Financial and Insurance Market Awareness

Financial and Insurance Market Awareness
Table of Contents
Financial and Insurance Market Awareness .................................................................................................................. 2
Indian Financial Market ..................................................................................................................................................... 2
Capital Market and Government ..................................................................................................................................... 2
Money Market ...................................................................................................................................................................... 4
Stock Market and Bond Market ........................................................................................................................................ 6
The Role of Money Markets in the Financial System (in India) ................................................................................... 6
Derivatives Markets and Private Investing ...................................................................................................................... 8
Study of the Foreign Exchange Interbank Market ......................................................................................................... 9
Primary Markets and Secondary Markets ..................................................................................................................... 11
Brexit .................................................................................................................................................................................... 13
Mutual Funds ...................................................................................................................................................................... 14
Role of Discount and Finance House of India ............................................................................................................. 16
Project Financing (in India) .............................................................................................................................................. 17
Insurance Industry ............................................................................................................................................................. 17
Regulatory Agencies .......................................................................................................................................................... 18
Establishment of FSDC ..................................................................................................................................................... 24
International Financial Organization ............................................................................................................................ 25
Introduction of Insurance ................................................................................................................................................. 27
History of Life Insurance ................................................................................................................................................... 28
History of General Insurance .......................................................................................................................................... 29
Know About IRDAI ............................................................................................................................................................. 30
Types of Insurance ............................................................................................................................................................. 31
Indian Insurance Market .................................................................................................................................................. 32
ULIP Unit Linked Insurance Plan (ULIP) ......................................................................................................................... 33
Public Sector Insurance Companies ............................................................................................................................... 34
Private Sector Insurance Companies ............................................................................................................................. 35
Glossary of Insurance Terms ........................................................................................................................................... 36
Abbreviation Related to Insurance Industry ................................................................................................................. 38
Employee State Insurance Scheme ................................................................................................................................ 39
Schemes Related to Insurance (PMFBY, PMJJBY, PMSBY etc.) .................................................................................. 39
Other Important Topics Related to Insurance Awareness ......................................................................................... 41
Insurance Current Affairs ................................................................................................................................................. 41
Insurance Ombudsman .................................................................................................................................................... 42
Bancassurance ................................................................................................................................................................... 43
Current Insurance Schemes............................................................................................................................................. 44
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Indian Financial Market Types of Financial Market
A financial market consists of two major segments:
We are fully aware that business units have to raise (a) Money Market and
short-term as well as long-term funds to meet their (b) Capital Market
working and fixed capital requirements from time to
time. This necessitates not only the ready availability of A money market is a component of financial market
such funds but also a transmission mechanism with the where short-term borrowing can be issued. This market
help of which the providers of funds (investors/lenders) includes assets that deal with short-term borrowing,
can interact with the borrowers/users (business units) lending, buying and selling. A capital market is a
and transfer the funds to them as and when required. component of a financial market that allows long-term
This aspect is taken care of by the financial markets trading of debt and equity-backed securities.
which provide a place where or a system through which,
the transfer of funds by investors/lenders to the business Capital Market and Government
units is adequately facilitated.
The capital market is a market for financial
investments that are direct or indirect claims to
capital. The capital market comprises the complex of
institutions and mechanism through which intermediate
term funds and long term funds are pooled and made
available to business, government and individuals.
The Capital market facilitates mobilization of savings of

individuals and pools them into reservoir of capital which
can be used for the economic development of a
country. An efficient capital market is essential for
raising capital by the corporate sector of the economy
and for the protection of the interest of investors in
corporate securities. The capital market has two
interdependent and inseparable segments, the
primary market and secondary market.
Primary Market
The primary market provides the channel for sale of
new securities. The issuer of securities sells the
securities in the primary market to raise funds for
investment and/or to discharge. In other words, the
market wherein resources are mobilized by companies
through issue of new securities is called the primary
market. These resources are required for new projects as
well as for existing projects with a view to expansion,
modernization, diversification and Upgradation. The
issue of securities by companies can take place in any of
Main functions of Financial Market:- the following methods:-
(a) It provides facilities for interaction between the (a) Initial public offer (securities issued for the first time
investors and the borrowers. to the public by the company
(b) It provides pricing information resulting from the (b) Further issue of capital
interaction between buyers and sellers in the market (c) Rights issue to the existing shareholder (on their
when they trade the financial assets. renunciation, the shares can be sold by the company to
(c) It provides security to dealings in financial assets. others also)
(d) It ensures liquidity by providing a mechanism for an (d) Offer of securities under reservation/ firm allotment
investor to sell the financial assets. basis to-
(e) It ensures low cost of transactions and information. I. foreign partners and collaborators,
II. mutual funds
III. merchant bankers security to the writer of options at a predetermined price
IV. banks and institutions while a call
V. non resident Indians and overseas corporate bodies option permits the owner to purchase a security from the
VI. Employees writer of the option at a predetermined price. These
(e) Offer to public options can also be on individual stocks or basket of
(f) Bonus Issue. stocks like index. Two exchanges, namely NSE and the
The primary market is of great significance to the Bombay Stock Exchange, (BSE) provide trading of
economy of a country. It is through the primary market derivatives of securities.
that funds flow for productive purposes from investors to
entrepreneurs. The latter use the funds for creating The instruments traded (media of exchange) in the
new products and rendering services to customers in capital market are:
India and abroad. The strength of the economy of a 1. Debt Instruments
country is gauged by the activities of the Stock A debt instrument is used by either companies or
exchanges. The primary market creates and offers the governments to generate funds for capital-intensive
merchandise for the projects. It can obtained either through the primary or
Secondary Market. secondary market. The relationship in this form of
instrument ownership is that of a borrower – creditor
Secondary Market and thus, does not necessarily imply ownership in the
Secondary market refers to a market where securities business of the borrower.
are traded after being initially offered to the public
in the primary market and/or listed on the Stock When the instrument is issued by:
Exchange. Majority of the trading is done in the The Central Government, it is called a Sovereign Bond;
secondary market. Secondary market comprises of equity A state government it is called a State Bond;
markets and the debt markets. The secondary market A local government, it is called a Municipal Bond; and
enables participants who hold securities to adjust their A corporate body (Company), it is called a Debenture,
holdings in response to changes in their assessment of Industrial Loan or Corporate Bond
risk and return. They also sell securities for cash to meet
their liquidity needs. The secondary market has 2. Equities (also called Common Stock)
further two components, namely the over-the- This instrument is issued by companies only and can also
counter (OTC) market and the exchange- traded be obtained either in the primary market or the
market. OTC is different from the market place provided secondary market. Investment in this form of business
by the Over The Counter Exchange of India Limited. OTC translates to ownership of the business as the contract
markets are essentially informal markets where trades stands in perpetuity unless sold to another investor in the
are negotiated. Most of the trades in government secondary market. The investor therefore possesses
securities are in the OTC market. All the spot trades certain rights and privileges (such as to vote and hold
where securities are traded for immediate delivery and position) in the company. Whereas the investor in debts
payment take place in the OTC market. The exchanges may be entitled to interest which must be paid, the
do not provide facility for spot trades in a strict sense. equity holder receives dividends which may or may not
Closest to spot market is the cash market where be declared.
settlement takes place after some time. Trades taking
place over a trading cycle, i.e. a day under rolling 3. Preference Shares
settlement, are settled together after a certain time. This instrument is issued by corporate bodies and the
Trades executed on the leading exchange are cleared investors rank second (after bond holders) on the scale
and settled by a clearing corporation which provides of preference when a company goes under. The
novation and settlement guarantee. instrument possesses the characteristics of equity in the
sense that when the authorised share capital and paid
A variant of secondary market is the forward market, up capital are being calculated, they are added to equity
where securities are traded for future delivery and capital to arrive at the total. Preference shares can also
payment. Pure forward is outside the formal market. The be treated as a debt instrument as they do not confer
versions of forward in formal market are futures and voting rights on its holders and have a dividend payment
options. In futures market, standardised securities are that is structured like interest (coupon) paid for bonds
traded for future delivery and settlement. These futures issues.
can be on a basket of securities like an index or an
individual security. In case of options, securities are Preference shares may be:
traded for conditional future delivery. There are two Irredeemable, convertible: in this case, upon maturity
types of options–a put option permits the owner to sell a of the instrument, the principal sum being returned to

the investor is converted to equities even though maturities, of one year or less, such as treasury bills
dividends (interest) had earlier been paid. and commercial papers. Over-the-counter trading is
Irredeemable, non-convertible: here, the holder can done in the money market and it is a wholesale process.
only sell his holding in the secondary market as the It is used by the participants as a way of borrowing and
contract will always be rolled over upon maturity. The lending for the short term.
instrument will also not be converted to equities.
Redeemable: here the principal sum is repaid at the It has certain risks which investors should be aware of,
end of a specified period. In this case it is treated strictly one of them being default on securities such as
as a debt instrument. commercial papers. Money market consists of various
Note: interest may be cumulative, flexible or fixed financial institutions and dealers, who seek to
depending on the agreement in the Trust Deed. borrow or loan securities. It is the best source to invest in
liquid assets. The money market is an unregulated and
4. Derivatives informal market and not structured like the capital
These are instruments that derive from other securities, markets, where things are organised in a formal
which are referred to as underlying assets (as the way. Money market gives lesser return to investors who
derivative is derived from them). The price, riskiness and invest in it but provides a variety of products.
function of the derivative depend on the underlying Withdrawing money from the money market is easier.
assets since whatever affects the underlying asset must Money markets are different from capital markets as
affect the derivative. The derivative might be an asset, they are for a shorter period of time while capital
index or even situation. Derivatives are mostly common markets are used for longer time periods.
in developed economies.
Important Objectives Served By a Money Market-
Some examples of derivatives are:  The money market doesn‘t only help in the storage
 Mortgage-Backed Securities (MBS) of short-term surplus funds but also helps in
 Asset-Backed Securities (ABS) lowering short term deficits.
 Futures  They help the central bank in regulating liquidity in
 Options the economy.
 Swaps  Money markets help short-term fund users to fulfill
 Rights their needs at reasonable costs.
 Exchange Traded Funds or commodities  The money market helps in the development of the
capital market, trade and industry.
 To help design effective monetary policies.
 To facilitate streamlined functioning of commercial
banks.
What Are Money Market Instruments?

Money Market Instruments are simply the instruments
or tools which can help one operate in the money
market. These instruments serve a dual purpose of not
only allowing borrowers meet their short-term
requirements but also provide easy liquidity to
lenders. Some of the common money market
instruments include Banker‟s Acceptance, Treasury
Bills, Repurchase Agreements, Certificate of
Deposits and Commercial Papers.
Money market instruments allow governments, financial

organizations and businesses to finance their short-
term cash requirements. Some of the notable
Money Market characteristics of money market instruments are as
follows.
Money market basically refers to a section of the
financial market where financial instruments with Liquidity – Money market instruments are highly liquid
high liquidity and short-term maturities are traded. because they are fixed-income securities which carry
Money market has become a component of the financial short maturity periods of a year or less.
market for buying and selling of securities of short-term

Discount Pricing – Another important characteristic Commercial Papers are can be compared to an
feature of money market instruments is that they are unsecured short-term promissory note which is issued
issued at a discount on their face value. by highly rated companies with the purpose of raising
capital to meet requirements directly from the market.
Types of Money Market Instruments- CPs usually feature a fixed maturity period which can
range anywhere from 1 day up to 270 days. Highly
 Treasury Bills (T-Bills) popular in countries like Japan, UK, USA, Australia
 Certificate of Deposits (CDs) and many others, Commercial Papers promise higher
 Commercial Papers (CPs) returns as compared to treasury bills and are
 Repurchase Agreements (Repo) automatically not as secure in comparison. Commercial
 Banker's Acceptance (BA) papers are actively traded in secondary market.
 Bill of Exchange
Repurchase Agreements (Repo)
Treasury Bills (T-Bills) Repurchase Agreements, also known as Reverse Repo or
Issued by the Central Government, Treasury Bills simply as Repo, loans of a short duration which are
are known to be one of the safest money market agreed upon by buyers and sellers for the purpose of
instruments available. However, treasury bills carry zero selling and repurchasing. These transactions can only
risk. i.e. are zero risk instruments. Therefore, the returns be carried out between RBI approved parties
one gets on them are not attractive. Treasury bills come Repo/Reverse Repo transactions can be done only
with different maturity periods like 3-month, 6-month between the parties approved by RBI. Transactions are
and 1 year and are circulated by primary and only permitted between securities approved by the RBI
secondary markets. Treasury bills are issued by the like treasury bills, central or state government
Central government at a lesser price than their face securities, corporate bonds and PSU bonds.
value. The interest earned by the buyer will be the
difference of the maturity value of the instrument and Banker's Acceptance (BA)
the buying price of the bill, which is decided with the A banker's acceptance (BA) is a short-term debt
help of bidding done via auctions. Currently, there are 3 instrument issued by a company that is guaranteed by
types of treasury bills issued by the Government of a commercial bank. Banker's acceptances are issued as
India via auctions, which are 91-day, 182-day and part of a commercial transaction. These instruments are
364-day treasury bills. similar to T-bills, are frequently used in money market
funds and are traded at a discount from face value on
Certificate of Deposits (CDs) the secondary market, which can be an advantage
A Certificate of Deposit or CD, functions as a deposit because the banker's acceptance does not need to be
receipt for money which is deposited with a financial held until it matures. Banker's acceptances vary in
organization or bank. However, a Certificate of amount according to the size of the commercial
Deposit is different from a Fixed Deposit Receipt in two transaction. The date of maturity typically ranges
aspects. The first aspect of difference is that a CD is only between 30 and 180 days from the date of issue,
issued for a larger sum of money. Secondly, a Certificate which generally classifies the banker's acceptance as a
of Deposit is freely negotiable. First announced in 1989 short-term negotiable instrument. To create a banker‘s
by RBI, Certificate of Deposits have become a preferred acceptance, the drawer must meet the eligibility
investment choice for organizations in terms of short- requirements as set forth by the banking institution that
term surplus investment as they carry low risk while serves as the backer in the transaction.
providing interest rates which are higher than those
provided by Treasury bills and term deposits. Bill of Exchange
Certificate of Deposits are also relatively liquid, which is A bill of exchange is a written order used primarily in
an added advantage, especially for issuing banks. Like international trade that binds one party to pay a fixed
treasury bills, CDs are also issued at a discounted price sum of money to another party on demand or at a
and their tenor ranges between a span of 7 days up to predetermined date. Bills of exchange are similar to
1 year. However, banks issue Certificates of Deposits for checks and promissory notes—they can be drawn by
durations ranging from 3 months, 6 months and 12 individuals or banks and are generally transferable by
months. They can be issued to individuals (except endorsements. A bill of exchange transaction involves up
minors), trusts, companies, corporations, associations, to three parties. The drawee is the party that pays the
funds, non-resident Indians, etc. sum specified by the bill of exchange. The payee is the
one who receives that sum. The drawer is the party that
Commercial Papers (CPs) obliges the drawee to pay the payee. The drawer and

the payee are the same entity unless the drawer (OTC). The other key difference between the stock and
transfers the bill of exchange to a third-party payee. bond market is the risk involved in investing in each.
Stock Market and Bond Market Stock Exchange

A stock exchange is a marketplace where securities,
such as stocks and bonds, are bought and sold.
Stock Market Bonds are typically traded Over-the-Counter (OTC), but
When you buy stock, you are buying a percentage some corporate bonds can be traded in stock exchanges.
share of the underlying company, so if you own some Stock exchanges allow companies to raise capital and
shares of General Electric, you are a fractional investors to make informed decisions using real-time
owner of the General Electric Company. Common price information. Exchanges can be a physical location
stock represents ownership or equity in a company. The or an electronic trading platform. Though people are
market prices of stocks fluctuate according to each typically familiar with the image of the trading floor,
company's financial performance and the outlook for many exchanges now use electronic trading.
its future performance.
Purpose of Stock Exchanges-
Bond Market Stock exchanges act as an agent for the economy by
When you buy a bond you are loaning money to the facilitating trade and disseminating information. Below
underlying company. Ownership of a bond puts you in are some of the ways exchanges contribute:
the position of being a creditor. A bond pays a fixed 1. Raising Capital
interest payment every six months, which is why it is 2. Corporate Governance
called a fixed income investment, and these credit 3. Economic Efficiency
instruments with short maturities under one year are
called money market investments. Individual bond prices
move according to the credit quality of the underlying The Role of Money Markets in the
company. If the company loses a lot of money and has Financial System (in India)
trouble paying its bills, the bond market will require a
higher interest rate return on investment, which means
the bond price will decline. Like in any market, certain goods are traded in the
money market too. The good that is bought and sold
in the money market is money or near-money
financial assets. The money market is a market for
short-term money and financial assets that are close
substitutes for money. Financial assets of long-term
maturity is very much the domain of the investors of the
capital market where these long- term securities are
traded. ‗Short-term‘ in the Indian context means
generally a period up to one year. The term ‗close
substitutes for money‘ means any financial asset which
can be quickly converted into money with minimum
transaction/conversion cost.
The broad objectives of the money market are to

provide:
(a) An equilibrating mechanism for evening out short-
term deficits and surpluses,
(b) A focal point for central bank intervention for
Key Differences between the Bond and Stock influencing liquidity of the economy, and
Markets (c) An access to the users of short-term money to meet
The differences between the bond and stock markets their requirements at reasonable price.
lie in the manner in which the different products are
sold and the risk involved in dealing with each The short-term money market in India consists of
market. One major difference is that the stock market markets for inter-bank call and short notice money,
has central places or exchanges where stocks are bought treasury bills, commercial bills, commercial papers,
and sold, while the bond market does not have a central certificates of deposit and inter-bank partici-pations.
trading place; bonds are sold mainly over the counter What is significant is that all these markets are closely
inter-linked. The major participants in the money market

are the commercial banks, finan-cial institutions, (b) Assessment of the interaction between monetary
corporations and individuals. policy and public debt management in so far as they
have a bearing on the effectiveness of monetary policy.
The larger the number of participants, greater will be the (c) Evaluation of the various instruments of monetary
depth of the market. Unlike the stock market where and credit policy in terms of their impact on the credit
trading is done on the floor of the stock exchange, system and on the economy.
trading in the money market is conducted over
tele-phone followed by written confirmation from both Narasimham Committee-I
the borrower and the lender. The Indian Financial Sector In the year 1991, the Government of India appointed a
cannot be understood without an excursion into the Committee to review the financial system under the
various committees, commissions, working groups which chairmanship of M. Narasimham. The Purpose of the
were constituted from time to time in order to support committee was to review the Financial System and
the progress of financial system. aspects relating to the structure, organizations and
functioning of the financial system. The main
The various committees and commissions are a recommendations of the Committee are:
product of the decision making process. Once the need  Phasing reduction of Statutory Liquidity Ratio (SLR) to
for financial sector reform was recognised, the 25 per cent over a period of five years.
government or the Reserve Bank of India typically  Progressive reduction in Cash Reserve Ratio (CRR).
set up a committee that included experts, public  Phasing out of directed credit programmes and
servants and sometimes representatives from the redefinition of the priority sector.
corporate sector to spell out a reform roadmap. The aim  Adoption of uniform accounting practices in regard
clearly is to make the membership of the committees as to income recognition, asset classification and
broad based as possible, though membership has never provisioning against bad and doubtful debts.
included politicians. These committees are given a clear  Setting up of Asset Reconstruction Fund (ARF) to take
mandate and a timeframe in which to submit their over from banks a portion of their bad and doubtful
reports. Sometimes the views and opinions of the advances at a discount.
members are very diverse. It is not uncommon for a  Deregulation of interest rates.
report to have a rather long, and occasionally more than
one, note of dissent by members. Once a report is Stipulation of minimum capital adequacy ratio of 4 per
submitted, it is subject to extensive debate, then some of cent to risk weighted assets by March 1993, 8 per cent
the recommendations of the report are accepted. This by March 1996, and 8 per cent by those banks, having
leads to a fragmentation of policymaking in the sense international operations by March 1994.
that each committee is asked to work out possible
solutions to a specific policy problem. Narasimham Committee-II
The creation of a strong and efficient financial
The Committee to Review the Working of the system, functionally diverse and geographically
Monetary System (1985). The initial stimulus to widespread was the objective that has inspired the
ameliorate the financial sector came with the submission process of financial sector reforms since 1992, as part
of two influential committee reports to the Reserve Bank of the broader programme of structural economic
of India - The Chakravarty Committee in 1985. This is reforms. The reform measures taken in this area have
referred to as the Chakravarty Committee. The followed the recommendations of the Committee on
committee was appointed by the Reserve Bank in Financial System-1 which reported in November 1991.
December 1982, under the chairmanship of Sukhamoy That report was conceived as a holistic exercise. Since
Chakravarty to examine the working of the monetary the submission of the Report, several measures have
system in India. The Chairman was helped by a team of been instituted in line with its recommendations. The
distinguished experts such as M.P.Chitale, R.K. Hazari, Committee made several recommendations relating to
F.A. Mehta and C. Rangarajan and an able research the financial sector, on Capital Adequacy,
staff. Investment, Asset Quality, NPA Management,
Directed Credit, Prudential Norms, Structural
The terms of reference were comprehensive Issues, and Systems and methods in banks.
comprising:
(a) Critical review of the structure and operation of the Committee on Capital Account Convertibility- SS
monetary system in the context of the basic objectives of Tarapore Committee (1997)-
planned development.
RBI appointed a Committee on capital account
convertibility headed by S.S.Tarapore, Deputy Governor

