Thus all data used for this study was in secondary form.

The advantages of the secondary data are as follows:

The secondary data which is in published format is reliable.

The efforts required for secondary data collection are less than primary data.

The cost and time consumed for data collection is less in case of secondary

data.

For these reasons, and also because of the easy availability, secondary data was

used for this study.

Now the data about each category of banks was available through a different

source.

For Scheduled Urban Cooperative Banks, The data was available in RBI

publications, which were available at the Urban Banks Department Of RBI.

For Regional Rural Banks the Data was again available in RBI publications, But

From Rural Development Department.

For State Cooperative Banks & District Central Cooperative Banks, the data was

available in publications of NABARD, which is the controlling body for these banks.

Also various websites of organizations like Indian Banker’s Association, NIBM etc

were referred for some data.

33

4.3

DATA ANALYSIS

Data analysis is the last but very important step in any research study to be

conducted. For each category of banks different data was available. Hence analysis

is different for each category. Let’s see how the analysis for each category was

completed in details.

4.3.1

DATA ANALYSIS OF SCHEDULED URBAN CO-OPERATIVE BANKS

In case of Scheduled Urban Cooperative Banks, Following was the data

collected,

Name Of The Category Scheduled Urban Cooperatives

Total No Of Banks 56

The Data Parameters Available1. Location

2. Addresses

3. Total assets

4. Advances

5. Deposits

6. Capital

7. Net Profit

8. Profit %

No Of Banks Selected 20

Procedure

34

4.3.2

DATA ANALYSIS OF REGIONAL RURAL BANKS

Name Of The Category Regional Rural Banks


The Data Parameters Available1. State

2. Sponsor Bank

3. Bank Name

4. Gross Npas

5. Gross Advances

6. Gross NPA Ratio %

7. Profit


36

4.3.3

DATA ANALYSIS OF STATE CO-OPERATIVE BANKS

Name Of The Category State Co-operative Banks


The Data Parameters Available1. Advances

2. Deposits

3. Profits

4. Share capital

5. Working Capital


38

4.3.1

DATA ANALYSIS OF DISTRICT CENTRAL CO-OPERATIVE BANKS

Name Of The Category District Central Co-operative Banks

39


The Data Parameters Available

1. State

2. Advances

3. Deposits

4. Profits

5. Share Capital


40

Chapter: 5

FINDINGS OF THE STUDY

41

Chapter: 6

CONCLUSION AND SUGGESTIONS

44

Chapter:7

LIMITATIONS AND SCOPE FOR UPDATION

45

Chapter: 7

BIBLOGRAPHY

46

ANNEXURESA.DATA TABLES

DATA FOR SUCB FOR YEAR 2004-05 (Amnt in Rs Lacs)

SR NO Location Name

Total assets

Advances

Deposits

Capital

Profit

Profit %

Premium Potential

1Ahmedabad

KALUPUR COMM.

CO-OP BANK 135366 45765 73120 1141 2369 1.75 114.4125

2 Mumbai THANE JANATA

SAHAKARI BANK 96680 51131 77632 780 1520 1.57 127.8275

3 Mumbai

GREATER BOMBAY CO-OP

BANK 72279 36244 55380 644 1037 1.41 90.61

4 Mumbai

PUNJAB & MAHARASHTRA

CO-OP BANK 102039 53741 85661 1272 1317 1.29 134.3525

5 Mumbai

BOMBAY MERCANTILECO-OP BANK 289238 93117 161178 1953 3703 1.28 232.7925

6 Mumbai

BASSEIN CATHOLIC

CO-OP BANK 87366 34505 72671 2093 1118 1.28 86.2625

7Ahmedabad

RAJKOT NAGRIK

SAHAKARI BANK 116986 48533 71173 768 1311 1.12 121.3325

8Ahmedabad

SURAT PEOPLE'S

CO-OP BANK 85095 33832 62681 1313 920 1.08 84.58

9 Mumbai COSMOS CO-OP

BANK 281624 119336 226283 3437 3006 1.07 298.34

10 Mumbai

NORTH KANARA G.S.B.