of RBI, in the year 1997, to review the international A forward contract is a customized contract between two
experience in relation to capital account convertibility, parties, where settlement takes place on a specific date
recommended measures for achieving capital account in future at a price agreed today. The main features of
convertibility, to specify the sequence and time frame for forward contracts are:-
such measures and to suggest domestic policy measures  They are bilateral contracts and hence exposed to
and changes in the institutional framework. The counter-party risk.
Committee has recommended a phased implementation  Each contract is custom designed, and hence is
of capital account convertibility over a three-year period. unique in terms of contract size, expiration date and
The Committee also recommended reduction of fiscal the asset type and quality.
deficit, inflation rate, CRR obligation, NPA level of  The contract price is generally not available in public
Banks and more stringent capital adequacy ratios. The domain.
liberalized policies and arrangements to facilitate higher  The contract has to be settled by delivery of the asset
level of inflow and outflow of capital were the other on expiration date.
important recommendations.  In case the party wishes to reverse the contract, it
has to compulsorily go to the same counter party,
Role of Government in Financial System- which being in a monopoly situation can command
Money Markets are a significant source of funding state the price it wants.
and local governments for public projects such as
airports, bridges, road, water and sewage. Futures
Futures are exchange-traded contracts to sell or buy
Role of Credit Institution in Financial System- financial instruments or physical commodities for a
Credit institutions use the money market funds as cash future delivery at an agreed price. There is an
management tools that provide a high degree of agreement to buy or sell a specified quantity of financial
liquidity and stability at a low cost. Money market are instrument commodity in a designated future month at a
attractive for the institutions because they are high price agreed upon by the buyer and seller. To make
quality assets, diversification of funds and economies of trading possible, BSE specifies certain standardized
scale. features of the contract.
Role of Central Bank in Financial System- Difference between Forward Contracts and Futures
Contracts-
It is responsible for maintaining financial sovereignty Sr.
and economic stability of a country, especially in Basis Futures Forwards
No
underdeveloped countries. The central bank does not Traded on
deal with the general public directly. It performs its 1 Nature organized Over the Counter
functions with the help of commercial banks. The central exchange
bank is accountable for protecting the financial stability
Contract
and economic development of a country. Apart from 2 Standardized Customized
Terms
this, the central bank also plays a significant part in
avoiding the cyclical fluctuations by controlling money 3 Liquidity More liquid Less liquid
supply in the market. A central bank should primarily Margin Requires margin
4 Not required
be the “lender of last resort.” Payments payments
Follows daily At the end of the
5 Settlement
settlement period.
Derivatives Markets and Private Contract can be
Can be reversed reversed only with
Investing with any the same
6 Squaring off
member of the Counter-party with
A derivative is an instrument whose value is derived Exchange. whom it was
from the value of one or more underlying, which can be entered into.
commodities, precious metals, currency, bonds,
stocks, stocks indices, etc. Four most common Swaps
examples of derivative instruments are Forwards, A swap is an agreement between two parties to
Futures, Options and Swaps. exchange cash flows on a determined date or in many
cases multiple dates. Typically, one party agrees to pay a
Forward Contracts fixed rate while the other party pays a floating rate. For
example, when trading commodities the first party, an
airline company relying of kerosene, agrees to pay a This has three key requisites to invest:
fixed price for a pre-determined quantity of this Demat account: This is the account which stores your
commodity. The other party, a bank, agrees to pay the securities in electronic format. It is unique to every
sport price for the commodity. Hereby the airline investor and trader.
company is insured of a price it will pay for its
commodity. A rise in the price of the commodity is in this Trading account: This is the account through which you
case paid by the bank. Should the price fall the conduct trades. The account number can be considered
difference will be paid to the bank. your identity in the markets. This makes the trade unique
to you. It is linked to the demat account, and thus
ensures that YOUR shares go to your demat account.
Margin maintenance: This pre-requisite is unique to

derivatives trading. While many in the cash segment too
use margins to conduct trades, this is predominantly
used in the derivatives segment.
Study of the Foreign Exchange

Interbank Market
Globally, operations in the foreign exchange market
started in a major way after the breakdown of the
Bretton Woods system in 1971, which also marked
the beginning of floating exchange rate regimes in
several countries. Over the years, the foreign exchange
market has emerged as the largest market in the world.
The decade of the 1990s witnessed a perceptible policy
shift in many emerging markets towards reorientation of
their financial markets in terms of new products and
instruments, development of institutional and market
infrastructure and realignment of regulatory structure
consistent with the liberalised operational
framework. The changing contours were mirrored in a
rapid expansion of foreign exchange market in terms of
participants, transaction volumes, decline in transaction
Options costs and more efficient mechanisms of risk transfer.
Options are a form of derivatives, which gives holders The origin of the foreign exchange market in India could
the right, but not the obligation to buy or sell an be traced to the year 1978 when banks in India were
underlying asset at a pre-determined price, somewhere permitted to undertake intra-day trade in foreign
in the future. When you take an option to buy an asset it exchange. However, it was in the 1990s that the
is called a ‗call‘ and when you obtain the right to sell an Indian foreign exchange market witnessed far
asset it is called a ‗put‘. To determine whether it is reaching changes along with the shifts in the currency
profitable to exercise an option, the current market price regime in India. The exchange rate of the rupee, that
(spot price) and the price in the option (strike price) need was pegged earlier was floated partially in March 1992
to be compared. By comparing both prices, a choice can and fully in March 1993 following the
be made to either exercise the option or let it expire. recommendations of the Report of the High Level
When exercising an option there are three positions on Committee on Balance of Payments (Chairman: Dr.
which the holder can find themselves. The first is in the C. Rangarajan). The unification of the exchange rate
money (ITM), where the strike price is more favorable was instrumental in developing a market-determined
than the spot price and thus it will be advantageous to exchange rate of the rupee and an important step in the
exercise the option. The second is at the money (ATM) progress towards current account convertibility, which
in which the strike and spot price are equal and so no was achieved in August 1994.
advantage can be gained. The third is out the money A further impetus to the development of the foreign
(OTM), where the strike price is higher than the spot exchange market in India was provided with the setting
price. up of an Expert Group on Foreign Exchange Markets in
India (Chairman: Shri O.P. Sodhani), which submitted

its report in June 1995. The Group made several exchange rate and open capital regime has been
recommendations for deepening and widening of the examined in Section VI. Section VII makes certain
Indian foreign exchange market. Consequently, suggestions with a view to further deepening the foreign
beginning from January 1996, wide-ranging reforms exchange market so that it can meet the challenges of
have been undertaken in the Indian foreign exchange an integrated world. Section VIII sums up the
market. After almost a decade, an Internal Technical discussions.
Group on the Foreign Exchange Market (2005) was
constituted to undertake a comprehensive review of the Measures Initiated to Develop the Foreign
measures initiated by the Reserve Bank and identify Exchange Market in India
areas for further liberalisation or relaxation of
restrictions in a medium-term framework. Institutional Framework
The momentous developments over the past few years The Foreign Exchange Regulation Act (FERA), 1973
are reflected in the enhanced risk-bearing capacity of was replaced by the market friendly Foreign Exchange
banks along with rising foreign exchange trading Management Act (FEMA), 1999. The Reserve Bank
volumes and finer margins. The foreign exchange delegated powers to authorised dealers (ADs) to release
market has acquired depth (Reddy, 2005). The foreign exchange for a variety of purposes. In pursuance
conditions in the foreign exchange market have also of the Sodhani Committee‘s recommendations, the
generally remained orderly (Reddy, 2006). While it is Clearing Corporation of India Limited (CCIL) was
not possible for any country to remain completely set up in 2001.
unaffected by developments in international markets, To further the participatory process in a more holistic
India was able to keep the spillover effect of the Asian manner by taking into account all segments of the
crisis to a minimum through constant monitoring and financial markets, the ambit of the Technical Advisory
timely action, including recourse to strong monetary Committee (TAC) on Money and Securities Markets set
measures, when necessary, to prevent emergence of self up by the Reserve Bank in 1999 was expanded in 2004
fulfilling speculative activities (Mohan, 2006). to include foreign exchange markets and the Committee
Against the above background, this chapter attempts to was rechristened as TAC on Money, Government
analyse the role of the central bank in developing the Securities and Foreign Exchange Markets.
foreign exchange market. Section I provides a brief
review of different exchange rate regimes being followed Increase in Instruments in the Foreign Exchange
in emerging market economies (EMEs). Section II traces Market-
the evolution of India‘s foreign exchange market in line The rupee-foreign currency swap market was allowed.
with the shifts in India‘s exchange rate policies in the Additional hedging instruments such as foreign currency-
post independence period from the pegged to the rupee options, cross-currency options, interest rate
market determined regime. Various regulatory and swaps (IRS) and currency swaps, caps/collars and
policy initiatives taken by the Reserve Bank and the forward rate agreements (FRAs) were introduced.
Government of India for developing the foreign
exchange market in the market determined set up have Liberalisation Measures-
also been highlighted. Section III presents a detailed Authorised dealers were permitted to initiate trading
overview of the current foreign exchange market positions, borrow and invest in overseas market, subject
structure in India. It also analyses the available market to certain specifications and ratification by respective
infrastructure in terms of market players, trading banks‘ Boards. Banks were also permitted to-
platform, instruments and settlement mechanisms. (i) fix net overnight position limits and gap limits (with
Section IV assesses the performance of the Indian the Reserve Bank formally approving the limits);
foreign exchange market in terms of liquidity and (ii) determine the interest rates (subject to a ceiling)
efficiency. The increase in turnover in both onshore and and maturity period of FCNR(B) deposits with
offshore markets is highlighted in this section. Empirical exemption of inter-bank borrowings from statutory
exercises have also been attempted to assess the preemptions and
behavior of forward premier, bid-ask spreads and (iii) Use derivative products for asset liability
market turnover. Having delineated the market profile, management.
Section V then discusses the journey of the Indian  Participants in the foreign exchange market,
foreign exchange market since the early 1990s, including exporters, Indians investing abroad, and
especially through periods of volatility and its FIIs were permitted to avail forward cover and enter
management by the authorities. As central bank into swap transactions without any limit, subject to
intervention has been an important element of genuine underlying exposure.
managing volatility in the foreign exchange market, its
need and effectiveness in a market determined

 FIIs and NRIs were permitted to trade in exchange this product in a structured product not conforming to
traded derivative contracts, subject to certain the specific purposes is not permitted.
conditions.
Primary Markets and Secondary
Foreign Exchange Derivative Instruments in India
Markets
Foreign Exchange Forwards-
Authorised Dealers (ADs) (Category-I) are permitted The financial market is a world where new securities
to issue forward contracts to persons resident in India are issued to the public regularly of varied financial
with crystallised foreign currency/foreign interest rate products and services, tailored to the need of every
exposure and based on past performance/actual import- individual from all income brackets. These financial
export turnover, as permitted by the Reserve Bank and to products are bought and sold in the capital market,
persons resident outside India with genuine currency which is divided into the Primary Market vs
exposure to the rupee, as permitted by the Reserve Bank. Secondary Market. This is both distinct terms. The
The residents in India generally hedge crystallised primary market refers to the market where securities are
foreign currency/foreign interest rate exposure or created, while the secondary market is one in which they
transform exposure from one currency to another are traded among investors.
permitted currency. Residents outside India enter into
such contracts to hedge or transform permitted foreign The primary market is where securities are created.
currency exposure to the rupee, as permitted by the It‘s in this market that firms float new stocks and bonds
Reserve Bank. to the public for the first time. An initial public offering
(IPO) is an example of a primary market. An IPO occurs
Foreign Currency Rupee Swap- when a private company issues stock to the public for the
A person resident in India who has a long-term foreign first time. Various types of issues made by the
currency or rupee liability is permitted to enter into such corporation are a Public issue, Offer for Sale, Right
a swap transaction with ADs (Category-I) to hedge or Issue, Bonus Issue, Issue of IDR, etc. The company
transform exposure in foreign currency/foreign interest who brings the IPO is known as the issuer, and the
rate to rupee/rupee interest rate. process is regarded as a public issue. The process
includes many investment banks and underwriters
Foreign Currency Rupee Options- through which the shares, debentures, and bonds can
ADs (Category-I) approved by the Reserve Bank and ADs directly be sold to the investors.
(Category-I) who are not market makers are allowed to
sell foreign currency rupee options to their customers on For example- company ABC Ltd hires four underwriting
a back-to-back basis, provided they have a capital to firms to determine the financial details of its IPO. The
riskweighted assets ratio (CRAR) of 9 per cent or above. underwriters detail that the issue price of the stock will
These options are used by customers who have genuine be Rs 20. Investors can then buy the IPO at this price
foreign currency exposures, as permitted by the Reserve directly from the issuing company. This is the first
Bank and by ADs (Category-I) for the purpose of opportunity that investors have to contribute capital to a
hedging trading books and balance sheet exposures. company through the purchase of its stock. A company‘s
equity capital is comprised of the funds generated by the
Cross-Currency Options- sale of stock on the primary market.
ADs (Category-I) are permitted to issue cross-currency
options to a person resident in India with crystallised The secondary market is commonly referred to as the
foreign currency exposure, as permitted by the Reserve stock market. The securities are firstly offered in the
Bank. The clients use this instrument to hedge or primary market to the general public for the subscription
transform foreign currency exposure arising out of where a company receives money from the investors and
current account transactions. ADs use this instrument to the investors get the securities; thereafter they are listed
cover the risks arising out of market-making in foreign on the stock exchange for the purpose of trading. This
currency rupee options as well as cross currency options, includes the Bombay Stock Exchange (BSE), NSE,
as permitted by the Reserve Bank. NASDAQ and all major exchanges around the world.
The defining characteristic of the secondary market is
Cross-Currency Swaps- that investor‘s trade among themselves. In this market
Entities with borrowings in foreign currency under existing shares, debentures, bonds, options,
external commercial borrowing (ECB) are permitted to commercial papers, treasury bills, etc. of the
use cross currency swaps for transformation of and/or corporates are traded amongst investors. The secondary
hedging foreign currency and interest rate risks. Use of market can either be an auction market where trading of

securities is done through the stock exchange or a dealer Name of the
market, popularly known as Over the Counter where Sr.No. Major Activities
Department
trading is done without using the platform of the stock Registration, supervision,
exchange. compliance
Market monitoring and inspections
For example- if you go to buy Amazon (AMZN) Intermediaries of all market
stock, you are dealing only with another investor who Registration and intermediaries in respect of
owns shares in Amazon. Amazon is not directly involved 1.
Supervision all segments of
with the transaction. Department the markets viz. equity,
While primary market offers avenues for selling new (MIRSD) equity derivatives,
securities to the investors, the secondary market is the debt and debt-related
market dealing in securities that are already issued by derivatives.
the company. Before investing your money in financial
Formulating new policies
assets like shares, debenture, commodities, etc, one
and supervising
should know the difference between the Primary
the functioning and
Market and Secondary Market, to better utilize
operations (except
savings.
relating to derivatives) of
securities
Market Regulation exchanges, their
2.
Department (MRD) subsidiaries, and market
institutions such as
Clearing and
settlement organizations
and Depositories
(Collectively referred to as
‗Market SROs)
Supervising trading at
Derivatives and derivatives
New segments of stock
3. Products exchanges, introducing
Departments new products to be traded,
(DNPD) and consequent
policy changes
Difference between the primary market and the Products dealt in the secondary markets-
secondary market- Equity: The ownership interest in a company of holders
In the primary market, securities are offered to public for of its common and preferred stock. The various kinds of
subscription for the purpose of raising capital or fund. equity shares are as follows:-
Secondary market is an equity trading avenue in which Equity Shares: An equity share, commonly referred to
already existing/pre- issued securities are traded as ordinary share also represents the form of fractional
amongst investors. Secondary market could be either ownership in which a shareholder, as a fractional owner,
auction or dealer market. While stock exchange is the undertakes the maximum entrepreneurial risk associated
part of an auction market, Over-the-Counter (OTC) is with a business venture. The holders of such shares are
a part of the dealer market. members of the company and have voting rights. Rights
Issue / Rights Shares: The issue of new securities to
SEBI Role in the Secondary Market- existing shareholders at a ratio to those already held.
The SEBI is the regulatory authority established under
Section 3 of SEBI Act 1992 to protect the interests of Bonus Shares: Shares issued by the companies to their
the investors in securities and to promote the shareholders free of cost by capitalization of
development of, and to regulate, the securities market accumulated reserves from the profits earned in the
and for matters connected therewith and incidental earlier years.
thereto.
Preferred Stock / Preference shares: Owners of these
Departments of SEBI regulating trading in the kinds of shares are entitled to a fixed dividend or
secondary market- dividend calculated at a fixed rate to be paid regularly

before dividend can be paid in respect of equity share.
They also enjoy priority over the equity shareholders in Ø Zero Coupon Bond: Bond issued at a discount and
payment of surplus. But in the event of liquidation, their repaid at a face value. No periodic interest is paid. The
claims rank below the claims of the company‘s creditors, difference between the issue price and redemption price
bondholders/debenture holders. represents the return to the holder. The buyer of these
bonds receives only one payment, at the maturity of the
Cumulative Preference Shares: A type of preference bond.
shares on which dividend accumulates if remains
unpaid. All arrears of preference dividend have to be Ø Convertible Bond: A bond giving the investor the
paid out before paying dividend on equity shares. option to convert the bond into equity at a fixed
Cumulative Convertible Preference Shares: A type of conversion price.
preference shares where the dividend payable on the
same accumulates, if not paid. After a specified date, Commercial Paper: A short term promise to repay a
these shares will be converted into equity capital of the fixed amount that is placed on the market either directly
company. or through a specialized intermediary. It is usually issued
by companies with a high credit standing in the form of
Participating Preference Share: The right of certain a promissory note redeemable at par to the holder on
preference shareholders to participate in profits after a maturity and therefore, doesn‘t require any guarantee.
specified fixed dividend contracted for is paid. Commercial paper is a money market instrument issued
Participation right is linked with the quantum of dividend normally for tenure of 90 days.
paid on the equity shares over and above a particular Treasury Bills: Short-term (up to 91 days) bearer
specified level. discount security issued by the Government as a means
of financing its cash requirements.
Security Receipts: Security receipt means a receipt or
other security, issued by a securitisation company or
reconstruction company to any qualified institutional Brexit
buyer pursuant to a scheme, evidencing the purchase or
acquisition by the holder thereof, of an undivided right,
title or interest in the financial asset involved in What is Brexit?
securitisation. It is a word that is used as a shorthand way of saying the
UK leaving the EU - merging the words Britain and
Government securities (G-Secs): These are sovereign exit to get Brexit, in the same way as a possible Greek
(credit risk-free) coupon bearing instruments which are exit from the euro was dubbed Grexit in the past.
issued by the Reserve Bank of India on behalf of
Government of India, in lieu of the Central Why is Britain leaving the European Union?
Government's market borrowing programme. These A referendum - a vote in which everyone (or nearly
securities have a fixed coupon that is paid on specific everyone) of voting age can take part - was held on
dates on halfyearly basis. These securities are available 23rd June 2016 to decide whether the UK should leave
in wide range of maturity dates, from short dated (less or remain in the European Union. Leave won by
than one year) to long dated (up to twenty years). 51.90% to 48.10%. The referendum turnout was
71.80% with more than 30 million people voting.
Debentures: Bonds issued by a company bearing a
fixed rate of interest usually payable half yearly on What was the breakdown across the UK?
specific dates and principal amount repayable on England voted for Brexit by 53.40% to 46.60%. Wales
particular date on redemption of the debentures. also voted for Brexit with Leave getting 52.50% of the
Debentures are normally secured/charged against the vote and Remain 47.50%. Scotland and Northern
asset of the company in favour of debenture holder. Ireland both backed staying in the EU. Scotland
Bond: A negotiable certificate evidencing indebtedness. backed Remain by 62% to 38%, while 55.80% in
It is normally unsecured. A debt security is generally Northern Ireland voted Remain and 44.20% Leave.
issued by a company, municipality or government
agency. A bond investor lends money to the issuer and Know about European Union?
in exchange, the issuer promises to repay the loan The European Union - often known as the EU- is an
amount on a specified maturity date. The issuer usually economic and political partnership involving 28
pays the bond holder periodic interest payments over the European countries. It began after World War Two to
life of the loan. The various types of Bonds are as foster economic co-operation, with the idea that
follows- countries which trade together were more likely to avoid
going to war with each other.
Mutual Funds
It has since grown to become a "single market" allowing
goods and people to move around, basically as if the
member states were one country. It has its own currency, What is Mutual Fund?
the euro, which is used by 19 of the member Mutual fund is a mechanism for pooling money by
countries, its own parliament and it now sets rules in a issuing units to the investors and investing funds in
wide range of areas - including on the environment, securities in accordance with objectives as disclosed in
transport, consumer rights and even things such as offer document. Investments in securities are spread
mobile phone charges. across a wide cross-section of industries and sectors and
thus the risk is diversified because all stocks may not
Brexit Effect on the Indian Economy- move in the same direction in the same proportion at the
Britain's exit from the European Union took the world same time.
by surprise. Experts describe this event as a ‗once in a Mutual funds issue units to the investors in accordance
lifetime‘ which will haunt the economies across the with quantum of money invested by them. Investors of
globe for years to come. Like every other economy, our mutual funds are known as unit holders. The profits or
stock markets too suffered the effects of Brexit. losses are shared by investors in proportion to their
investments. Mutual funds normally come out with a
Effect of Global Economic changes on the Indian number of schemes which are launched from time to
Economy: - time with different investment objectives. A mutual fund
India is one of the most lucrative markets for foreign is required to be registered with Securities and
investors and, hence, we attract attention globally. So, Exchange Board of India (SEBI) before it can collect
any major change across the globe, be it political or funds from the public.
economic, is bound to have an impact on India too.
Britain always provided a gateway to the European What is the history of Mutual Funds in India and
Union. Many Indian businesses have their offices in role of SEBI in mutual funds industry?
Britain so they can avail benefits and continue to remain Unit Trust of India was the first mutual fund set up in
a part of the EU. But with Brexit, this benefit will be India in the year 1963. In late 1980s, Government
taken away and may result in companies relocating their allowed public sector banks and institutions to set up
business set ups to other places. mutual funds. In the year 1992, Securities and
Exchange Board of India (SEBI) Act was passed. The
Which are the Sectors which will be affected by objectives of SEBI are– to protect the interest of investors
Brexit? in securities and to promote the development of and to
Automobile, Pharma and IT might be the most regulate the securities market.
affected. NASSCOM has predicted that the effect of
Brexit will be felt on the $108 Billion Indian IT sector As far as mutual funds are concerned, SEBI formulates
in the short term. Leading Indian IT firms have not policies, regulates and supervises mutual funds to
commented on it as since there is a possibility of protect the interest of the investors. SEBI notified
renegotiations for all the ongoing projects because of regulations for mutual funds in 1993. Thereafter, mutual
the devaluation in the value of pound. These things can funds sponsored by private sector entities were allowed
be covered up in the next few years wherein alternate to enter the capital market. The regulations were fully
arrangements can be placed between the countries. In revised in 1996 and have been amended thereafter from
the automobile industry, Brexit may lead to reduction in time to time. SEBI has also issued guidelines through
sales and companies that derive good revenues of profits circulars to mutual funds from time to time to protect the
from Britain could get hurt majorly. interests of investors. All mutual funds whether
promoted by public sector or private sector entities
Effect on Education sector/students & Travel- including those promoted by foreign entities are
Britain is one of the most sought after education governed by the same set of Regulations. There is no
destination for Indians. Before Brexit, British distinction in regulatory requirements for these mutual
universities were forced to offer scholarships and funds and all are subject to monitoring and inspections
subsidies to the citizens of the UK and EU. Brexit frees up by SEBI.
funds for the other students and more Indian students
might be able to get scholarships. Reduction in pound How is a mutual fund set up?
value will reduce travelling cost to the UK and will make A mutual fund is set up in the form of a trust, which has
it a good travel destination. sponsor, trustees, Asset Management Company
(AMC) and custodian. The trust is established by a
sponsor or more than one sponsor who is like promoter
of a company. The trustees of the mutual fund hold its
property for the benefit of the unit holders. AMC A mutual fund scheme can be classified into open-ended
approved by SEBI manages the funds by making scheme or close-ended scheme depending on its
investments in various types of securities. Custodian, maturity period.
who is required to be registered with SEBI, holds the
securities of various schemes of the fund in its custody. Open-ended Fund/Scheme:
The trustees are vested with the general power of An open-ended fund or scheme is one that is available
superintendence and direction over AMC. They monitor for subscription and repurchase on a continuous basis.
the performance and compliance of SEBI Regulations These schemes do not have a fixed maturity period.
by the mutual fund. Investors can conveniently buy and sell units at Net Asset
Value (NAV) per unit which is declared on a daily basis.
The key feature of open-end schemes is liquidity.
Close-ended Fund/Scheme:
A close-ended fund or scheme has a stipulated maturity
period e.g. 3-5 years. The fund is open for subscription
only during a specified period at the time of launch of
the scheme. Investors can invest in the scheme at the
time of the new fund offer and thereafter they can buy
or sell the units of the scheme on the stock exchanges
where the units are listed. In order to provide an exit
route to the investors, some close-ended funds give an
option of selling back the units to the mutual fund
through periodic repurchase at NAV related prices. SEBI
Regulations stipulate that at least one of the two exit
routes is provided to the investor i.e. either repurchase
facility or through listing on stock exchanges.
SEBI Regulations require that at least two-thirds of the Schemes according to Investment Objective:
directors of trustee company or board of trustees must A scheme can also be classified as growth scheme,
be independent i.e. they should not be associated with income scheme or balanced scheme considering its
the sponsors. Also, 50% of the directors of AMC must investment objective. Such schemes may be open-ended
be independent. All mutual funds are required to be or close-ended schemes as described earlier. Such
registered with SEBI before they launch any scheme. schemes may be classified mainly as follows:
What is Net Asset Value (NAV) of a scheme? Growth/Equity Oriented Scheme

The performance of a particular scheme of a mutual The aim of growth funds is to provide capital
fund is denoted by Net Asset Value (NAV). Mutual funds appreciation over the medium to long- term. Such
invest the money collected from investors in securities schemes normally invest a major part of their corpus in
markets. In simple words, NAV is the market value of the equities. Such funds have comparatively high risks.
securities held by the scheme. Since market value of These schemes provide different options to the investors
securities changes every day, NAV of a scheme also like dividend option, growth, etc. and the investors may
varies on day to day basis. The NAV per unit is the choose an option depending on their preferences. The
market value of securities of a scheme divided by the investors must indicate the option in the application
total number of units of the scheme on any particular form. The mutual funds also allow the investors to
date. change the options at a later date. Growth schemes are
For example- If the market value of securities of a good for investors having a long-term outlook seeking
mutual fund scheme is INR 200 lakh and the mutual appreciation over a period of time.
fund has issued 10 lakh units of INR 10 each to the
investors, then the NAV per unit of the fund is INR 20 Income/Debt Oriented Scheme
(i.e.200 lakh/10 lakh). NAV is required to be disclosed The aim of income funds is to provide regular and steady
by the mutual funds on a daily basis. income to investors. Such schemes generally invest in
fixed income securities such as bonds, corporate
Different Types of Mutual Fund schemes? debentures, Government securities and money market
Schemes according to Maturity Period: instruments. Such funds are less risky compared to
equity schemes. However, opportunities of capital
appreciation are also limited in such funds. The NAVs of

such funds are affected because of change in interest enhanced liquidity to the money market instruments, the
rates in the country. If the interest rates fall, NAVs of RBI set up the Dis-count and Finance House of India
such funds are likely to increase in the short run and vice (DFHI) jointly with public sector banks and the all-India
versa. However, long term investors may not bother financial institutions.
about these fluctuations. DFHI was incorporated in March 1988 and it
commenced operation in April 1988. The main objective
Balanced/Hybrid Scheme of this money market institution is to facilitate
The aim of balanced schemes is to provide both growth smoothening of the short-term liquid-ity imbalances by
and regular income as such schemes invest both in developing an active secondary market for the money
equities and fixed income securities in the proportion market instruments. Its authorized capital is Rs. 250
indicated in their offer documents. These are appropriate crores.
for investors looking for moderate growth. They DFHI participates in transactions in all the market
generally invest 40-60% in equity and debt instruments. segments, it borrows and lends in the call, notice and
These funds are also affected because of fluctuations in term money market, purchases and sells treasury
share prices in the stock markets. However, NAVs of bills sold at auctions, commercial bills, CDs and CPs.
such funds are likely to be less volatile compared to pure DFHI quotes its daily bid (buying) and offer (selling) rates
equity funds. for money market instruments to develop an active
secondary market for all these.
Money Market or Liquid Schemes Treasury bills are not bought back by the RBI before
These schemes are also income schemes and their aim is maturity. Similarly, except at the fortnightly auctions
to provide easy liquidity, preservation of capital and these cannot be purchased from the RBI. DFHI fills this
moderate income. These schemes invest exclusively in gap by buying and selling these bills in the secondary
short-term instruments such as treasury bills, certificates market. The pres-ence of DFHI in the secondary market
of deposit, commercial paper and inter-bank call money, has facili-tated corporate entities and other bodies to
government securities, etc. Returns on these schemes invest their short-term surpluses and to en cash them
fluctuate much less compared with other funds. These when necessary. The RBI extends reliance limit to the
funds are appropriate for corporate and individual DFHI against the collateral of treasury bills and against
investors as a means to park their surplus funds for short the holdings of bills of exchange with a view to
periods. impart-ing liquidity to various money market
instruments.
Gilt Funds The enhancement of such limits from time to time
These funds invest exclusively in government securities. enabled the DFHI to provide higher and higher levels of
Government securities have no default risk. NAVs of liquidity in the period of stringency wit-nessed in the
these schemes also fluctuate due to change in interest money market. In the aftermath of the irregularities in
rates and other economic factors as is the case with transac-tions in money and securities markets which
income or debt oriented schemes. emerged in 1992, there was a reduction in overall
trading volumes in almost all segments of the money
Index Funds market.
Index Funds replicate the portfolio of a particular index The DFHI‘s business turnover in certain segments viz.
such as the BSE Sensitive index (Sensex), NSE 50 index treasury bills and commercial bills con-tinues to remain
(Nifty), etc. These schemes invest in the securities in the subdued even during 1993-94. The easy conditions
same weightage comprising of an index. NAVs of such prevailing in the call money mar-ket discouraged
schemes would rise or fall in accordance with the rise or secondary market transactions in the treasury bills. Both
fall in the index, though not exactly by the same the 91 days and 364 days treasury bills are
percentage due to some factors known as ―tracking becoming preferred instruments in the money
error‖ in technical terms. Necessary disclosures in this market.
regard are made in the offer document of the mutual
fund scheme. SBI DFHI-
SBI DFHI Limited is a Primary Dealer, an institution
Role of Discount and Finance House created by RBI to support the book building process in
Primary Auctions of Government securities and provide
of India necessary depth and liquidity to the Secondary market in
Role of Discount and Finance House of India Government Securities.
(DFHI)- SBI DFHI are a subsidiary of State Bank of India with
Pursuant to the Vaghul Working Group impeccable lineage, created out of the amalgamation in
recommendation for setting up an institution to provide 2004 of the two leading players in the domestic Money

and Debt Markets, the RBI promoted Discount & broadly divided into two categories, viz. equity capital
Finance House of India (DFHI) and SBI Gilts Ltd., a and debt capital (borrowed capital). The combination of
subsidiary of India‘s largest commercial bank. It is a equity and debt should be judiciously chosen, and it will
market leader in the Primary Dealer segment of the vary according to the nature of the project. The project
domestic debt market, with a Net Worth of Rs. 891.38 manager can choose any one or a combination of two or
crore (as on 31st March 2018) and a presence in all more of these methods to finance the project.
major financial centres of the country. It posted an  Share capital – equity capital and preference
impressive total turnover of Rs. 4,73,155 crore in capital.
Government Securities/SDL and Rs. 63,007 crore in  Term loan
Treasury Bills respectively for the financial year 2017-18.  Debenture capital
As Primary Dealers, we trade in Fixed Income  Commercial banks
Securities (Treasury Bills, Government securities,  Bills discounting
State Development Loans, Non SLR Bonds, and
Corporate Bonds) and Short Term Money Market Some more types of financing available are-
instruments (Certificates of Deposit, Commercial Paper, Seed Capital- In consonance with the Government
Inter-Corporate Deposits, Call & Notice Money policy which boosts a new class of entrepreneurs and
Deposits). We are active in retailing of Government also aims wider spreading of ownership and control of
Securities, including small lots. We also actively manufacturing units, a distinct scheme to complement
participate in the domestic interest rate derivatives and the resource of an entrepreneur has been presented by
equities/equity futures markets. the Government. Assistance in this scheme is accessible
SBI DFHI Limited obtained a SEBI registered Investment in the nature of seed capital which is generally given by
Adviser licence in October 2016. The launch of the way of long term interest free loan. Seed capital aid is
advisory services happened in March 2017. Our advisory provided to small as well as medium scale units
services is being offered to institutional investors such as promoted by eligible entrepreneurs.
co-operative banks, pension and provident fund trusts Government subsidies- Subsidies drawn-out by the
etc. Central as well as State Government form a very
The Company is led by a team of experienced significant type of funds presented to a company for
professionals, backed by strong research capabilities and implementing its project. Subsidies may be available in
driven by core-values. The affairs of the Company are the nature of absolute cash grant or long-term interest
managed by the MD & CEO, an official of the rank of a free loan. In fact, while settling the means of finance,
Chief General Manager in SBI, under the overall Government subsidy forms an key source having a vital
supervision and guidance of a Board of Directors chaired bearing on the putting into practice of many a projects.
by the Chairman of SBI and comprising of reputed
market professionals and academicians of eminence. Financing stage-
(a) Arrangement of equity/debt/loan.
Project Financing (in India) (b) Negotiation and Syndication of the same.
(c) Documentation and checking all the rules and
regulations or policies relating to the starting of the
Project Finance is one of the key focus areas in today‘s project.
world because of continuous growth and expansion of (d) Payment.
the industries at a rapid rate. Project finance is a
centuries-old form of financing high-risk, Post Financing-
development-oriented projects. Project finance is (a) Monitoring and review of project from time to time.
the long-term financing of infrastructure and industrial The project manager must keep a check on the proper
projects based upon non-recourse or limited alternative working of the project.
of financial structure where project debt and equity used (b) Project closure – It is ending the project
to finance the project are paid back from the cash flow (c) Repayment and monitoring
engendered by the project.
They are most ordinarily non-recourse loans, which are The amount taken in the form of loan, equity and debt
fortified by the project assets and paid entirely from must be repaid back and proper monitoring and control
project cash flow, rather than from the general assets or of the project must be carried.
creditworthiness of the project sponsors, a decision in
part braced by financial modeling.
Methods of Project Financing- Insurance Industry
A survey said that 90% of respondents identified
money as the greatest obstacle to implementation Introduction- The insurance industry of India consists of
of any project. The various sources of finance can be 57 insurance companies of which 24 are in life
insurance business and 33 are non-life insurers. Among The Government of India has taken a number of
the life insurers, Life Insurance Corporation (LIC) is the initiatives to boost the insurance industry. Some of
sole public sector company. Apart from that, among the them are as follows:
non-life insurers there are six public sector insurers. In In September 2018, National Health Protection Scheme
addition to these, there is sole national re-insurer, was launched under Ayushman Bharat to provide
namely, General Insurance Corporation of India (GIC coverage of up to Rs 500,000 (US$ 7,723) to more than
Re). Other stakeholders in Indian Insurance market 100 million vulnerable families. The scheme is expected
include agents (individual and corporate), brokers, to increase penetration of health insurance in India from
surveyors and third party administrators servicing health 34 per cent to 50 per cent. Over 47.9 million famers
insurance claims. were benefitted under Pradhan Mantri Fasal Bima
Market Size- Government's policy of insuring the Yojana (PMFBY) in 2017-18.
uninsured has gradually pushed insurance penetration in The Insurance Regulatory and Development Authority of
the country and proliferation of insurance schemes. India (IRDAI) plans to issue redesigned initial public
Gross premiums written in India reached Rs 5.53 trillion offering (IPO) guidelines for insurance companies in
(US$ 94.48 billion) in FY18, with Rs 4.58 trillion (US$ India, which are to looking to divest equity through the
71.1 billion) from life insurance and Rs 1.51 trillion (US$ IPO route. IRDAI has allowed insurers to invest up to 10
23.38 billion) from non-life insurance. Overall insurance per cent in additional tier 1 (AT1) bonds that are issued
penetration (premiums as % of GDP) in India reached by banks to augment their tier 1 capital, in order to
3.69 per cent in 2017 from 2.71 per cent in 2001. expand the pool of eligible investors for the banks.
In FY19 (up to October 2018), premium from new life
insurance business increased 3.66 per cent year-on-year Road Ahead-
to Rs 1.09 trillion (US$ 15.46 billion). In FY19 (up to The future looks promising for the life insurance industry
October 2018), gross direct premiums of non-life with several changes in regulatory framework which will
insurers reached Rs 962.05 billion (US$ 13.71 billion), lead to further change in the way the industry conducts
showing a year-on-year growth rate of 12.40 per cent. its business and engages with its customers. The overall
Investments and Recent Developments- insurance industry is expected to reach US$ 280 billion
by 2020. Life insurance industry in the country is
The following are some of the major investments expected grow by 12-15 per cent annually for the next
and developments in the Indian insurance sector. three to five years. Demographic factors such as growing
 As of November 2018, HDFC Ergo is in advanced middle class, young insurable population and growing
talks to acquire Apollo Munich Health Insurance at a awareness of the need for protection and retirement
valuation of around Rs 2,600 crore (US$ 370.05 planning will support the growth of Indian life insurance.
million).
 In October 2018, Indian e-commerce major Flipkart
entered the insurance space in partnership with
Bajaj Allianz to offer mobile insurance.
 In August 2018, a consortium of WestBridge Capital,
billionaire investor Mr Rakesh Jhunjunwala
announced that it would acquire India‘s largest
health insurer Star Health and Allied Insurance in a
deal estimated at around US$ 1 billion.
 In September 2018, HDFC Ergo launched
‗E@Secure‘ a cyber insurance policy for individuals.
 Insurance sector companies in India raised around
Rs 434.3 billion (US$ 6.7 billion) through public
issues in 2017.
 In 2017, insurance sector in India saw 10 merger
and acquisition (M&A) deals worth US$ 903 million.
 India's leading bourse Bombay Stock Exchange (BSE)
will set up a joint venture with Ebix Inc to build a
robust insurance distribution network in the country Regulatory Agencies
through a new distribution exchange platform.
Government Initiatives- Regulatory Agency- A regulatory agency is a public