CO-OP BANK 88450 40627 74705 1294 874 0.98 101.5675

11 Mumbai BHARAT CO-OP

BANK 101323 55617 84749 1702 985 0.97 139.0425

12 Mumbai

SHAMRAO VITHAL

CO-OP BANK 172938 93274 144930 1947 1709 0.96 233.185

13Ahmedabad

MAHASANA URBAN

CO-OP BANK 57810 35797 37610 1913 502 0.87 89.4925

14 Mumbai

DOMBIVLI NAGARIK

SAHAKARI BANK 66780 34213 53065 979 580 0.87 85.5325

15 Mumbai ABHYUDAYA CO-

OP BANK 196692 73225 151857 1827 1323 0.67 183.0625

16 NagpurAKOLA URBAN CO-OP BANK 70386 44145 58663 985 466 0.66 110.3625

17 Mumbai SARASWAT CO-

OP BANK 511059 222360 366061 3044 2935 0.57 555.9

18 Nagpur

AKOLA JANATA COMM. CO-OP

BANK 62380 37269 51434 1198 318 0.51 93.1725

19 Mumbai JANAKALYAN

SAHAKARI BANK 130526 76785 112707 2449 601 0.46 191.9625

20 Nagpur

KHAMGAON URBAN CO-OP

BANK50857 30244 41207 808 161 0.41 75.61

47

DATA FOR SCB FOR YEAR 2003-4 (Amnt in Rs Lacs)

Sr No Name of bank Advances Deposits ProfitsShare capital

Working Capital

premium Potential

1 MAHARASHTRA 1283135 1123823 27190 20725 15207193207.837

5

2 UTTAR PRADESH 370180 307917 2728 5788 432134 925.45

3 TAMIL NADU 331374 292442 1575 3558 416455 828.435

4 PUNJAB 312223 103138 2101 2992 266371 780.5575

5 HARYANA 267182 94974 3 3780 226632 667.955

6 ANDHRA PRADESH 252568 135963 300 18910 553185 631.42

7 GUJARAT 195853 305014 419 1632 410805 489.6325

8 KARNATAKA 172445 172791 1055 2599 284238 431.1125

9 MADHYA PRADESH 156015 139419 159 6524 254750 390.0375

10 RAJASTHAN 133569 99189 1504 4103 197064 333.9225

11 KERALA 126032 232676 612 2269 263351 315.08

12 ORISSA 85166 88614 1037 4382 178796 212.915

13 CHHATTISGARH 83322 73020 90 1334 79118 208.305

14 WEST BENGAL 41266 207679 817 1505 264531 103.165

15HIMACHAL PRADESH 21687 150674 1764 740 193083 54.2175

16 GOA 18233 48607 21 683 65390 45.5825

17 PONDICHERRY 17363 14954 177 558 19718 43.4075

18 DELHI 11691 55430 1616 227 68409 29.2275

19 BIHAR 8678 73034 126 2031 130057 21.695

20 MEGHALAYA 2449 36547 299 387 44570 6.1225

21 MIZORAM 2102 10475 22 220 13489 5.255

22ANDAMAN AND NICOBAR 927 15229 124 99 18590 2.3175

23 SIKKIM 731 1122 1 891 2337 1.8275

24ARUNACHAL PRADESH 567 10704 76 166 16150 1.4175

25 CHANDIGARH 318 8918 234 63 10293 0.795

DATA FOR DCCB FOR YEAR 2003-04 (Amnt in Rs Lacs)