authority or government agency responsible for
exercising autonomous authority over some area of
human activity in a regulatory or supervisory capacity.
An independent regulatory agency is a regulatory
agency that is independent from other branches or arms 13. Federation of Indian Chambers of Commerce &
of the government. Industry (FICCI)
Sector: Commerce & Industry
Financial Regulatory Bodies in India- the Financial
System in India is regulated by independent regulators in 14. Confederation of Indian Industry (CII)
the field of Banking, Insurance, Capital Market, Sector: Industry
Commodities Market and pension funds. However,
Government of India plays a significant role in 1. Reserve Bank of India
controlling the financial system in India and influences
the roles of such regulators at least to some extent. The The Reserve Bank of India (RBI) is India's central banking
following are major financial regulatory bodies in India: institution, which controls the issuance and supply of the
Indian rupee. Until the Monetary Policy Committee was
1. Reserve Bank of India (RBI) established in 2016, it also controlled monetary policy in
Sector: Banking & Finance, Monetary Policy India. It commenced its operations on 1 April 1935 in
accordance with the Reserve Bank of India Act, 1934.
2. Securities and Exchange Board of India (SEBI) The original share capital was divided into shares of 100
Sector: Securities (Stock) & Capital Market each fully paid, which were initially owned entirely by
private shareholders. Following India's independence on
3. Insurance Regulatory and Development 15 August 1947, the RBI was nationalised on 1 January
Authority of India (IRDAI) 1949.
Sector: Insurance Governor: Shaktikanta Das, Headquarters:
Mumbai.
4. Pension Fund Regulatory & Development
Authority (PFRDA) 2. Securities and Exchange Board of India
Sector: Pension
The Securities and Exchange Board of India was
5. National Bank for Agriculture and Rural established on 12th April 1992 in accordance with the
Development (NABARD) provisions of the Securities and Exchange Board of India
Sector: Financing Rural Development Act, 1992. The Preamble of the Securities and Exchange
Board of India describes the basic functions of the
6. Small Industries Development Bank of India Securities and Exchange Board of India.
(SIDBI) Headquarters: Mumbai, Chairperson: Ajay Tyagi.
Sector: Financing Micro, Small and Medium-Scale
Enterprises 3. Insurance Regulatory and Development
Authority of India
7. National Housing Bank (NHB)
Sector: Financing Housing IRDAI regulate the Indian insurance industry to protect
the interests of the policyholders and work for the
8. Financial Stability and Development Council orderly growth of the industry. Insurance Regulatory and
(FSDC) Development Authority (IRDA) set up as autonomous
Sector: Financial Sector Development body under the IRDA Act, 1999.
9. Food Safety and Standards Authority of India Headquarters: Hyderabad, Chairperson: Subhash
(FSSAI) Chandra Khuntia.
Sector: Food
4. Pension Fund Regulatory & Development
10. Bureau of Indian Standards (BIS) Authority
Sector: Standards & Certification
PFRDA was established by Government of India on 23rd
11. Association of Mutual Funds (AMFI) August, 2003. The Government has, through an
Sector: Mutual Funds executive order dated 10th October 2003, mandated
PFRDA to act as a regulator for the pension sector. The
12. National Association of Software and Service mandate of PFRDA is development and regulation of
Companies (NASSCOM) pension sector in India.
Sector: IT

The National Pension System reflects Government‘s Headquarters: Mumbai, Agency executive: Harsh
effort to find sustainable solutions to the problem of Kumar Bhanwala (Chairman)
providing adequate retirement income. As a first step
towards instituting pensionary reforms, Government of 6. Small Industries Development Bank of India
India moved from a defined benefit pension to a defined
contribution based pension system by making it Small Industries Development Bank of India (SIDBI) set
mandatory for its new recruits (except armed forces) up on 2nd April 1990 under an Act of Indian Parliament,
with effect from 1st January, 2004. Since 1st April, 2008, acts as the Principal Financial Institution for
the pension contributions of Central Government Promotion,Financing and Development of the Micro,
employees covered by the National Pension System Small and Medium Enterprise (MSME) sector as well as
(NPS) are being invested by professional Pension Fund for co-ordination of functions of institutions engaged in
Managers in line with investment guidelines of similar activities.
Government applicable to non-Government Provident
Funds. Headquarters: Lucknow, Agency executive:
Mohammad Mustafa, (Chairman and Managing
Headquarters: New Delhi, Agency executive: Director).
Hemant G Contractor (Chairman)
7. National Housing Bank
5. National Bank for Agriculture and Rural
Development The Sub-Group on Housing Finance for the Seventh
Five Year Plan (1985-90) identified the non-
The importance of institutional credit in boosting rural availability of long-term finance to individual households
economy has been clear to the Government of India on any significant scale as a major lacuna impeding
right from its early stages of planning. Therefore, the progress of the housing sector and recommended the
Reserve Bank of India (RBI) at the insistence of the setting up of a national level institution. The Committee
Government of India, constituted a Committee to Review of Secretaries considered‘ the recommendation and set
the Arrangements For Institutional Credit for Agriculture up the High Level Group under the Chairmanship of Dr.
and Rural Development (CRAFICARD) to look into these C. Rangarajan, the then Deputy Governor, RBI to
very critical aspects. The Committee was formed on 30 examine the proposal and recommended the setting up
March 1979, under the Chairmanship of Shri B. of National Housing Bank as an autonomous housing
Sivaraman, former member of Planning Commission, finance institution. The recommendations of the High
Government of India. Level Group were accepted by the Government of India.
The Hon‘ble Prime Minister of India, while presenting the
The Committee‘s interim report, submitted on 28 Union Budget for 1987-88 on February 28, 1987
November 1979, outlined the need for a new announced the decision to establish the National
organisational device for providing undivided attention, Housing Bank (NHB) as an apex level institution for
forceful direction and pointed focus to credit related housing finance. Following that, the National Housing
issues linked with rural development. Its Bank Bill (91 of 1987) providing the legislative
recommendation was formation of a unique framework for the establishment of NHB was passed by
development financial institution which would address Parliament in the winter session of 1987 and with the
these aspirations and formation of National Bank for assent of the Hon‘ble President of India on December
Agriculture and Rural Development (NABARD) was 23, 1987, became an Act of Parliament. The National
approved by the Parliament through Act 61 of 1981. Housing Policy, 1988 envisaged the setting up of NHB as
the Apex level institution for housing. In pursuance of
NABARD came into existence on 12 July 1982 by the above, NHB was set up on July 9, 1988 under the
transferring the agricultural credit functions of RBI and National Housing Bank Act, 1987. Reserve Bank of India
refinance functions of the then Agricultural Refinance contributed the entire paid-up capital.
and Development Corporation (ARDC). It was dedicated
to the service of the nation by the late Prime Minister The Head Office of NHB is at New Delhi, Smt.
Smt. Indira Gandhi on 05 November 1982. Set up with Dakshita Das is Managing Director & Chief
an initial capital of Rs.100 crore, its‘ paid up capital Executive Officer of National Housing Bank.
stood at Rs.10,580 crore as on 31 March 2018.
Consequent to the revision in the composition of share 8. Financial Stability and Development Council
capital between Government of India and RBI, NABARD
today is fully owned by Government of India. The Financial Stability and Development Council (FSDC)
has been constituted vide GOI notification dated 30th

December, 2010. The Council is chaired by the Union office at Delhi. Food Safety and Standards Authority of
Finance Minister and its members are Governor, Reserve India (FSSAI) and the State Food Safety Authorities shall
Bank of India; Finance Secretary and/or Secretary, enforce various provisions of the Act.
Department of Economic Affairs; Secretary, Department
of Financial Services; Chief Economic Adviser, Ministry of Establishment of the Authority
Finance; Chairman, Securities and Exchange Board of
India; Chairman, Insurance Regulatory and Ministry of Health & Family Welfare, Government of
Development Authority and Chairman, Pension Fund India is the Administrative Ministry for the
Regulatory and Development Authority. The Council implementation of FSSAI. The Chairperson and Chief
deals, inter-alia, with issues relating to financial stability, Executive Officer of Food Safety and Standards Authority
financial sector development, inter–regulatory of India (FSSAI) have already been appointed by
coordination, financial literacy, financial inclusion and Government of India. The Chairperson is in the rank of
macro prudential supervision of the economy including Secretary to Government of India.
the functioning of large financial conglomerates. No
funds are separately allocated to the Council for FSSAI has been mandated by the FSS Act, 2006 for
undertaking its activities. performing the following functions:
 Framing of Regulations to lay down the Standards
The Council and its Sub-Committee (chaired by and guidelines in relation to articles of food and
Governor, Reserve Bank of India) deliberate on agenda specifying appropriate system of enforcing various
items proposed by any of the members of the Council standards thus notified.
which broadly include matters relating to financial  Laying down mechanisms and guidelines for
stability, inter-regulatory coordination, and financial accreditation of certification bodies engaged in
sector development. The Council/Sub-committee certification of food safety management system for
deliberates on these issues and suggests taking food businesses.
appropriate steps, as required.  Laying down procedure and guidelines for
accreditation of laboratories and notification of the
9. Food Safety and Standards Authority of India accredited laboratories.
 To provide scientific advice and technical support to
The Food Safety and Standards Authority of India (FSSAI) Central Government and State Governments in the
has been established under Food Safety and Standards , matters of framing the policy and rules in areas
2006 which consolidates various acts & orders that have which have a direct or indirect bearing of food safety
hitherto handled food related issues in various Ministries and nutrition.
and Departments. FSSAI has been created for laying  Collect and collate data regarding food
down science based standards for articles of food and to consumption, incidence and prevalence of biological
regulate their manufacture, storage, distribution, sale risk, contaminants in food, residues of various,
and import to ensure availability of safe and wholesome contaminants in foods products, identification of
food for human consumption. emerging risks and introduction of rapid alert
system.
Highlights of the Food Safety and Standard Act,  Creating an information network across the country
2006 so that the public, consumers, Panchayats etc receive
rapid, reliable and objective information about food
Various central Acts like Prevention of Food Adulteration safety and issues of concern.
Act, 1954 ,Fruit Products Order, 1955, Meat Food  Provide training programmes for persons who are
Products Order,1973, Vegetable Oil Products (Control) involved or intend to get involved in food businesses.
Order, 1947, Edible Oils Packaging (Regulation) Order  Contribute to the development of international
1988, Solvent Extracted Oil, De- Oiled Meal and Edible technical standards for food, sanitary and phyto-
Flour (Control) Order, 1967, Milk and Milk Products sanitary standards.
Order, 1992 etc will be repealed after commencement  Promote general awareness about food safety and
of FSS Act, 2006. food standards.
The Act also aims to establish a single reference point Headquarters: New Delhi, Agency executive: Rita
for all matters relating to food safety and standards, by Teaotia (Chairman)
moving from multi- level, multi- departmental control to
a single line of command. To this effect, the Act 10. Bureau of Indian Standards
establishes an independent statutory Authority – the
Food Safety and Standards Authority of India with head

The Erstwhile Indian Standards Institution (now Bureau industrialization, and its emergence as one of the most
of Indian Standards) was established in the year 1947 rapidly growing global economies. A non-government,
with the objective of harmonious development of not-for-profit organisation, FICCI is the voice of India's
standardization activity in India. The Bureau of Indian business and industry. From influencing policy to
Standards (BIS) was established under the BIS Act, 1986 encouraging debate, engaging with policy makers and
for the harmonious development of the activities of civil society, FICCI articulates the views and concerns of
standardization, marking and quality certification of industry. It serves its members from the Indian private
goods and for matters connected therewith or incidental and public corporate sectors and multinational
thereto. A new Bureau of Indian Standards Act, 2016 companies, drawing its strength from diverse regional
which was notified on 22nd March 2016, has been chambers of commerce and industry across states,
brought into force with effect from 12 October 2017 that reaching out to over 2,50,000 companies.
reinforces the activities of BIS in respect to
standardization and certification of goods, articles, FICCI provides a platform for networking and consensus
processes, systems and services. building within and across sectors and is the first port of
call for Indian industry, policy makers and the
Headquarters: New Delhi, Director General- Surina international business community.
Rajan.
Headquarters: New Delhi, President- Sandip
11. Association of Mutual Funds in India Somany
The Association of Mutual Funds in India (AMFI) is 14. Confederation of Indian Industry
dedicated to developing the Indian Mutual Fund Industry
on professional, healthy and ethical lines and to The Confederation of Indian Industry (CII) works to
enhance and maintain standards in all areas with a view create and sustain an environment conducive to the
to protecting and promoting the interests of mutual development of India, partnering industry, Government,
funds and their unit holders. AMFI,the association of and civil society, through advisory and consultative
SEBI registered mutual funds in India of all the registered processes. CII is a non-government, not-for-profit,
Asset Management Companies, was incorporated on industry-led and industry-managed organization, playing
August 22, 1995, as a non-profit organisation. As of a proactive role in India's development process. Founded
now, all the 44 Asset Management Companies that are in 1895, India's premier business association has around
registered with SEBI, are its members. 9000 members, from the private as well as public
sectors, including SMEs and MNCs, and an indirect
Headquarters: Mumbai, Chief Executive- NS membership of over 300,000 enterprises from around
Venkatesh. 265 national and regional sectoral industry bodies.
12. National Association of Software and Service CII charts change by working closely with Government
Companies on policy issues, interfacing with thought leaders, and
enhancing efficiency, competitiveness and business
NASSCOM, a not-for-profit industry association, is the opportunities for industry through a range of specialized
apex body for the 154 billion dollar IT BPM industry in services and strategic global linkages. It also provides a
India, an industry that had made a phenomenal platform for consensus-building and networking on key
contribution to India's GDP, exports, employment, issues. Extending its agenda beyond business, CII assists
infrastructure and global visibility. Established in 1988 industry to identify and execute corporate citizenship
and ever since, NASSCOM‘s relentless pursuit has been programmes. Partnerships with civil society organizations
to constantly support the IT BPM industry, in the latter‘s carry forward corporate initiatives for integrated and
continued journey towards seeking trust and respect inclusive development across diverse domains including
from varied stakeholders, even as it reorients itself time affirmative action, healthcare, education, livelihood,
and again to remain innovative,without ever losing its diversity management, skill development, empowerment
humane and friendly touch. of women, and water, to name a few.
13. Federation of Indian Chambers of Commerce & International Financial Institutions

Industry
An international financial institution (IFI) is a financial
Established in 1927, FICCI is the largest and oldest apex institution that has been established (or chartered) by
business organisation in India. Its history is closely more than one country, and hence are subjects of
interwoven with India's struggle for independence, its international law. Its owners or shareholders are

generally national governments, although other conducting business. For example, a financial advisor
international institutions and other organizations connects with clients through purchasing insurance,
occasionally figure as shareholders. The most prominent stocks, bonds, real estate and other assets. Banks
IFIs are creations of multiple nations, although some connect borrowers and lenders by providing capital from
bilateral financial institutions (created by two countries) other financial institutions and from the Federal Reserve.
exist and are technically IFIs. The best known IFIs were Insurance companies collect premiums for policies and
established after World War II to assist in the provide policy benefits. A pension fund collects funds on
reconstruction of Europe and provide mechanisms for behalf of members and distributes payments to
international cooperation in managing the global pensioners.
financial system.
Mutual Funds as Financial Intermediaries
The following are usually classified as the main Mutual funds provide active management of capital
International Financial Institutions: pooled by shareholders. The fund manager connects
with shareholders through purchasing stock in
1. World Bank companies he anticipates may outperform the market.
2. European Investment Bank (EIB) By doing so, the manager provides shareholders with
3. Islamic Development Bank (IsDB) assets, companies with capital and the market with
4. Asian Development Bank (ADB) liquidity.
5. European Bank for Reconstruction and
Development (EBRD)
6. New Development Bank (NDB)
7. Asian Infrastructure Investment Bank (AIIB)
8. International Monetary Fund (IMF)
9. International Bank for Reconstruction and
Development (IBRD)
10. International Finance Corporation (IFC)
11. International Development Association (IDA)
12. International Centre for Settlement of
Investment Disputes (ICSID)
13. Multilateral Investment Guarantee Agency
(MIGA)
14. World Trade Organization (WTO)
15. Organisation for Economic Co-operation and
Development (OECD)
16. International Labour Organization (ILO)
Financial Intermediaries Benefits of Financial Intermediaries

Through a financial intermediary, savers can pool their
What is a Financial Intermediary-? funds, enabling them to make large investments, which
A financial intermediary is an entity that acts as the in turn benefits the entity in which they are investing. At
middleman between two parties in a financial the same time, financial intermediaries pool risk by
transaction, such as a commercial bank, investment spreading funds across a diverse range of investments
banks, mutual funds and pension funds. Financial and loans. Loans benefit households and countries by
intermediaries offer a number of benefits to the average enabling them to spend more money than they have at
consumer, including safety, liquidity, and economies of the current time.
scale involved in commercial banking, investment Financial intermediaries also provide the benefit of
banking and asset management. Although in certain reducing costs on several fronts. For instance, they have
areas, such as investing, advances in technology access to economies of scale to expertly evaluate the
threaten to eliminate the financial intermediary, credit profile of potential borrowers and keep records
disintermediation is much less of a threat in other areas and profiles cost-effectively. Last, they reduce the costs
of finance, including banking and insurance. of the many financial transactions an individual investor
would otherwise have to make if the financial
Functions of Financial Intermediaries- intermediary did not exist.
Financial intermediaries move funds from parties with
excess capital to parties needing funds. The process Examples of Financial Intermediaries-
creates efficient markets and lowers the cost of

 Insurance Companies- If you have a risky Chief Economic Advisor, Ministry of Finance,
investment. You might wish to insure, against the Chairman, Securities and Exchange Board of India
risk of default. Rather than trying to find a particular (SEBI),
individual to insure you, it is easier to go to an Chairman, Insurance Regulatory and Development
insurance company who can offer insurance and Authority (IRDA),
help spread the risk of default. Chairman, Pension Fund Regulatory and Development
 Financial Advisers- A financial adviser doesn‘t Authority (PFRDA),
directly lend or borrow for you. They can offer Chairman, Insolvency and Bankruptcy Board of India
specialist advice on your behalf. It saves you (IBBI),
understanding all the intricacies of the financial Additional Secretary, Ministry of Finance, DEA, will be
markets and spending time looking for best the Secretary of the Council.
investment.
 Credit Union- Credit unions are informal types of Financial Stability and Development Council
banks which provide facilities for lending and
depositing within a particular community. Financial sector regulation is a vital service for bringing
 Mutual funds/Investment trusts- These are healthy and efficient financial system in the economy.
mutual investment schemes. These pool the small There are different regulators for various segments of
savings of individual investors and enable a bigger financial sectors, like the RBI for commercial banks
investment fund. Therefore, small investors can and NBFCs, SEBI for capital market etc.
benefit from being part of a larger investment trust. At the same time, there should be coordination among
This enables small investors to benefit from smaller these financial sector regulators to ensure better
commission rates available to big purchases. efficiency as well as for avoiding overlapping of
functions. For this, the Government has formed the
Establishment of FSDC Financial Stability and Development Council in 2010,
with the Finance Minister as the Chairman. The
immediate impulse for the establishment of the FSDC
Financial Stability and Development Council (FSDC) was the tussle between SEBI and IRDAI on the
is an apex-level body constituted by the government of regulation of ULIPs.
India. The idea to create such a super regulatory body Basically, the activity of the Council is to coordinate
was first mooted by the Raghuram Rajan Committee financial and economic regulations through
in 2008. Finally in 2010, the then Finance Minister of consultations of the heads of the various regulatory
India, Pranab Mukherjee, decided to set up such an organizations. The FSDC was envisaged for performing
autonomous body dealing with macro prudential and two sets of core functions. First is to perform as an apex
financial regularities in the entire financial sector of level forum to strengthen and institutionalize the
India. An apex-level FSDC is not a statutory body. The mechanism for maintaining financial stability. Second is
recent global economic meltdown has put pressure on for enhancing inter-regulatory coordination and
governments and institutions across the globe to promoting financial sector development in the country.
regulate their economic assets. This council is seen as
India's initiative to be better conditioned to prevent such Function of the FSDC-
incidents in future. The new body envisages to  It will focus on financial literacy and financial
strengthen and institutionalise the mechanism of inclusion.
maintaining financial stability, financial sector  It aims strengthening and institutionalizing the
development, inter-regulatory coordination along with mechanism of financial stability and development.
monitoring macro-prudential regulation of economy. No  It will monitor macro-prudential supervision of the
funds are separately allocated to the council for economy. It will assess the functioning of the large
undertaking its activities. financial conglomerates.
 It will address intra regulatory coordination issues.
Composition of the council
Chairperson: The Union Finance Minister of India The FSDC Sub Committee Chaired by the Governor
Members: of the RBI
Governor Reserve Bank of India (RBl), An important wing of the FSDC, in terms of functional
Finance Secretary and/ or Secretary, Department of responsibility is the Sub committee chaired by the
Economic Affairs (DEA), Governor of the RBI. It meets more often than the full
Secretary, Department of Financial Services (DFS), Council. All the members of the FSDC are also the
Secretary, Ministry of Corporate Affairs, members of the Sub-committee. Additionally, all four
Secretary, Ministry of Electronics and Information Deputy Governors of the RBI and Additional Secretary,
Technology,
DEA, in charge of FSDC, are also members of the Sub
Committee. The World Bank is an international financial institution
that provides loans to countries of the world for capital
Other wings within the FSDC- projects. It comprises two institutions: the International
There are few other regulatory wings within the FSDC Bank for Reconstruction and Development, and the
created for specific purposes: the Inter regulatory International Development Association. The World Bank
technical group, Technical Group on financial inclusion is a component of the World Bank Group.
and financial literacy, Inter regulatory forum for Headquarters: Washington, D.C., USA, Founded:
monitoring financial conglomerates (IRF-FC), Early 1944
Warning Group, Working Group on resolution regime
for financial institutions and the Macro Financial and 2. European Investment Bank
Monitoring Group.
The European Investment Bank is the lending arm of the
International Financial Organization European Union. EIM are the world‘s largest multilateral
lender and the biggest provider of climate finance. EIM
help the economy, create jobs and promote equality.
An International Financial Organisation/Institution The EIB Group has two parts: the European Investment
(IFI) is a financial institution that has been established Bank and the European Investment Fund. The EIF
(or chartered) by more than one country, and hence are specialises in finance for small businesses and mid-caps.
subjects of international law. Its owners or shareholders
are generally national governments, although other Headquarters: Luxembourg, Founded: 1958
international institutions and other organizations
occasionally figure as shareholders. The most prominent 3. Islamic Development Bank (IsDB)
IFIs are creations of multiple nations, although some
bilateral financial institutions (created by two countries) The Islamic Development Bank is a multilateral
exist and are technically IFIs. The best known IFIs were development financing institution located in Jeddah,
established after World War II to assist in the Saudi Arabia. It was founded in 1973 by the Finance
reconstruction of Europe and provide mechanisms for Ministers at the first Organisation of the Islamic
international cooperation in managing the global Conference with the support of the king of Saudi Arabia
financial system. at the time, and began its activities on 3 April 1975.
Founded: 1973, Headquarters: Jeddah, Saudi
The following are major financial regulatory bodies Arabia
in the world.
4. Asian Development Bank (ADB)
1. World Bank
2. European Investment Bank (EIB) The Asian Development Bank was conceived in the early
3. Islamic Development Bank (IsDB) 1960s as a financial institution that would be Asian in
4. Asian Development Bank (ADB) character and foster economic growth and cooperation
5. European Bank for Reconstruction and in one of the poorest regions in the world. A resolution
Development (EBRD) passed at the first Ministerial Conference on Asian
6. New Development Bank (NDB) Economic Cooperation held by the United Nations
7. Asian Infrastructure Investment Bank (AIIB) Economic Commission for Asia and the Far East in 1963
8. International Monetary Fund (IMF) set that vision on the way to becoming reality.
9. International Bank for Reconstruction and
Development (IBRD) The Philippines capital of Manila was chosen to host the
10. International Finance Corporation (IFC) new institution, which opened on 19 December 1966,
11. International Development Association (IDA) with 31 members that came together to serve a
12. International Centre for Settlement of predominantly agricultural region. Takeshi Watanabe
Investment Disputes (ICSID) was ADB's first President. During the 1960s, ADB focused
13. Multilateral Investment Guarantee Agency much of its assistance on food production and rural
(MIGA) development.
14. World Trade Organization (WTO) Founded: 1966, Headquarters: Manila, Philippines
15. Organisation for Economic Co-operation and
Development (OECD) 5. European Bank for Reconstruction and
16. International Labour Organization (ILO) Development
1. World Bank-
The European Bank for Reconstruction and Development
(EBRD) was established to help build a new, post-Cold 9. International Bank for Reconstruction and
War era in Central and Eastern Europe. The EBRD was Development
set up in haste to meet the challenge of an extraordinary
moment in Europe‘s history, the collapse of communism The International Bank for Reconstruction and
in its East. In fact, a mere 18 months elapsed between Development is an international financial institution that
the first mooting of the idea of a European development offers loans to middle-income developing countries. The
bank, by President François Mitterrand of France, in IBRD is the first of five member institutions that compose
October 1989 and its opening for business with the World Bank Group.
headquarters in London in April 1991. Headquarters: Washington, D.C., USA, Founded:
Founded: 1991, Headquarters: London, United 1944
Kingdom
10. International Finance Corporation
6. New Development Bank
The International Finance Corporation is an
The New Development Bank, formerly referred to as the international financial institution that offers investment,
BRICS Development Bank, is a multilateral development advisory, and asset-management services to encourage
bank established by the BRICS states. According to the private-sector development in developing countries.
Agreement on the NDB, "the Bank shall support public or Headquarters: Washington, D.C., USA, Founded:
private projects through loans, guarantees, equity 1956
participation and other financial instruments."
Founded: 2014, Headquarters: Shanghai, China 11. International Development Association
7. Asian Infrastructure Investment Bank The International Development Association (IDA) is the
part of the World Bank that helps the world‘s poorest
he Asian Infrastructure Investment Bank (AIIB) is a countries. Overseen by 173 shareholder nations, IDA
multilateral development bank with a mission to improve aims to reduce poverty by providing loans (called
social and economic outcomes in Asia. Headquartered in ―credits‖) and grants for programs that boost economic
Beijing, we began operations in January 2016 and have growth, reduce inequalities, and improve people‘s living
now grown to 93 approved members worldwide. By conditions.
investing in sustainable infrastructure and other
productive sectors in Asia and beyond, we will better IDA complements the World Bank‘s original lending
connect people, services and markets that over time will arm—the International Bank for Reconstruction and
impact the lives of billions and build a better future. Development (IBRD). IBRD was established to function as
Founded: 2016, Headquarters: Beijing, China a self-sustaining business and provides loans and advice
to middle-income and credit-worthy poor countries. IBRD
8. International Monetary Fund and IDA share the same staff and headquarters and
evaluate projects with the same rigorous standards.
The International Monetary Fund (IMF) is an
organization of 189 countries, working to foster global Headquarters: Washington, D.C., USA, Founded:
monetary cooperation, secure financial stability, facilitate 1960
international trade, promote high employment and
sustainable economic growth, and reduce poverty 12. International Centre for Settlement of
around the world. Created in 1945, the IMF is governed Investment Disputes
by and accountable to the 189 countries that make up
its near-global membership. ICSID is the world‘s leading institution devoted to
international investment dispute settlement. It has
The IMF's primary purpose is to ensure the stability of the extensive experience in this field, having administered
international monetary system—the system of exchange the majority of all international investment cases. States
rates and international payments that enables countries have agreed on ICSID as a forum for investor-State
(and their citizens) to transact with each other. The dispute settlement in most international investment
Fund's mandate was updated in 2012 to include all treaties and in numerous investment laws and contracts.
macroeconomic and financial sector issues that bear on
global stability. ICSID was established in 1966 by the Convention on the
Headquarters: Washington, D.C., USA, Founded: Settlement of Investment Disputes between States and
1944 Nationals ofICSID Primer Image. 300 x 445.jpg Other

States (the ICSID Convention). The ICSID Convention is a
multilateral treaty formulated by the Executive Directors The OECD provides a forum in which governments can
of the World Bank to further the Bank‘s objective of work together to share experiences and seek solutions to
promoting international investment. ICSID is an common problems. It works with governments to
independent, depoliticized and effective dispute- understand what drives economic, social and
settlement institution. Its availability to investors and environmental change. OECD measure productivity and
States helps to promote international investment by global flows of trade and investment. OECD analyses
providing confidence in the dispute resolution process. It and compare data to predict future trends.
is also available for state-state disputes under Headquarters: Paris, France, Founded: 1961
investment treaties and free trade agreements, and as
an administrative registry. 16. International Labour Organization
Headquarters: Washington, D.C., USA, Founded:
1966 The International Labour Organization is a United
Nations agency whose mandate is to advance social
13. The Multilateral Investment Guarantee Agency justice and promote decent work by setting international
labour standards.
The Multilateral Investment Guarantee Agency (MIGA) is Headquarters: Geneva, Switzerland, Founded:
a member of the World Bank Group. Our mandate is to 1919.
promote cross-border investment in developing countries
by providing guarantees (political risk insurance and
credit enhancement) to investors and lenders.
MIGA guarantees protect investments against

noncommercial risks and can help investors obtain
access to funding sources with improved financial terms
and conditions. The agency derives its unique strength
from the World Bank Group and from its structure as an
international organization whose shareholders include
most countries of the world. This enables us to provide
an umbrella of deterrence against government actions
that could disrupt projects, and assist in the resolution of
disputes between investors and governments. We also
add value through our ability to offer clients extensive
knowledge of emerging markets and of international
best practice in environmental and social management.
Headquarters: Washington, D.C., USA, Founded:
1988 Introduction of Insurance
14. World Trade Organization
Risks and Perils-
The World Trade Organization (WTO) is the only global Every day, we hear stories about accidents and other
international organization dealing with the rules of trade misfortunes that someone has suffered.
between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world‘s trading Some of these include:
nations and ratified in their parliaments. The goal is to  All of a sudden, people fall seriously ill.
help producers of goods and services, exporters, and  Motor vehicles are stolen and people die or get
importers conduct their business. injured in accidents involving motor vehicles.
Headquarters: Geneva Switzerland, Founded: 1995  House and belongings are destroyed by fire.
 Large scale loss of lives and destruction of property
15. Organisation for Economic Co-operation and in cyclones and tsunamis.
Development
Life is full of uncertainties and surprises. Protecting
The mission of the Organisation for Economic Co- oneself, one‘s families and society from these uncertain
operation and Development (OECD) is to promote events has been one of the biggest concerns of man for
policies that will improve the economic and social well- centuries.
being of people around the world.

Definition of Risk- ‗Risk‘ is a term that we use to refer risks for the benefit of those who suffer loss on account
to the chance of suffering a loss as a result of uncertain of the risk. Insurance is, thus, a financial tool specially
events like the above. created to reduce the financial impact of unforeseen
The events that give rise to such risks are known as events and to create financial security. Indeed, everyone
Perils. who wants to protect himself against financial hardship
should consider insurance.
We face many such risks in our day-to-day life including
risks to our life, health, property and so on. We don‘t Traditionally, “the joint family” has been an informal
know whether and when something unfortunate will social security in India. In modern society, social security
happen to us or our family members or property. It may is available only to those who are employed in the
not always be possible for us to prevent such a organised sector. Insurance is considered one of the
happening. For instance, we cannot prevent a storm or tools of social security for formal and informal sectors
somebody‘s death from occurring. and is largely carried out in two ways.
Savings and investment- i. The first way is known as Social Insurance. Here, the
It is possible for us to take measures to reduce the State or government takes care of those who are
financial consequences that arise due to the above subjected to losses due to some risk event. Examples are,
mentioned risks and protect ourselves financially. One of providing a pension when one grows old or providing
the ways by which this is normally done is with the help free medical treatment, meeting the cost of
of savings and investment. hospitalization etc. The fund for this purpose comes from
a pool made up from taxes or mandatory social security
Example- We would have seen or learnt from our contributions required to be made by all those who work
parents or elders about the need to save for the future. and earn an income. The Employees‟ State Insurance
By saving or investing money, the money so scheme (ESI) that provides medical care and other
accumulated can be used to cope with the loss. benefits to employees and Employees‟ Provident
However, such savings can only give back our own Fund Organization (EPFO) that provides pensions and
money plus some returns. survivors‘ benefits in the event of an employee‘s death
are the popular schemes under this head.
What would happen if a human life is lost or a
person is disabled permanently or temporarily? ii. The second way is through voluntary Private
Insurance. Here, individuals and groups can buy
Example- A person dies suddenly. Where would the insurance from an insurance company by entering into a
person‘s family get the money from to support itself? contract of insurance with the company. The insurance
How would the person‘s family meet the various living company enters into a contract (an insurance policy)
expenses after his death? A person suffers a paralytic whereby it (insurer) undertakes, in exchange for a small
stroke that leaves him permanently bed- ridden. Such an amount of money (premium), to provide financial
event would result in loss of income to the household protection by agreeing to pay the insuring person
and put the family in a lot of hardship. The loss suffered (insured) a fixed amount of money (sum assured) on the
is so large in all such situations that one‘s savings may happening of a certain event (insured peril). Insurance
not be sufficient to take care of the financial burden. companies collect premiums to provide for this
protection and losses are paid out of the premiums so
Insurance- collected from the insuring public. In other words, an
Luckily for us, there is something called insurance contract promises to make good to the insured
„Insurance‟. It is founded on a simple idea. Even though a certain sum in consideration for the premium received
an event like death or a fire can come as a terrible from the insured.
economic blow to someone, when we take the society as
a whole, during any given year, only a few would suffer History of Life Insurance
in such manner. If a small contribution is collected from
everyone in the community and pooled to create a
common fund, the amount so pooled can be used to pay Brief History of Insurance-
money to the few unfortunate members who have been The story of insurance is probably as old as the story of
subject to the loss. mankind. The same instinct that prompts modern
businessmen today to secure themselves against loss
Definition- Insurance is a mechanism of risk transfer and disaster existed in primitive men also. They too
and sharing by pooling of risks and funds among a sought to avert the evil consequences of fire and flood
group of individuals who are exposed to similar kinds of and loss of life and were willing to make some sort of
sacrifice in order to achieve security. Though the concept
of insurance is largely a development of the recent past,
particularly after the industrial era – past few centuries 1928: The Indian Insurance Companies Act enacted
– yet its beginnings date back almost 6000 years. to enable the government to collect statistical
Life Insurance in its modern form came to India from information about both life and non-life insurance
England in the year 1818. Oriental Life Insurance businesses.
Company started by Europeans in Calcutta was the first
life insurance company on Indian Soil. All the insurance 1938: Earlier legislation consolidated and amended to
companies established during that period were brought by the Insurance Act with the objective of protecting the
up with the purpose of looking after the needs of interests of the insuring public.
European community and Indian natives were not being
insured by these companies. However, later with the 1956: 245 Indian and foreign insurers and provident
efforts of eminent people like Babu Muttylal Seal, the societies are taken over by the central government and
foreign life insurance companies started insuring nationalised. LIC formed by an Act of Parliament, viz. LIC
Indian lives. But Indian lives were being treated as sub- Act, 1956, with a capital contribution of Rs. 5 crore from
standard lives and heavy extra premiums were being the Government of India.
charged on them. Bombay Mutual Life Assurance
Society heralded the birth of first Indian life insurance History of General Insurance
company in the year 1870, and covered Indian lives at
normal rates. Starting as Indian enterprise with highly
patriotic motives, insurance companies came into The entire general insurance business in India was
existence to carry the message of insurance and social nationalised by General Insurance Business
security through insurance to various sectors of society. (Nationalisation) Act, 1972 (GIBNA).
Bharat Insurance Company (1896) was also one of The Government of India (GOI), through
such companies inspired by nationalism. The Swadeshi Nationalisation took over the shares of 55 Indian
movement of 1905-1907 gave rise to more insurance insurance companies and the undertakings of 52
companies. The United India in Madras, National Indian insurers carrying on general insurance business. General
and National Insurance in Calcutta and the Co-operative Insurance Corporation of India (GIC) was formed in
Assurance at Lahore were established in 1906. In 1907, pursuance of Section 9(1) of GIBNA. It was incorporated
Hindustan Co-operative Insurance Company took its on 22nd November 1972 under the Companies Act,
birth in one of the rooms of the Jorasanko, house of the 1956 as a private company limited by shares. GIC was
great poet Rabindranath Tagore, in Calcutta. The Indian formed for the purpose of superintending, controlling
Mercantile, General Assurance and Swadeshi Life and carrying on the business of general insurance. As
(later Bombay Life) were some of the companies soon as GIC was formed, GOI transferred all the shares
established during the same period. Prior to 1912 India it held of the general insurance companies to GIC.
had no legislation to regulate insurance business. In the Simultaneously, the nationalised undertakings were
year 1912, the Life Insurance Companies Act, and the transferred to Indian insurance companies.
Provident Fund Act were passed. The Life Insurance After a process of mergers among Indian insurance
Companies Act, 1912 made it necessary that the companies, four companies were left as fully owned
premium rate tables and periodical valuations of subsidiary companies of GIC-
companies should be certified by an actuary. But the Act National Insurance Company Limited.
discriminated between foreign and Indian companies on The New India Assurance Company Limited.
many accounts, putting the Indian companies at a The Oriental Insurance Company Limited.
disadvantage. United India Insurance Company Limited.
Some of the important milestones in the life The next landmark happened on 19th April 2000,
insurance business in India are: when the Insurance Regulatory and Development
Authority Act, 1999 (IRDA) came into force. This Act
1818: Oriental Life Insurance Company, the first life also introduced amendment to GIBNA and the Insurance
insurance company on Indian soil started functioning. Act, 1938. An amendment to GIBNA removed the
exclusive privilege of GIC and its subsidiaries carrying on
1870: Bombay Mutual Life Assurance Society, the general insurance in India.In November 2000, GIC was
first Indian life insurance company started its business. renotified as the Indian Reinsurer and through
administrative instruction, its supervisory role over the
1912: The Indian Life Assurance Companies Act four subsidiaries was ended.With the General Insurance
enacted as the first statute to regulate the life insurance Business (Nationalisation) Amendment Act 2002 (40 of
business. 2002) coming into force from March 21, 2003; GIC
ceased to be a holding company of its subsidiaries.The
ownership of the four erstwhile subsidiary companies practices. The Government of India, therefore, decided
and also of the General Insurance Corporation of India to nationalize insurance business.
was vested with Government of India.
Chairman-cum-Managing Director of GIC- Alice G An Ordinance was issued on 19th January, 1956
Vaidyan, Headquarters- Mumbai. nationalising the Life Insurance sector and Life Insurance
Corporation came into existence in the same year. The
Know About IRDAI LIC absorbed 154 Indian, 16 non-Indian insurers as also
75 provident societies—245 Indian and foreign insurers
in all. The LIC had monopoly till the late 90s when the
In India, insurance has a deep-rooted history. It Insurance sector was reopened to the private sector.
finds mention in the writings of Manu (Manusmrithi),
Yagnavalkya (Dharmasastra) and Kautilya The history of general insurance dates back to the
(Arthasastra). The writings talk in terms of pooling of Industrial Revolution in the west and the consequent
resources that could be re-distributed in times of growth of sea-faring trade and commerce in the 17th
calamities such as fire, floods, epidemics and famine. century. It came to India as a legacy of British
This was probably a pre-cursor to modern day insurance. occupation. General Insurance in India has its roots in
Ancient Indian history has preserved the earliest traces the establishment of Triton Insurance Company Limited,
of insurance in the form of marine trade loans and in the year 1850 in Calcutta by the British. In 1907, the
carriers‘ contracts. Insurance in India has evolved over Indian Mercantile Insurance Limited was set up. This was
time heavily drawing from other countries, England in the first company to transact all classes of general
particular. insurance business. 1957 saw the formation of the
General Insurance Council, a wing of the Insurance
1818 saw the advent of life insurance business in Association of India. The General Insurance Council
India with the establishment of the Oriental Life framed a code of conduct for ensuring fair conduct and
Insurance Company in Calcutta. This Company sound business practices. In 1968, the Insurance Act was
however failed in 1834. In 1829, the Madras Equitable amended to regulate investments and set minimum
had begun transacting life insurance business in the solvency margins. The Tariff Advisory Committee was
Madras Presidency. 1870 saw the enactment of the also set up then.
British Insurance Act and in the last three decades of the
nineteenth century, the Bombay Mutual (1871), In 1972 with the passing of the General Insurance
Oriental (1874) and Empire of India (1897) were Business (Nationalisation) Act, general insurance
started in the Bombay Residency. This era, however, was business was nationalized with effect from 1st January,
dominated by foreign insurance offices which did good 1973. 107 insurers were amalgamated and grouped
business in India, namely Albert Life Assurance, Royal into four companies, namely National Insurance
Insurance, Liverpool and London Globe Insurance and Company Ltd., the New India Assurance Company
the Indian offices were up for hard competition from the Ltd., the Oriental Insurance Company Ltd and the
foreign companies. United India Insurance Company Ltd. The General
Insurance Corporation of India was incorporated as
In 1914, the Government of India started publishing a company in 1971 and it commence business on
returns of Insurance Companies in India. The Indian Life January 1st 1973.
Assurance Companies Act, 1912 was the first statutory
measure to regulate life business. In 1928, the Indian This millennium has seen insurance come a full circle in
Insurance Companies Act was enacted to enable the a journey extending to nearly 200 years. The process of
Government to collect statistical information about both re-opening of the sector had begun in the early 1990s
life and non-life business transacted in India by Indian and the last decade and more has seen it been opened
and foreign insurers including provident insurance up substantially. In 1993, the Government set up a
societies. In 1938, with a view to protecting the interest committee under the chairmanship of RN Malhotra,
of the Insurance public, the earlier legislation was former Governor of RBI, to propose recommendations
consolidated and amended by the Insurance Act, 1938 for reforms in the insurance sector.The objective was to
with comprehensive provisions for effective control over complement the reforms initiated in the financial sector.
the activities of insurers. The committee submitted its report in 1994 wherein ,
among other things, it recommended that the private
The Insurance Amendment Act of 1950 abolished sector be permitted to enter the insurance industry. They
Principal Agencies. However, there were a large number stated that foreign companies be allowed to enter by
of insurance companies and the level of competition was floating Indian companies, preferably a joint venture
high. There were also allegations of unfair trade with Indian partners.