48

Sr No State Name of bank Advances Deposits Profits

Share Capital

Premium Potential

15 MAHARASHTRA KOLHAPUR 330458 139456 1654 6540 826.145

16 MAHARASHTRA PUNE 162055 227355 2172 8596 405.1375

17 MAHARASHTRA SANGLI 143853 94748 782 4154 359.6325

3 TAMILANADU SALEM 106592 87905 435 1873 266.48

18 MAHARASHTRA NASIK 99735 113538 246 4621 249.3375

19 MAHARASHTRA SHOLAPUR 84765 113971 2319 6244 211.9125

20 MAHARASHTRA SATARA 75808 110850 2051 2640 189.52

4 TAMILANADU CHENNAI 72722 107018 5555 8764 181.805

5 TAMILANADU VILLUPURAM 64572 26489 476 1523 161.43

33 GUJARAT BHAVANAGAR 61922 29262 400 1752 154.805

34 GUJARAT SABARKANTHA 58402 44291 150 550 146.005

35 GUJARAT SHRI 58316 62655 850 1518 145.79

6 TAMILANADU KANCHEEPURAM 56374 35781 67 2255 140.935

21 MAHARASHTRA NAGPUR 54727 62480 30 1338 136.8175

7 TAMILANADU COIMBATORE 54694 36790 203 2138 136.735

36 GUJARAT AHMEDABAD 52907 152531 1056 4417 132.2675

30 KARNATAKA KANARA 49580 34950 211 969 123.95

10 PUNJAB LUDHIANA 48137 26794 1081 713 120.3425

39ANDHRA PRADESH KRISHNA 46765 1513 813 5291 116.9125

37 GUJARAT VALSAD 45443 20307 105 448 113.6075

11 PUNJAB SANGRUR 44305 20490 451 829 110.7625

12 PUNJAB NAWANSHAHR 42636 36913 1154 210 106.59

13 PUNJAB PATIALA 42336 18917 375 856 105.84

28 KERALATHIRUVANANTHAPURAM 40592 56743 398 1503 101.48

8 TAMILANADU MADURAI 39077 43252 6 1618 97.6925

31 KARNATAKA BIDAR 38855 24905 328 1120 97.1375

22 MAHARASHTRA RAIGAD 38391 49289 502 822 95.9775

2 UTTAR PRADESH MEERUT 34909 32316 1078 779 87.2725

24 MAHARASHTRA MUMBAI 34889 230671 1270 3513 87.2225

38 GUJARAT SURAT 34272 114000 451 303 85.68

9 TAMILANADU KANYAKUMARI 33906 16036 318 993 84.765

32 HARYANA KARNAL 33149 10697 171 1162 82.8725

1 UTTARANCHAL NAINITAL KOTDWAR 32697 12303 953 406 81.7425

40ANDHRA PRADESH ELURU 31547 890 986 3238 78.8675

25 MAHARASHTRA THANE 31287 96109 901 761 78.2175

49

29 KERALAKANNUR(CANNANORE) 31251 35528 356 1055 78.1275

26 MAHARASHTRA LATUR 30972 39098 706 2227 77.43

14 PUNJAB HOSHIARPUR 30240 37453 670 356 75.6

27 MAHARASHTRA RATNAGIRI 30013 39795 774 1479 75.0325

DATA FOR RRBs FOR YEAR 2003-04 (Amnt in Rs Lacs)