either make a lump-sum payment while purchasing a
Following the recommendations of the Malhotra life insurance policy or make periodic payments to the
Committee report, in 1999, the Insurance insurer. These are known as premiums. In exchange,
Regulatory and Development Authority (IRDA) was your insurer promises to pay an assured sum to your
constituted as an autonomous body to regulate and family in the event of death, disability or at a set time.
develop the insurance industry. The IRDA was
incorporated as a statutory body in April, 2000. The key 2. General Insurance- A general insurance is a
objectives of the IRDA include promotion of competition contract that offers financial compensation on any loss
so as to enhance customer satisfaction through other than death. It insures everything apart from life.
increased consumer choice and lower premiums, while A general insurance compensates you for financial loss
ensuring the financial security of the insurance market. due to liabilities related to your house, car, bike, health,
travel, etc. The insurance company promises to pay you
The IRDA opened up the market in August 2000 with a sum assured to cover damages to your vehicle,
the invitation for application for registrations. Foreign medical treatments to cure health problems, losses due
companies were allowed ownership of up to 26% (FDI to theft or fire, or even financial problems during travel.
At present, up to 49%). The Authority has the power to
frame regulations under Section 114A of the Insurance Types of Life Insurance-
Act, 1938 and has from 2000 onwards framed various  Term Insurance
regulations ranging from registration of companies for  Money-back policy
carrying on insurance business to protection of  Unit-Linked Insurance Plan
policyholders‘ interests.  Pension Plans
In December, 2000, the subsidiaries of the General Types of General Insurance-

Insurance Corporation of India were restructured as  Motor Insurance
independent companies and at the same time GIC was  Home Insurance
converted into a national re-insurer. Parliament passed a  Health Insurance
bill de-linking the four subsidiaries from GIC in July,  Fire Insurance
2002.
Term Insurance- Term Insurance is a life insurance
Today there are 31 general insurance companies plan that provides financial coverage to the beneficiary
including the ECGC and Agriculture Insurance of the insured person for a defined period of time. In the
Corporation of India and 24 life insurance companies event of death of term insurance policyholder during
operating in the country. policy term, the beneficiary can claim death benefits
from the insurance company.
The insurance sector is a colossal one and is growing at
a speedy rate of 15-20%. Together with banking Money-back policy- A money back policy is one of the
services, insurance services add about 7% to the smarter ways to plan your life investment cover. You not
country‘s GDP. A well-developed and evolved insurance only receive money back over frequent intervals of the
sector is a boon for economic development as it provides policy tenure, a sum assured at the end of the policy
long- term funds for infrastructure development at the term, bonus amounts as declared by the insurer but also
same time strengthening the risk taking ability of the an adequate insurance cover for the whole of the policy
country. period.
IRDAI Headquarters- Hyderabad, Chairperson: Unit-Linked Insurance Plan- A Unit Linked Insurance
Subhash Chandra Khuntia. Plan (ULIP) is a product offered by insurance companies
that, unlike a pure insurance policy, gives investors both
Types of Insurance insurance and investment under a single integrated
plan.
There are two broad types of insurance: Pension Plans- Pension plans also known as retirement
plans are investment plans that lets you allocate a part
1. Life Insurance- Life insurance is a contract that of your savings to accumulate over a period of time and
offers financial compensation in case of death or provide you with steady income after retirement. Even if
disability. Some life insurance policies even offer a person has a good amount of savings, a pension plan
financial compensation after retirement or a certain is nevertheless crucial.
period of time. Life insurance, thus, helps you secure
your family‘s financial security even in your absence. You
Motor Insurance/Vehicle insurance- Vehicle there are six public sector insurers. In addition to these,
insurance is insurance for cars, trucks, motorcycles, and there is sole national re-insurer, namely, General
other road vehicles. Its primary use is to provide financial Insurance Corporation of India (GIC Re). Other
protection against physical damage or bodily injury stakeholders in Indian Insurance market include agents
resulting from traffic collisions and against liability that (individual and corporate), brokers, surveyors and third
could also arise from incidents in a vehicle. party administrators servicing health insurance claims.
Home insurance- Home insurance is a type of property Market Size-

insurance that covers a private residence. It is an Government's policy of insuring the uninsured has
insurance policy that combines various personal gradually pushed insurance penetration in the country
insurance protections, which can include losses occurring and proliferation of insurance schemes. Gross premiums
to one's home, its contents, loss of use (additional living written in India reached Rs 5.53 trillion (US$ 94.48
expenses), or loss of other personal possessions of the billion) in Financial Year 2018, with Rs 4.58 trillion (US$
homeowner, as well as liability insurance for accidents 71.1 billion) from life insurance and Rs 1.51 trillion (US$
that may happen at the home or at the hands of the 23.38 billion) from non-life insurance. Overall insurance
homeowner within the policy territory. penetration (premiums as % of GDP) in India reached
3.69 per cent in 2017 from 2.71 per cent in 2001. In
Health Insurance- Health Insurance is an insurance Financial Year 2019 (up to October 2018), premium
policy that ensures that you get cashless treatment or from new life insurance business increased 3.66 per cent
expense reimbursement, in case you fall ill. A health year-on-year to Rs 1.09 trillion (US$ 15.46 billion). In
insurance policy reimburses the insured for medical and FY19 (up to October 2018), gross direct premiums of
surgical expenses arising from an illness or injury that non-life insurers reached Rs 962.05 billion (US$ 13.71
leads to hospitalization. billion), showing a year-on-year growth rate of 12.40
per cent.
Fire Insurance- Fire insurance is property insurance
covering damage and losses caused by fire. The Investments and Recent Developments-
purchase of fire insurance in addition to homeowner's or The following are some of the major investments and
property insurance helps to cover the cost of developments in the Indian insurance sector.
replacement, repair, or reconstruction of property, above
the limit set by the property insurance policy.  As of November 2018, HDFC Ergo is in advanced
talks to acquire Apollo Munich Health Insurance at a
valuation of around Rs 2,600 crore (US$ 370.05
million).
 In October 2018, Indian e-commerce major Flipkart
entered the insurance space in partnership with
Bajaj Allianz to offer mobile insurance.
 In August 2018, a consortium of WestBridge Capital,
billionaire investor Mr Rakesh Jhunjunwala
announced that it would acquire India‘s largest
health insurer Star Health and Allied Insurance in a
deal estimated at around US$ 1 billion.
 In September 2018, HDFC Ergo launched
‗E@Secure‘ a cyber insurance policy for individuals.
 Insurance sector companies in India raised around
Rs 434.3 billion (US$ 6.7 billion) through public
issues in 2017.
 In 2017, insurance sector in India saw 10 merger
and acquisition (M&A) deals worth US$ 903 million.
Indian Insurance Market  India's leading bourse Bombay Stock Exchange (BSE)
will set up a joint venture with Ebix Inc to build a
robust insurance distribution network in the country
Introduction- through a new distribution exchange platform.
The insurance industry of India consists of 57 insurance
companies of which 24 are in life insurance business Government Initiatives-
and 33 are non-life insurers. Among the life insurers,
Life Insurance Corporation (LIC) is the sole public sector
company. Apart from that, among the non-life insurers
The Government of India has taken a number of investments. ULIPS allow you to switch your portfolio
initiatives to boost the insurance industry. Some of them between debt and equity based on your risk appetite as
are as follows: well as your knowledge of the market‘s performance.
 In September 2018, National Health Protection Benefits like these which offer investors the flexibility of
Scheme was launched under Ayushman Bharat to switching is a huge factor contributing to the popularity
provide coverage of up to Rs 500,000 (US$ 7,723) to of these investment instruments.
more than 100 million vulnerable families. The
scheme is expected to increase penetration of health Lock-in-period of ULIP-
insurance in India from 34 per cent to 50 per cent. One of the changes brought about by the Insurance
 Over 47.9 million famers were benefitted under Regulatory and Development Authority of India
Pradhan Mantri Fasal Bima Yojana (PMFBY) in 2017- (IRDAI) in the year 2010 as regards ULIPs, was to
18. increase the lock in a period from 3 years to 5 years.
 The Insurance Regulatory and Development However, insurance being a long-term product, as an
Authority of India (IRDAI) plans to issue redesigned investor you may not really reap the benefit of the policy
initial public offering (IPO) guidelines for insurance unless you hold it for the entire term of the policy which
companies in India, which are to looking to divest can range from 10 to 15 years.
equity through the IPO route.
 IRDAI has allowed insurers to invest up to 10 per Why you should invest in ULIPs?
cent in additional tier 1 (AT1) bonds that are issued Life cover: First and foremost, with ULIPs you get a life
by banks to augment their tier 1 capital, in order to cover coupled with investment. It offers security that a
expand the pool of eligible investors for the banks. taxpayer‘s family can fall back on in case of emergencies
like the untimely death of the taxpayer, etc.
Road Ahead-
The future looks promising for the life insurance industry Income tax benefits: Not many are aware that the
with several changes in regulatory framework which will premium paid towards a ULIP is eligible for a tax
lead to further change in the way the industry conducts deduction under Section 80C. Additionally, the returns
its business and engages with its customers. out of the policy on maturity are exempt from income tax
under Section 10(10D) of the Income-tax Act. This is a
The overall insurance industry is expected to reach US$ dual benefit that you can claim with this policy.
280 billion by 2020. Life insurance industry in the
country is expected grow by 12-15 per cent annually for Finance Long Term Goals: If you have long-term goals
the next three to five years. Demographic factors such as like buying a house, a new car, marriage, etc., then ULIP
growing middle class, young insurable population and is a good investment option because the money gets
growing awareness of the need for protection and compounded. As a result, the net returns are generally
retirement planning will support the growth of Indian life more. This stands true even if you want to exit after the 5
insurance. year lock-in period in comparison to not having invested
the amount at all and retaining it in a savings account or
ULIP Unit Linked Insurance Plan in the form of an FD. But, under ULIP, the mantra is to
always keep the policy going for a longer time horizon to
(ULIP) reap the best out of it.
ULIP or Unit Linked Insurance Plan is a mix of The flexibility of a portfolio switch: As already
insurance along with investment. From a ULIP, the goal mentioned, ULIPS are usually designed in a way that
is to provide wealth creation along with life cover where they allow you to switch your portfolio between debt and
the insurance company puts a portion of your investment equity based on your risk appetite as well as your
towards life insurance and rest into a fund that is based knowledge of how the market is performing. Insurance
on equity or debt or both and matches with your long- companies, on the other hand, allow a very few numbers
term goals. These goals could be retirement planning, of switches free of cost.
children‘s education or another important event you may
wish to save for. Types of ULIPs-
When you make an investment in ULIP, the insurance ULIPs are categorized based on the following
company invests part of the premium in shares/bonds broad parameters:
etc., and the balance amount is utilized in providing an (a) Funds that ULIPs invest in-
insurance cover. There are fund managers in the (i) Equity Funds: Where the premium paid is invested in
insurance companies who manage the investments and the equity market and thereby is subject to higher risk
therefore the investor is spared the hassle of tracking the

(ii) Balanced funds: Where the premium paid is Liquidity - Liquidity is defined as the ease with which
balanced between the debt and the equity market to investors can redeem their investment. It is also about
minimise the risk for investors time it takes to receive your investment back after
(iii) Debt Funds: Where the premium is invested in redemption. Needless to say, mutual funds are more
debt instruments which carry a lower risk but in turn also liquid since it is more widely traded in the market.
offer a lower return
Charges - The advantage of mutual fund is its low
(b) End use of Funds- charges and professional management. The
(i) Retirement Planning: For those of you who plan to management fee of mutual funds is typically 1% to 2%.
invest for the retirement days while you are still ULIP charges are higher.
employed
(ii) Child Education: You can investment with a long- Public Sector Insurance Companies
term goal of saving to fund your child‘s education or
save for some unforeseen circumstances
(iii) Wealth Creation: You can make investments to 1. Life Insurance Corporation of India
build a heavy corpus that you can utilize for a future LIC of India was incorporated on 1st September 1956 by
financial goal amalgamating 243 Companies by the Act of Parliament
called Insurance Act, 1956. LIC is governed by the
(c) Death benefit to Policy Holders- Insurance Act 1938, LIC Act 1956, LIC Regulations 1959
(i) Type-I ULIP: This pays higher of the assured sum and Insurance Regulatory and Development Authority
value or the fund value to the nominee in case of death Act 1999.
of the policyholder LIC headquarters- Mumbai
(ii) Type-II ULIP: This pays the assured sum value, plus LIC Chairman- MR Kumar
the fund value to the nominee in case of the death of
the policyholder 2. General Insurance Corporation of India
ULIPs Vs. Mutual Funds- GIC of India is a state owned enterprise in India. It was
Risk exposure - ULIPs are a relatively less risky product the sole reinsurance company in the Indian insurance
because they are insurance products. Even though ULIPs market until the insurance market was open to foreign
have great variety of products available investing in reinsurance players by late 2016 including companies
equities and bonds, they have to be more careful in from Germany, Switzerland and France.
investment because of the nature of insurance products. Headquarters- Mumbai
Mutual funds are of various types as explained above. Chairman-cum-Managing Director- Alice G
Equity oriented mutual funds are more risky than the Vaidyan
hybrid ones and hybrid mutual funds are more risky than
the debt funds. 3. The New India Assurance Company Limited
Potential of Returns - Since ULIPs invest in relatively The New India Assurance Company Limited, founded by
low risk products, the potential of returns is also low. The Sir Dorabji Tata in 1919, a Multinational General
reason is that they have to promise sum assured Insurance Company, today operates in 28 countries and
irrespective of whether the plan makes money. Mutual headquartered at Mumbai, India. Our global business
funds are of different varieties. Equity oriented mutual crossed Rs. 22,270 crores in March 2017. We have been
funds give higher returns than the hybrid ones. Hybrid market leaders in India in Non-Life business for more
mutual funds offer better returns than debt funds. than 40 years.
Headquarters- Mumbai
Lock-in period - Since ULIP is an insurance product, Chairman cum Managing Director- Atul Sahai.
insurance companies define a lock-in period for
investment. Hence if an investor buys ULIP, he or she 4. United India Insurance Company Limited
cannot sell before the lock-in period of 3 to 5 years
depending on individual ULIP products and the structure. United India Insurance Company Limited was
Most of the mutual funds typically do not have any lock- incorporated as a Company on 18th February 1938.
in period. You can buy and sell mutual funds anytime. General Insurance Business in India was nationalized in
There is a certain type of mutual funds, known as closed 1972. 12 Indian Insurance Companies, 4 Cooperative
fund, which have lock-in period of 3 years. Insurance Societies and Indian operations of 5 Foreign
Insurers, besides General Insurance operations of
southern region of Life Insurance Corporation of India
were merged with United India Insurance Company
Limited. After Nationalization United India has grown by Chairman-Cum-Managing Director- Tajinder
leaps and bounds and has 18300 work force spread Mukherjee
across 1340 offices providing insurance cover to more
than 1 Crore policy holders. The Company has variety of 7. Agriculture Insurance Company of India Limited
insurance products to provide insurance cover from
bullock carts to satellites. Agriculture Insurance Company of India Limited (AIC)
Headquarters- Chennai has been formed at the behest of Government of India,
Chairman cum Managing Director- Girish consequent to the announcement by the then Hon'ble
Radhakrishnan Union Finance Minister in his General Budget Speech FY
2002-03 that, "to subserve the needs of farmers better
5. Oriental Insurance Company Limited and to move towards a sustainable actuarial regime, it
was proposed to set up a new Corporation for
The Oriental Insurance Company Limited was Agriculture Insurance".
incorporated at Bombay on 12th September 1947. The Headquarters- New Delhi
Company was a wholly owned subsidiary of the Oriental Chairman-Cum-Managing Director- Alamelu T
Government Security Life Assurance Company Ltd and Lakshmanachari
was formed to carry out General Insurance business. The
Company was a subsidiary of Life Insurance Corporation Private Sector Insurance Companies
of India from 1956 to 1973 ( till the General Insurance
Business was nationalized in the country). In 2003 all
shares of our company held by the General Insurance In India, there are 24 important life insurance
Corporation of India have been transferred to Central companies in private sector registered by IRDAI.
Government.
Headquarters- New Delhi  Acko General Insurance Limited (Based in- Mumbai)
Chairman-Cum-Managing Director- AV Girija  Aditya Birla Health Insurance Co. Ltd. (Based in-
Kumar Mumbai)
 Religare Health Insurance Co. Ltd. (Based in-
Chennai)
 Apollo Munich Health Insurance Co. Ltd (Based in-
Gurugram)
 Bajaj Allianz General Insurance Co. Ltd (Based in-
Pune)
 Bharti AXA General Insurance Co. Ltd. (Based in-
Mumbai)
 Cholamandalam MS General Insurance Co. Ltd.
(Based in- Chennai)
 CIGNA TTK Health Insurance Co. Ltd. (Based in-
Mumbai)
 DHFL General Insurance Ltd. (Based in- Mumbai)
 Edelweiss General Insurance Co. Ltd. (Based in-
Mumbai)
 Future Generali India Insurance Co. Ltd. (Based in-
Mumbai)
 Reliance General Insurance Co.Ltd (Based in-
6. National Insurance Company Limited Mumbai)
 Go Digit General Insurance Ltd (Based in- Pune)
NIC (National Insurance Company Limited) is India‘s  HDFC ERGO General Insurance Co.Ltd. (Based in-
oldest general insurance Company. It was incorporated Mumbai)
in Kolkata on 5th December, 1906 to fulfil the  ICICI LOMBARD General Insurance Co. Ltd. (Based
nationalist aspiration for Swaraj. 66 years later, after in- Mumbai)
nationalisation it was merged along with 21 foreign and  IFFCO TOKIO General Insurance Co. Ltd. (Based in-
11 Indian companies to form National Insurance Gurugram)
Company Ltd, one of the 4 subsidiaries of the Govt.  Kotak Mahindra General Insurance Co. Ltd. (Based
owned General Insurance Corporation of India. in- Mumbai)
Headquarters- Kolkata  Liberty General Insurance Ltd. (Based in- Mumbai)
 Magma HDI General Insurance Co. Ltd. (Based in-
Mumbai)
 Max Bupa Health Insurance Co. Ltd (Based in- New  Aggrieved party- A party who has been wronged.
Delhi) A person who is a victim is said to be aggrieved.
 Star Health & Allied Insurance Co.Ltd. (Based in-  Agreed Value- (Usually associated with motor
Chennai) vehicle insurance) A car's agreed value is set at the
 Universal Sompo General Insurance Co. Ltd. (Based beginning of each period of cover. It is based on the
in- Mumbai) fair value given then for the cars make and model in
 Shriram General Insurance Co. Ltd. (Based in- the motor trade's most commonly accepted price
Jaipur) handbook. The value doesn't change for the period
 Tata AIG General Insurance Co. Ltd. (Based in- of cover.
Mumbai)  Amount covered- The current amount covered is
shown on the most recent of the insurance schedule
Glossary of Insurance Terms and the renewal notice. It is the most the insurer will
pay, less any excess, for a claim that is covered by
the policy. The amount covered includes GST.
 Ab initio- A term used to describe avoidance of a  Arbitration- A system of deciding legal disputes
contract from its inception or its beginning. The between an insured and an insurer by use of a
Insurance Contracts Act allows an insurer to avoid a private tribunal outside of the court system.
policy ab initio in situations where an insured  Arson- Any unlawful setting fire to property
fraudulently nondisclosed or fraudulently  Australian Financial Services Licensee- A person
misrepresented information when applying for who holds an Australian Financial Services licence.
insurance.  Binder- An authority given by an insurer to an
 Accident- An unplanned and unexpected event intermediary to enter into, as agent for the insurer,
which occurs suddenly and at a definite place. contracts of insurance on behalf of the insurer. Some
 Accident Cover- Provides benefits in the event of an binders give an intermediary authority to deal with
accident occurring during the period of cover. and settle claims against the insurer, as agent for the
Usually refers to insurance covering injury or death insurer.
arising out of violent, accidental, external and visible  Broadform- A form of liability wording that extends
means. the cover for personal injury beyond physical injury,
 Act of God- An event or occurrence due to natural disease or death to include other causes including
causes which occurs independently of human mental injury or anguish, fright, false arrest,
intervention and either could not be foreseen, or if malicious prosecution, libel, slander, defamation,
foreseen, could not be reasonably guarded against. wrongful entry, eviction or other invasion of the right
(e.g. storm, flood, earthquake, cyclone). of private property, assault and battery which occurs
 Actual total loss- Where the property insured is during the period of the policy.
completely destroyed or so badly damaged that it  Broker- An intermediary, who acts on behalf of a
ceases to be a thing of the kind insured, or where person who is applying for insurance. They earn a
the insured is irretrievably deprived of it. Also called commission from the insurer; however, they have a
―constructive total loss‖. responsibility to obtain cover appropriate to the
needs of the insured. In certain circumstances a
 Adjuster- Also known as an assessor is a broker can also act as an agent for the insurer in
representative of the insurer who seeks to determine terms of issuing a policy or collecting a premium.
the extent of the company's liability for loss when a  Burglary- Theft following forcible and violent entry
claim is submitted. to the premises. Note: this term may not apply for
 Advice- (in relation to Financial Services) A some states of Australia.
statement made which influences, or is intended to  Business pack- A number of policies typically
influence, a person to purchase a particular financial required by a business are combined into one policy
product or service. Advice can be personal or or package—e.g. fire damage to property, burglary,
general: Personal advice is advice which takes one liability, etc. Business packs are sometimes tailored
or more of a person‘s individual circumstances into to cover the risks of a particular industry or
account. General advice is advice which is not business—e.g. motor dealers, builders, etc.
personal—i.e. does not fulfil this individual  Cancellation- The termination of a policy before the
circumstances test. expiry date.
 Agent- A person holding an agency agreement with  Captive insurance company- An insurance
an insurer and who, for reward, carries on the company that is wholly owned by one or more
business of arranging contracts of insurance as entities, the main purpose of which is to insure the
agent for one or more insurers. Such an agent is risks of its parent Companies. Several large
referred to as an Authorised Representative.
Australian companies and organisations have their insurers. The chosen insurer can then require the
own captive insurers. other insurers to make a proportional contribution
 Catastrophe reinsurance- A form of reinsurance towards that loss. (Given that the insurance policies
whereby the reinsured is protected against an are subject to the rule of indemnity, the insured is
accumulation of losses from the same event—e.g. a prevented from recovering from all the insurers and
cyclone. therefore making a profit from his/her claims).
 Caveat emptor- Let the buyer beware. Insurance  Coverage- The scope of the protection provided
contracts are NOT Caveat emptor (buyer beware) under a contract of insurance.
contracts. They are Uberrima Fidei Utmost Good  Damages- Compensation for loss suffered, which is
Faith) contracts. awarded by courts and endeavours to place a person
 Cedant- An insurer who transfers all or part of a risk in the position where they would have been had the
to a reinsurer. loss not been suffered.
 Cede- To transfer risk from an insurer to a reinsurer.  Decline- To refuse. For example, the insurer may
A ‗cession‘ is a particular reinsurance transaction. decide not to accept a proposal for insurance or
Normally, this refers to the proportional insurance of perhaps decline to accept a claim.
a risk.  Deposit premium- Amount paid by a client as an
 Ceding insurer- The original insurer. It is the initial premium under a policy. The deposit premium
company which deals with the client, and reinsures is subject to adjustment at the end of the policy
part or all of the risk. period based on, for example, claims experience.
 Certificate of Insurance- A certificate that acts as After adjustment, the insured receives a refund or is
proof that a policy has been issued. required to pay extra premium, as the case may be.
 Cession- The portion of the sum insured of a risk  Depreciation- A decrease in the value of any type
ceded to a reinsurer. A Cession is a particular of property over a period of time resulting from use,
reinsurance transaction. wear and tear, or obsolescence.
 Claim- Notification by or on behalf of a claimant  Direct insurer- Is an insurer which deals direct with
that an event likely to be covered by a policy has the consumer rather than through an intermediary
occurred, or is likely to occur, and giving formal or agent.
notice to the insurer accordingly. Usually a claim will  Direct policy- The parties to a direct insurance
be accompanied by a request for indemnification contract are the insurer and the original insured. The
under the policy. term is used to differentiate the direct policy contract
 Claimant- The party asserting a right of recovery from any reinsurance contract that may be arranged
under a contract of insurance. as a result of the direct policy contract.
 Claims history- The history of losses suffered by an  Disaster- A disaster is said to have occurred when
insured which have been covered by insurance. the normal community and organisational
Some claims histories also record events notified to arrangements cannot cope with a hazard impact.
the insurer which did not result in actual claims pay-  Disclaimer- A person may make a statement to the
outs—e.g. events below the policy excess. effect that they will not accept any responsibility for
 Claims Ratio- The ratio of the cost of claims to certain things which may (or may not) happen. For
earned premiums. example, disclaimers are used to try and avoid or
 Closing- The document sent by a broker to an limit a person‘s liability for breach of duty of care.
insurer confirming and finalising an insurance cover  Due date- The date a policy is in force to and by
arranged by the broker. when a renewal premium must be paid.
 Commission- A fee charged by a broker or agent  Earned Premium- Insurance policies usually run for
for services in the sale of an insurance contract. a period of 12 months. An insured can cancel a
 Common Law- The principles of law arising from policy at any time and request a refund of premium.
court decisions. Therefore, insurers must only take into the books of
 Comprehensive Insurance- (Usually associated account that portion of premium which corresponds
with motor vehicle insurance) Provides specified to actual elapsed time on risk. That portion of
cover for damage to insured car as well as damage premium which can be taken up in the accounts is
the insured car may cause to the property of others. called earned premium. That portion of premium yet
 Contract- An agreement between two or more to expire is termed unearned premium.
parties which is enforceable by law.  Endorsement- Any writing appearing on a policy,
 Contribution- Where an insured has two or more or additional documentation attaching to a policy,
insurance policies which are covering the same whereby the printed terms of the policy, the parties
interest against the same peril, the insured can make to it, or other particulars, are varied.
his/her claim in full against one or other of the

 Expiry date- The date upon which a policy ends.  Policy schedule- A notice showing the particular
Conventionally, 4.00 pm is the normal time of details of a policy.
expiry, although this varies by type of policy and by  Policyholder- Generally use to describe the policy
insurer. owner and/or insured.
 Financial Ombudsman Service- Any policyholder  Reinsured- An insurance company or Lloyd‘s
who is dissatisfied with the outcome of his or her syndicate who buys reinsurance. This term is the
dealings with the insurer can contact the Insurance preferred usage to ―cedant‖ in non-proportional
Ombudsman Service on 1300 780 808. reinsurance contracts as risks are not ceded to these
 First party- The first and second parties are simply contracts— losses exceeding the deductible being
the parties to an insurance contract. A third party is payable by the Reinsurer.
not a party to the contract but a party who seeks to  Risk- General meaning is a thing or person insured.
be compensated for some injury or loss caused by  Third party- A person or entity who is not a party to
the insured. A first party policy may also refer to an insurance contract but who has an alleged or
insurance for the policyholder‘s own property or actual right of action for injury or damages against
person. an insured under a contract of insurance.
 Gross Premium- The net premium plus operating  Umbrella Cover- Reinsurance protection for several
expenses, commissions and other expenses. classes of business, usually arranged by combining
 Insolvency- A situation where a person is unable to the retentions and/or deductibles of the different
pay debts as and when they fall due for payment. classes and protecting them by one excess of loss
 Insolvent- A company may not be able to settle contract.
debts in full because its assets are worth less than  Written premiums- The total premiums on all
the liabilities that must be paid off. policies written by an insurer during a specified
 Insurance- A device for transferring specified risks period of time, regardless of what proportion has
of individual persons to an insurer. The insurer been earned. See earned premiums.
agrees, for consideration (usually payment of a
premium), to assume, to a specified extent, certain Abbreviation Related to Insurance
losses that may be suffered by the insured.
 Insurance schedule- Sets out the information given Industry
to an insurer upon which the decision to offer cover
is made. It also displays the individual details of a  IRDA- Insurance Regulatory and Development
policy.  NCLT- National Company Law Tribunal
 Insured- The party to an insurance arrangement to  TPA - Third Party Administration
whom the insurer agrees to provide cover against  TRAI- Telecom Regulatory Authority of India
specified losses, or to render services, subject to the  FDA- Food and Drug Administration
terms of the insurance contract.  FII- Foreign Institutional Investor
 Insurer- The party to an insurance arrangement  TRIM- Trade Related Investment Measures
who undertakes to provide cover or to render  NSDL- National Security Depository Limited
services, on the happening of specified events.  NAV- Net Asset Value
 Liability Insurance- A form of general insurance  SEBI- Securities and Exchange Board of India
that provides cover in regard to the insured's legal  NASSCOM- National Association of Software and
obligation for loss or damage to another person. Services
 Market value- The fair price for which something  NDS- Negotiated Dealing System
can be sold in its current condition.  CRISIL- Credit Rating Information Services of India
 Open policy- Provides cover for all risks of a certain Limited
type during a set period of time. The sum insured is  IPO- Initial Public Offer
then adjusted for the actual total sum insured.  SEZ- Special Economic Zone
Commonly used for marine cargo policies and  GIPSA- General Insurance Public Sector Association
construction policies. Of India
 Outstanding claims- The aggregate liabilities (total  BIFR- Board for Industrial and Financial
case reserves less amounts paid) faced by an insurer Reconstruction
under lodged claims that at any point in time have  FDI- Foreign Direct Investment
not been finalised.  GNP- Gross National Product
 Peril- The cause of a possible loss. Not to be  PLI- Public Liability Insurance
confused with hazard.  EEI- Electronic Equipment Insurance
 Policy- Means the Product Disclosure Statement and  ULIP- Unit Linked Insurance Plan
the policy schedule.  LIC- Life Insurance Corporation

 GBIC- Governing Body of Insurance Council Health Minister, Sh.Chandrabhan Gupt, Union Food
 IIB- Insurance Information Bureau of India Minister and Dr.C.L.Katial, the first Director General of
 IGMS- Integrated Grievance Management System ESIC.
 IBAI- Insurance Brokers Association of India
 IIRM- Institute of Insurance and Risk Management ESIC scheme was simultaneously launched at Delhi as
 UHIS- Universal Health Insurance Scheme well and the initial coverage for both the centers was
 PLCS – Personal Lines Coverage Specialist 1,20,000 employees. Our first Prime Minister was the
 REBC – Registered Employee Benefits Consultant first honorary insured person of the Scheme. The
 ARM – Associate in Risk Management promulgation of Employees' State Insurance Act, 1948
 AIAF – Associate in Insurance Accounting and (ESI Act), by the Parliament was the first major legislation
Finance on social Security for workers in independent India. It
was a time when the industry was still in a nascent stage
Employee State Insurance Scheme and the country was heavily dependent on an
assortment of imported goods from the developed or
fast developing countries.
The Employees' State Insurance Scheme is an integrated
measure of Social Insurance embodied in the Employees' Coverage-
State Insurance Act and it is designed to accomplish the
task of protecting 'employees' as defined in the In the beginning, the ESI Scheme was implemented at
Employees' State Insurance Act, 1948 against the impact just two industrial centers in the country in 1952, namely
of incidences of sickness, maternity, disablement and Kanpur and Delhi. There was no looking back since then
death due to employment injury and to provide medical in terms of its geographic reach and demographic
care to insured persons and their families. The ESI coverage. Keeping pace with the process of
Scheme applies to factories and other establishment's industrialization, the Scheme today, stands implemented
viz. Road Transport, Hotels, Restaurants, Cinemas, at over 843 centres in 33 States and Union Territories.
Newspaper, Shops, and Educational/Medical Institutions The Act now applies to over 7.83 lakhs factories and
wherein 10 or more persons are employed. However, in establishments across the country, benefiting about 2.13
some States threshold limit for coverage of crores insured persons/family units. As of now, the total
establishments is still 20. Employees of the aforesaid beneficiary stands at over 8.28 crores.
categories of factories and establishments, drawing
wages upto Rs.15,000/- a month, are entitled to social
security cover under the ESI Act. ESI Corporation has Schemes Related to Insurance
also decided to enhance wage ceiling for coverage of (PMFBY, PMJJBY, PMSBY etc.)
employees under the ESI Act from Rs.15,000/- to
Rs.21,000/-.
The main schemes related to Insurance sector are:-
ESI Corporation has extended the benefits of the ESI  Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
Scheme to the workers deployed on the construction  Pradhan Mantri Suraksha Bima Yojana (PMSBY)
sites located in the implemented areas under ESI  Life Cover under Pradhan Mantri Jan Dhan Yojana
Scheme w.e.f. 1st August, 2015. The ESI Scheme is (PMJDY)
financed by contributions from employers and  Varishtha Pension Bima Yojana (VPBY)
employees. The rate of contribution by employer is  Pradhan Mantri Fasal Bima Yojana (PMFBY)
4.75% of the wages payable to employees. The  Pradhan Mantri Vaya Vandana Yojana (PMVVY)
employees' contribution is at the rate of 1.75% of the  Restructured Weather Based Crop Insurance Scheme
wages payable to an employee. Employees, earning less (RWBCIS)
than Rs. 137/- a day as daily wages, are exempted from
payment of their share of contribution. 1. Pradhan Mantri Jeevan Jyoti Bima Yojana
(PMJJBY)-
When and how ESIC started?
The PMJJBY is available to people in the age group of 18
ESIC scheme was inaugurated in Kanpur on 24th to 50 years having a bank account who give their
February 1952 (ESIC Day) by then Prime Minister Pandit consent to join/enable auto-debit. Aadhar would be the
Jawahar Lal Nehru. The venue was the Brijender Swarup primary KYC for the bank account. The life cover of Rs. 2
Park, Kanpur and Panditji addressed a 70,000 strong lakhs shall be for the one year period stretching from 1st
gathering in Hindi in the presence of Pt. Gobind Ballabh June to 31st May and will be renewable. Risk coverage
Pant, Chief Minister Uttar Pradesh, Babu Jagjivan Ram, under this scheme is for Rs. 2 Lakh in case of death of
Union Labour Minister, Raj Kumari Amrit Kaur, Union the insured, due to any reason. The premium is Rs. 330