50

No StateSponsor bank Bank Name

Gross NPAs

Gross Advances

Gross NPA Ratio % Profit

Premium Potential

1 KERALA CANARASOUTH MALABAR GRAMIN BANK 5109 75443 6.77 1854 188.6075

2 KARNATAKA SYNDICATE MALAPRABHA GRAMIN BANK 6522 60975 10.7 1714 152.4375

3 KARNATAKA CANARATUNGABHADRA GRAMIN BANK 4171 55814 7.47 1810 139.535

4UTTAR PRADESH SYNDICATE PRATHAMA BANK 3080 49093 6.27 3662 122.7325

5 AP SYNDICATE RAYALSEEMA GRAMIN BANK 2596 45118 5.75 2150 112.795

6 KERALA SYNDICATENORTH MALABAR GRAMIN BANK 6584 44986 14.63 1130 112.465

7 TAMILNADU I.O.B PANDYAN GRAMIN BANK 1762 43360 4.06 1375 108.4

8 AP S.B.I SRI VISAKHA GRAMIN BANK 4038 36449 11.08 530 91.1225

9 ASSAM U.B.I PRAGJYOTISH GRAMIN BANK 6698 32002 20.93 340 80.005

10UTTAR PRADESH S.B.I

GORAKHPUR KSHETRIYA GRAMIN BANK 9858 31807 30.99 1322 79.5175

11 WEST BENGAL U.B.I GAUR GRAMIN BANK 3733 28851 12.94 94 72.1275

12 WEST BENGAL U.B.I MALLABHUM GRAMIN BANK 4928 27715 17.78 13 69.2875

13 HARYANA SYNDICATE GURGAON GRAMIN BANK 1600 27269 5.87 3261 68.1725

14 AP S.B.I NAGARJUNA GRAMIN BANK 3041 26278 11.57 611 65.695

15 AP SYNDICATE PINAKINI GRAMIN BANK 1688 25986 6.49 845 64.96516 ORISSA I.O.B PURI GRAMIN BANK 3075 25850 11.9 48 64.625

17 AP SYNDICATESREE ANANTHA GRAMIN BANK 1903 25841 7.36 1738 64.6025

18 KARNATAKA SYNDICATE BIJAPUR GRAMIN BANK 2372 24920 9.52 1368 62.3

19 KARNATAKA S.B.I KRISHNA GRAMIN BANK 4084 23763 17.18 536 59.4075

20 AP INDIANSHRI VENKETESHWARA GRAMIN BANK 718 22721 3.16 376 56.8025

21UTTAR PRADESH CANARA

ALIGARH KSHETRIYA GRAMIN BANK 2999 20420 14.69 1403 51.05

22 HARYANA P.N.BHARYANA KSHETRIYA GRAMIN BANK 1291 19921 6.48 792 49.8025

23 KARNATAKA CANARACHITRADURGA GRAMIN BANK 1381 18890 7.31 553 47.225

24 AP S.B.I MANJIRA GRAMIN BANK 3017 17926 16.83 358 44.815

25 RAJASTHAN S.B.B.J MARWAR GRAMIN BANK 964 17824 5.41 549 44.56

26 TAMILNADU U.B.I TRIPURA GRAMIN BANK 6530 17809 36.67 205 44.5225

27 ORISSA I.O.B DHENKANAL GRAMIN BANK 1158 17486 6.62 288 43.715

51

28 BIHAR P.N.BBHOJPUR ROHTAS GRAMIN BANK 3408 17404 19.58 1525 43.51

29 AP S.B.H SRI SARASWATHI GRAMIN BANK 1350 17394 7.76 509 43.485

30 ORISSA B.O.I BAITARANI GRAMIN BANK 1239 17250 7.18 115 43.125

31 WEST BENGAL U.C.O MAYURAKSHI GRAMIN BANK 1198 16894 7.09 .. 42.235

32HIMACHAL PRADESH P.N.B HIMACHAL GRAMIN BANK 969 16550 5.86 288 41.375

33 RAJASTHAN P.N.BALWAR-BHARATPUR ANCHALIK GRAMIN BANK 640 16211 3.95 972 40.5275

All Regional Rural Banks 320151 2216058 14.45 5540.145

B.RBI CIRCULARSCIRCULAR-I

Entry of Urban Co-operative Banks into insurarance business

52

RBI/2004-05/351

BPD.PCB.Dir. 35/09.112.00/2004-05

24 January 2005

The Chief Executive Officers of all

Primary (Urban) Co-operative Banks

Dear Sir

A reference is invited to our circular UBD.NO.BPD.PCB.Cir.9/09.112.00/ 2003-04 dated August 18, 2003 allowing financially strong Scheduled Primary (Urban) Co-operative Banks having a minimum net worth of Rs.100 crore as per the latest RBI Inspection Report and complying with certain other norms to undertake insurance business as corporate agent without risk participation.