per annum which is to be auto-debited in one benefit of citizens aged 60 years and above, the Hon'ble
installment from the subscriber‘s bank account as per Finance Minister in his Budget Speech for the year 2014-
the option given by him on or before 31st May of each 15 proposed to revive the scheme for a limited period
annual coverage period under the scheme. The scheme from 15 August, 2014 to 14 August, 2015. Accordingly,
is being offered by Life Insurance Corporation and all the revived Varishtha Pension BimaYojana (VPBY) was
other life insurers who are willing to offer the product on formally launched by the Finance Minister on
similar terms with necessary approvals and tie up with 14.08.2014 and has been opened during the window
banks for this purpose. stretching from 15th August, 2014 to 14th August,
2015. Thus all those who subscribe to the VPBY during
2. Pradhan Mantri Suraksha Bima Yojana(PMSBY)- this period will receive an assured guaranteed return of
The Scheme is available to people in the age group 18 9% under the policy. The scheme is administered
to 70 years with a bank account who give their consent through Life Insurance Corporation of India (LIC). Under
to join/enable auto-debit on or before 31st May for the the Scheme the subscribers on payment of a lump sum
coverage period 1st June to 31st May on an annual amount get pension at a guaranteed rate of 9% per
renewal basis. Aadhar would be the primary KYC for the annum (payable monthly). Any gap in the guaranteed
bank account. The risk coverage under the scheme isRs.2 return over the return generated by the LIC on the fund
lakh for accidental death and full disability and Rs. 1 is compensated by Government of India by way of
lakh for partial disability. The premium of Rs. 12 per subsidy payment in the scheme. The scheme allows
annum is to be deducted from the account holder‘s bank withdrawals of deposit amount by the annuitant after
account through ‗auto-debit‘ facility in one installment. fifteen years of purchase of the policy.
The scheme is being offered by Public Sector General
Insurance Companies or any other General Insurance 5. Pradhan Mantri Fasal Bima Yojana (PMFBY)-
Company who are willing to offer the product on similar The Pradhan Mantri Fasal Bima Yojna was launched on
terms with necessary approvals and tie up with banks for 18th February 2016 by Prime Minister Shri Narendra
this purpose. Modi. 21 states implemented the scheme in Kharif 2016
whereas 23 states and 2 UTs have implemented the
3. Life Cover under Pradhan Mantri Jan Dhan scheme in Rabi 2016-17. Approximately 3.7 Crores
Yojana (PMJDY)- farmers have been insured in the Kharif 2016 for 3.7
The Hon‘ble Prime Minister in his Independence Day crore ha of land at premium of Rs 16212 crore for a sum
Speech announced a comprehensive program of insured of Rs 128568.94 crore as per figures available
Financial Inclusion targeting a large number of people on 31.03.2017.
who are currently deprived of even rudimentary financial
services. In this direction, the Pradhan Mantri Jan PMFBY provides a comprehensive insurance cover
DhanYojana (PMJDY) sets out to provide a basic Bank against failure of the crop thus helping in stabilising the
account to every family who till now had no account. The income of the farmers. The Scheme covers all Food &
bank account comes with a RuPay debit card with a Oilseeds crops and Annual Commercial/Horticultural
built-in accidental insurance cover of Rs. 1 lakh. During Crops for which past yield data is available and for
the launch on 28.08.14 in New Delhi, Hon‘ble Prime which requisite number of Crop Cutting Experiments
Minister also announced a life cover of Rs. 30,000/- for (CCEs) are conductedbeing under General Crop
those subscribing to a bank account with a RuPay debit Estimation Survey (GCES). The scheme is implemented
card before 26th January, 2015 to complement the Rs. 1 by empanelled general insurance companies. Selection
lakh accident insurance cover. This life insurance cover of Implementing Agency (IA) is done by the concerned
of Rs. 30,000/- under Pradhan Mantri Jan DhanYojana, State Government through bidding. The scheme is
gives life insurance cover on death of the life assured, compulsory for loanee farmers availing Crop Loan /KCC
due to any reason, to the deceased‘s family. The scheme account for notified crops and voluntary for other others.
aims to provide security to families from economically The scheme is being administered by Ministry of
weaker sections who cannot afford direct purchase of Agriculture.
such insurance. The premium subscription for the life
cover under PMJDY is borne by the Government of India. 6. Pradhan Mantri Vaya Vandana Yojana(PMVVY)-
Based on the success and popularity of Varishtha
4. Varishtha Pension Bima Yojana- Pension Bima Yojana 2003 (VPBY-2003), Varishtha
The NDA Government during its last term in office had Pension Bima Yojana 2014 (VPBY-2014) schemes, and
introduced the Varishtha Pension BimaYojana (VPBY) as to protect elderly persons aged 60 years and above
a pension scheme for senior citizens. Under the scheme against a future fall in their interest income due to the
a total no. of 3.16 lakh annuitants are being benefited uncertain market conditions, as also to provide social
and the corpus amounts to Rs. 6,095 crore. For the security during old age, it is decided to launch a

simplified scheme of assured pension of 8% called the Endowment Policy- An endowment policy is a
‗प्रधानमंत्रीवयवन्दनायोजना‘. ‗प्रधानमंत्रीवयवन्दनायोजना‘ ‘ is being combination of saving along with risk cover. This type of
implemented through Life Insurance Corporation (LIC) of policy is specially designed to accumulate wealth and at
India. As per the scheme, on payment of an initial lump the same time cover your life. In this type of policy the
sum amount ranging from a minimum purchase price of insured will pay a regular premium for specific time
Rs. 1, 50,000/- for a minimum pension of Rs 1000/- per period. And in case of death the money will be paid to
month to a maximum purchase price of Rs. 7, 50,000/- beneficiary but, if you outlive the policy tenure, you will
for maximum pension of Rs. 5,000/- per month, receive the sum assured along with accumulated bonus.
subscribers will get an assured pension based on a
guaranteed rate of return of 8% per annum, payable No physical exam- Such insurance company that
monthly. says,―No physical exam‖ gives freedom to the
policyholder to take policy and exempt the physical test
7. Restructured Weather Based Crop Insurance that is mandatory by certain life insurance company.
Scheme (RWBCIS)- Normally, such insurance company is more expensive
The RWBCIS was launched on 18th February 2016 by and the insured has to pay a higher premium on their
Hon‘ble Prime Minister 12 states implemented the policy.
scheme in Kharif 2016 whereas 9 states have
implemented the scheme in Rabi 2016-17. Group Life insurance- Group life insurance is a single
Approximately 15 lakhs farmers have been insured in policy that covers an entire group. Such policy is taken
the Kharif 2016 for 16.95 lakh ha of land at premium of by an employer for the bigger organization to cover their
Rs983.96 crore for a sum insured of Rs8536.53 crore as employee, as an individual policy holder, it may cost
per figures available on 31st March 2017. more than a group policy.
Weather Based Crop Insurance Scheme (WBCIS) aims to Third party Insurance- An insurance policy that covers
mitigate the hardship of the insured farmers against the the damage caused by another person or party is known
likelihood of financial loss on account of anticipated crop as third party Insurance. In this type of insurance, the
loss resulting from adverse weather conditions relating insured is the first party, insurance company is the
to rainfall, temperature, wind, humidity etc. WBCIS uses second party while the damage done by another is
weather parameters as ―proxy for crop yields in referred as the third party. This type of Insurance policy
compensating the cultivators for deemed crop losses. is purchased for vehicles, so that in case of the accident
Pay-out structures are developed to the extent of losses they can claim it.
deemed to have been suffered using the weather
triggers. Gap insurance- GAP insurance is also known as
Guaranteed Auto Protection. It covers the difference
Weather Station (RWS) or Backup Weather Station (BWS) between the actual cash value of the vehicle and the
as the case may be, and the claims process shall balance still owed on financing like loan. GAP insurance
commence once the weather data is received. Claims amount is generally paid up front.
processing are strictly as per the insurance term sheets,
payout structure and the Scheme provisions. All standard Schedule of loss‟ in home insurance- Schedule of loss
Claims are processed and paid within 45 days from the is a document submitted to the insurance company to
end of the risk period. The scheme is being administered claim the policy; it gives the information of damaged or
by Ministry of Agriculture. lost items like model number, when it was purchased,
cost of the item etc.
Other Important Topics Related to Insurance Current Affairs

Insurance Awareness  Karnataka Bank has entered into an MoU with
Bharti AXA Life Insurance Company to distribute
Elimination period in insurance- In the disability the latter‘s life insurance products. The bank will be
income insurance or loss of income insurance, the able to provide a wide choice of life insurance
elimination period is the amount of time you have to products to its customers across 836 branches,
wait before benefits are paid. In other words, it is a time- supported by the products of Bharti AXA Life
period between the beginning of the injury and the Insurance Company.
benefits you are paid off. Longer the Elimination period  United Bank of India has signed a bancassurance
lower the premium and vice versa. deal with private life insurer HDFC Life Insurance
Company. Through this partnership, United Bank‘s
customers will be able to take advantage of HDFC  Syndicate Bank and SBI Life Insurance signed a
Life‘s expertise in life insurance products, distribution bancassurance pact aiming to offer a comprehensive
and customer service. financial planning solution to its customers. The pact
 IRDAI and the National Health Authority (NHA) have was signed between Syndicate Bank MD & CEO,
formed a working group on the Ayushman Bharat Mrutyunjay Mahapatra and MD and CEO of SBI Life,
Pradhan Mantri Jan Arogya Yojana (AB-PMJAY). The Sanjeev Nautiyal.
joint working group, to be chaired by Dinesh Arora,  The government has constituted a seven-member
Deputy CEO of NHA, will have 10 members from panel to select managing directors of public sector
both the organisations. insurance companies. The panel would be headed
 United Bank of India has signed a bancassurance by Banks Board Bureau (BBB) chairman BP Sharma.
deal with private life insurer HDFC Life Insurance The other members of the panel are Financial
Company. Through this partnership, United Bank‘s Services Secretary, Department of Public Enterprises
customers will be able to take advantage of HDFC Secretary and Chairman of Insurance Regulatory and
Life‘s expertise in life insurance products, distribution Development Authority of India. Besides, three
and customer service. insurance sector experts G N Bajpai, Mathew
 HDFC ERGO General Insurance Company, India‘s Varghese and T Bhargava — have been appointed
third-largest non-life insurance provider in the on the selection panel.
private sector, announced the launch of ?Trip  Paytm (One 97 Communications Limited) has
Protector‘ insurance policy, a pioneering policy in the partnered with the Life Insurance Corporation of
non-life insurance segment in India. India (LIC) to offer online insurance premium
 HDFC Standard Life Insurance has changed its name payments on its platform. Softbank-backed Paytm
to HDFC Life Insurance following the receipt of will provide premium payment solutions from over
relevant approvals from regulatory authorities. The 30 insurance companies including LIC, ICICI
change in name is effective right off the bat and the Prudential Life, Reliance Life, and Max Life Insurance
company will henceforth operate under the name among others.
HDFC Life Insurance Company Ltd.
 Allahabad Bank and SBI Life Insurance came
together and signed a bancassurance pact, to offer a
holistic financial planning solution to consumers. The
tie-up, one of the largest Bancassurance
partnerships in the country, will see 3,238 branches
of Allahabad Bank across the country offer SBI Life‘s
range of protection, wealth creation, and savings
products to its customers.
 Insurance Regulatory Development Authority of India
(IRDAI) has set up a panel headed by Praveen
Kutumbe, to identify domestically systematically
important insurers (SIIs) and an augmented
regulatory framework is logically established in this
regard. Praveen Kutumbe, Member- Finance and
Investment, IRDAI, has been asked to submit the
report in six months. IRDAI stated that the failure of
SIIs has the potential to cause significant disruption
to the essential services they provide to
policyholders.
 Indian Railway Catering and Tourism Corporation
(IRCTC), the Railways‘ subsidiary, will offer insurance
of up to INR50 lakh for free for air passengers who
book their tickets through its portal. IRCTC has tied
up with Bharti-Axa for the offer. IRCTC‘s service Insurance Ombudsman
charge of INR59 is the cheapest compared with
travel websites. IRCTC has tied up with Galileo, a
computer reservation system, for powering the flight The Insurance Ombudsman scheme was created by
search engine. At present, over 30 lakh users log in the Government of India for individual policyholders to
through its mobile app and 3 lakh ticket bookings have their complaints settled out of the courts system in
happen daily through the app. a cost-effective, efficient and impartial way. There are at
present 17 Insurance Ombudsman in different
locations and any person who has a grievance against  If you accept this as a full and final settlement, the
an insurer, may himself or through his legal heirs, Ombudsman will inform the company which should
nominee or assignee, make a complaint in writing to the comply with the terms in 15 days
Insurance ombudsman within whose territorial
jurisdiction the branch or office of the insurer Award:
complained against or the residential address or place of
residence of the complainant is located.  If a settlement by recommendation does not
work, the Ombudsman will:
You can approach the Ombudsman with complaint  Pass an award within 3 months of receiving all
if: the requirements from the complainant and
 You have first approached your insurance company which will be binding on the insurance company
with the complaint and
 They have rejected it Once the Award is passed-
 Not resolved it to your satisfaction or  The Insurer shall comply with the award within
 Not responded to it at all for 30 days 30 days of the receipt of award and intimate the
 Your complaint pertains to any policy you have taken compliance of the same to the Ombudsman.
in your capacity as an individual and
 The value of the claim including expenses claimed is Bancassurance
not above Rs 30 lakhs.
Bancassurance is a French term referring to the selling of
Your complaint to the Ombudsman can be about:
insurance through a bank's established distribution
channels. In other words, we can say Bancassurance is
(a) Delay in settlement of claims, beyond the time
the provision of insurance (assurance) products by a
specified in the regulations, framed under the IRDAI Act,
bank. The usage of the word picked up as banks and
1999.
insurance companies merged and banks sought to
(b) Any partial or total repudiation of claims by the Life
provide insurance, especially in markets that have been
insurer, General insurer or the Health insurer.
liberalised recently. It is a controversial idea, and many
(c) Any dispute about premium paid or payable in terms
feel it gives banks too great a control over the financial
of insurance policy
industry. In some countries, bancassurance is still largely
(d) Misrepresentation of policy terms and conditions at
prohibited, but it was recently legalized in countries like
any time in the policy document or policy contract.
USA when the Glass Steagall Act was repealed after the
(e) Legal construction of insurance policies in so far as
passage of the Gramm Leach Bililey Act.
the dispute relates to claim.
(f) Policy servicing related grievances against insurers
Bancassurance is the selling of insurance and banking
and their agents and intermediaries.
products through the same channel, most commonly
(g) Issuance of life insurance policy, general insurance
through bank branches. Selling insurance means
policy including health insurance policy which is not in
distribution of insurance and other financial products
conformity with the proposal form submitted by the
through Banks. Bancassurance concept originated in
proposer.
France and soon became a success story even in other
(h) Non issuance of insurance policy after receipt of
countries of Europe. In India a number of insurers have
premium in life insurance and general insurance
already tied up with banks and some banks have already
including health insurance and
flagged off bancassurance through select products.
(i) Any other matter resulting from the violation of
provisions of the Insurance Act, 1938 or the regulations,
Bancassurance has become significant. Banks are now a
circulars, guidelines or instructions issued by the IRDAI
major distribution channel for insurers, and insurance
from time to time or the terms and conditions of the
sales a significant source of profits for banks. The latter
policy contract, in so far as they relate to issues
partly being because banks can often sell insurance at
mentioned at clauses (a) to (f)
better prices (i.e., higher premiums) than many other
channels, and they have low costs as they use the
The settlement process-
infrastructure (branches and systems) that they use for
banking. Bancassurance primarily rests on the
Recommendation:
relationship the customer has developed over a period
 The Ombudsman will act as mediator and
of time with the bank. And pushing risk products through
 Arrive at a fair recommendation based on the facts
banks is a much more cost-effective affair for an
of the dispute
insurance company compared to the agent route, while,
for banks, considering the falling interest rates, fee
based income coming in at a minimum cost is more than for bancassurance. Banks in India have all the right
welcome. ingredients to make Bancassurance a success story. They
have large branch network, huge customer base, enjoy
Advantages of Bancassurance: customer confidence and have experience in selling non-
banking products. If properly implemented, India could
The following factors have mainly led to success of take leadership position in bancassurance all over the
bancassurance- world
(a) Pressure on banks' profit margins. Bancassurance Government of India Notification dated 03rd August
offers another area of profitability to banks with little or 2000, specified ‗Insurance‘ as a permissible form of
no capital outlay. A small capital outlay in turn means a business that could be undertaken by banks under
high return on equity. Section 6(1)(o) of the Banking Regulation Act, 1949.
(b) A desire to provide one-stop customer service. Then onwards, banks are allowed to enter the insurance
Today, convenience is a major issue in managing a business as per the guidelines and after obtaining prior
person's day to day activities. A bank, which is able to approval of Reserve Bank of India.
market insurance products, has a competitive edge over
its competitors. It can provide complete financial
planning services to its customers under one roof.
(c) Opportunities for sophisticated product offerings.
(d) Opportunities for greater customer lifecycle
management.
(e) Diversify and grow revenue base from existing
relationships.
(f) Diversify risks by tapping another area of profitability.
(g) The realisation that insurance is a necessary
consumer need. Banks can use their large base of
existing customers to sell insurance products.
(h) Bank aims to increase percentage of non-interest fee
income
(i) Cost effective use of premises
Status of Bancassurance in India-
Reserve Bank of India (RBI) has recognized Current Insurance Schemes

"bancassurance" wherein banks are allowed to provide
physical infrastructure within their select branch
premises to insurance companies for selling their 1. Rashtiya Swasthiya Bima Yojana (RSBY)
insurance products to the banks‘ customers with RSBY (Rashtriya Swasthiya Bima Yojana) has been
adequate disclosure and transparency, and in turn earn launched by Ministry of Labour and Employment,
referral fees on the basis of premia collected. This would Government of India to provide health insurance
utilize the resources in the banking sector in a more coverage for Below Poverty Line (BPL) families. The
profitable manner. Bancassurance can be important objective of RSBY is to provide protection to BPL
source of revenue. With the increased competition and households from financial liabilities arising out of health
squeezing of interest rates spreads profit are likely to be shocks that involve hospitalization. Beneficiaries under
under pressure. Fee based income can be increased RSBY are entitled to hospitalization coverage up to Rs.
through hawking of risk products like insurance. 30,000/- for most of the diseases that require
hospitalization. Government has even fixed the package
There is enormous potential for insurance in India and rates for the hospitals for a large number of
recent experience has shown massive growth pace. A interventions. Pre-existing conditions are covered from
combination of the socio-economic factors are likely to day one and there is no age limit. Coverage extends to
make the insurance business the biggest and the fastest five members of the family which includes the head of
growing segment of the financial services industry in household, spouse and up to three dependents.
India. However, before taking the plunge in to this new Beneficiaries need to pay only Rs. 30/- as registration
field, banks as insurers need to work hard on chalking fee while Central and State Government pays the
out strategies to sell risk products especially in an premium to the insurer selected by the State
emerging competitive market. However, future is bright Government on the basis of a competitive bidding.

2. Aam Aadmi Bima Yojana (AABY)
Aam admi bima yojana, a Social Security Scheme for
rural landless household was launched on 2nd October,
2007. The head of the family or one earning member in
the family of such a household is covered under the
scheme. The premium of Rs.200/- per person per
annum is shared equally by the Central Government and
the State Government. The member to be covered
should be aged between 18 and 59 years.
 On natural death- Rs 30,000
 On death due to accident/on permanent disability
due to accident (loss of 2 eyes or 2 limbs)- Rs 75,000
 On partial permanent disability due to accident (loss
of one eye or one limb)- Rs 37,500
3. Janashree Bima Yojana-

Janashree Bima Yojana (JBY) was launched on 10th
August 2000. The Scheme replaced Social Security
Group Insurance Scheme (SSGIS) and Rural Group Life
Insurance Scheme (RGLIS). 45 occupational groups have
been covered under this scheme.
4. Universal Health Insurance Scheme (UHIS)-

The four public sector general insurance companies have
been implementing Universal Health Insurance Scheme
for improving the access of health care to poor families.
The scheme provides for reimbursement of medical
expenses upto Rs.30,000/- towards hospitalization
floated amongst the entire family, death cover due to an
accident @ Rs.25,000/- to the earning head of the
family and compensation due to loss of earning of the
earning member @Rs.50/- per day upto maximum of 15
days. The Universal Health Insurance Scheme (UHIS) has
been redesigned targeting only the BPL families. The
premium subsidy has been enhanced from Rs.100 to
Rs.200 for an individual, Rs.300 for a family of five and
Rs.400 for a family of seven, without any reduction in
benefits.


Financial and Insurance Market Awareness

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Financial and Insurance Market Awareness

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Financial and Insurance Market Awareness

The Capital market facilitates mobilization of savings of

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What Are Money Market Instruments?

Money market instruments allow governments, financial

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Stock Market and Bond Market Stock Exchange

The broad objectives of the money market are to

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Margin maintenance: This pre-requisite is unique to

Study of the Foreign Exchange

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What is Net Asset Value (NAV) of a scheme? Growth/Equity Oriented Scheme

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Government Initiatives- Regulatory Agency- A regulatory agency is a public

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13. Federation of Indian Chambers of Commerce & International Financial Institutions

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Financial Intermediaries Benefits of Financial Intermediaries

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MIGA guarantees protect investments against

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In December, 2000, the subsidiaries of the General Types of General Insurance-

Home insurance- Home insurance is a type of property Market Size-

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Other Important Topics Related to Insurance Current Affairs

Status of Bancassurance in India-

Reserve Bank of India (RBI) has recognized Current Insurance Schemes

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3. Janashree Bima Yojana-

4. Universal Health Insurance Scheme (UHIS)-

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