2. On a review it has been decided to allow Scheduled Primary (Urban) Co-operative Banks having a minimum net worth of Rs.50 crore instead of Rs.100 crore as at present, to undertake insurance agency business without risk participation. Other terms and conditions stated in our circular dated August 18, 2003 referred to above would remain unchanged. We reiterate that no UCBs should undertake insurance agency business without obtaining prior permission of the Reserve Bank of India.

3. It has also been decided to allow all Primary (Urban) Co-operative Banks to undertake insurance business on a referral basis, without any risk participation through their network of branches. Under the referral arrangement, banks provide physical infrastructure within their select branch premises to insurance companies for selling their insurance products to the bank's customers with adequate disclosure and transparency, and in turn earn referral fees on the basis of premia collected. The above permission is subject to the following conditions:

i. The bank should comply with the IRDA regulations for undertaking referral business with insurance companies.

ii. The bank should not adopt any restrictive practice of forcing its customers to go in only for a particular insurance company in respect of assets financed by the bank. The customers should be allowed to exercise their own choice.

iii. The bank desirous of entering into referral arrangement, besides complying with IRDA regulations, should also enter into an agreement with the insurance company concerned for allowing use of its premises and making use of the existing infrastructure of the bank. The agreement should be for a period not exceeding three years at the first instance and the bank should have the discretion to renegotiate the terms depending on its satisfaction with the service or replace it by another agreement after the initial period. Thereafter, the bank will be free to sign a longer term contract with the approval of its Board.

53

iv. As the participation by a bank's customer in insurance products is purely on a voluntary basis, it should be stated in all publicity material distributed by the bank in a prominent way. There should be no 'linkage' either direct or indirect between the provision of banking services offered by the bank to its customers and use of the insurance products.

v. The risk, if any involved in referral arrangement should not get transferred to the business of the bank.

The banks need not obtain prior approval of the RBI to undertake referral business.

4. Please acknowledge receipt of the circular to our Regional Offices.

Yours faithfully

(N.S. Vishwanathan)

Chief General Manager

CIRCULAR-IIEntry of Regional Rural Banks into insurarance business

RBI/2004-05/464RPCD.CO. RRB.BC. No.99/03.05.33(G)/2004-05

54

May 12, 2005

Chairmen of all Regional Rural Banks/ All Sponsor Banks

Dear Sir,

A reference is invited to our circular RPCD.CO.RRB.BC.No.51/ 03.05.33(G)/2004-05 dated October 27, 2004, allowing Regional Rural Banks (RRBs) complying with certain norms to undertake insurance business as corporate agents without risk participation.

2. On a review, it has now been decided to allow all RRBs to undertake insurance business on a referral basis, without any risk participation through their network of branches. Under the referral arrangement, banks provide physical infrastructure within their select branch premises to insurance companies for selling their insurance products to the bank's customers with adequate disclosure and transparency, and in turn earn referral fees on the basis of premia collected. The above permission is subject to the following conditions:

(i) The bank should comply with the IRDA regulations for undertaking referral business with insurance companies.

(ii) The bank should not adopt any restrictive practice of forcing its customers to go in only for a particular insurance company in respect of assets financed by the bank. The customers should be allowed to exercise their own choice.

(iii) The bank desirous of entering into referral arrangement, besides complying with IRDA regulations, should also enter into an agreement with the insurance company concerned for allowing use of its premises and making use of the existing infrastructure of the bank. The agreement should be for a period not exceeding three years at the first instance and the bank should have the discretion to renegotiate the terms depending on its satisfaction with the service or replace it by another agreement after the initial period. Thereafter, the bank will be free to sign a longer term contract with the approval of its Board.

(iv) As the participation by a bank's customer in insurance products is purely on a voluntary basis, it should be stated in all publicity material distributed by the bank in a prominent way. There should be no 'linkage' either direct or indirect between the provision of banking services offered by the bank to its customers and use of the insurance products.

(v) The risk, if any, involved in referral arrangement should not get transferred to the business of the bank.

The banks need not obtain prior approval of the RBI to undertake referral business.

3. Please acknowledge receipt of the circular to our Regional Offices.

55

http://www.rbi.org.in/index.dll/58180?OpenStoryTextArea?fromdate=01/01/70&todate=05/12/05&s1secid=1001&s2secid=1001&secid=14/0/0&archivemode=2



Yours faithfully

(G. Srinivasan)Chief General Manager

CIRCULAR-IIIEntry of State Cooperative Banks (SCBs) / District Central Cooperative Banks

(DCCBs) into insurarance business

RBI/279/2004-05

56

RPCD.CO.NB. BC.No. 59/03.03.116/2004-05 November 18,

2004

Chairmen of all State Cooperative Banks/District Central Cooperative Banks

Dear Sir,The issue of permitting Scheduled State Cooperative Banks/District Central Cooperative Banks to undertake insurance business has been examined and it has been decided to permit scheduled or licensed SCBs and licensed DDCCBs to undertake insurance business as corporate agent without risk participation subject to their fulfilling the following terms and conditions:(i) The bank should be having a minimum positive networth [real or

exchangeable value of paid-up capital and reserves as defined in Section 11 of the Banking Regulation Act, 1949(AACS)] of Rs. 100 crore as per the latest NABARD Inspection Report;

(ii) The bank should have earned net profit for the last three years and should not have any accumulated losses;

(iii) The Gross NPA of the bank should not be more than 10 per cent;(iv) The bank should not have violated prudential norms including

individual and group exposure norms fixed by RBI / NABARD; (v) The bank should have complied with the instructions issued by RBI /

NABARD on loans and advances to directors / relatives, firms etc;(vi) No premium collection accounts will be allowed to be opened with the

bank and hence, premium collected should be directly paid to the insurance companies;

(vii) The bank should comply with regulations of Insurance Regulatory and Development Authority (IRDA) for acting as corporate agent;

(viii) The bank should submit an undertaking to the effect that banking business will not in any way get contaminated / affected on account of acting as agent of insurance companies;

(ix) The bank should not adopt any restrictive practice of forcing its customers to go in only for a particular insurance company in respect of assets financed by the bank and the customers should be allowed to exercise their own choice;

(x) The bank should obtain prior permission from the concerned Regional Office of RBI before taking up the insurance agency business. The application should be routed through the concerned regional office of NABARD with their recommendation.

2. The SCBs /DDCCBs fulfilling the above norms and desirous of undertaking insurance business as corporate agents, may forward their applications along with certified copy of the Board Resolution in support thereof and details of their financial position as at the end of the previous quarter to the respective Regional Office of RPCD through the concerned Regional Office of NABARD. No SCB/DCCB should undertake insurance business without obtaining prior permission of the Reserve Bank of India.

57

3. Permission granted to SCBs /DDCCBs to undertake insurance business on non-risk participation basis as indicated above will be subject to their obtaining necessary authorisation / licence from IRDA. The SCBs /DDCCBs are advised that our permission should not be construed as a permission to adjust the dues of the insured from out of the proceeds of insurance claims. As regards the adjustment of dues of these banks against the insurance claims, it is to be decided on the tri- partite agreement amongst insured, insurer and the agent.4. Please note that the permission granted to an SCB/DCCB for taking up insurance agency business as indicated above, will be normally valid for two years subject to review before expiry of the said period. The SCB/DCCB has to get the approval renewed from the respective Regional Office of RPCD subject to its fulfilling the terms and conditions of the permission. If an SCB/DCCB fails to fulfil the terms and conditions at any time subsequent to grant of permission, the same will be liable to be withdrawn.5. Please acknowledge receipt of this circular to our respective Regional Office.Yours faithfully

(C.S.Murthy)Chief General Manger-in-Charge

58

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