Subject:

INDIAN FINANCIAL SYSTEM AND SERVICES

Sub Code:
18MBA202

Module-1

Financial System

Introduction
A financial system allows the exchange of funds between lenders, investors, and borrowers by
allowing funds to be allocated, invested, or moved between financial sectors. It is all about flow
of fund from the surplus to deficit sector. Money, credit and finance are used as media of
exchange in financial systems.

Definition:
Financial system consists of complex, closely related constituents like services, markets, and
institutions that provide an efficient and regular linkage between investors and depositors.
Financial systems operate at national, global, and firm-specific levels. A modern financial system
may include banks (operated by the government or private sector), financial markets, financial
instruments, and financial services.

Objectives of Financial System

1. Provision of liquidity
2. Mobilization of savings
3. Size transformation/Capital formation
4. Maturity transformation
5. Risk transformation
6. Lowering of cost of transaction
7. Easy Payment mechanism
8. Assisting new projects
9. Enable better decision making
10. Meet short and long term financial needs
11. Provide necessary finance to the Government
12. Accelerate the process of economic growth of the country

Features of Financial System

1. Financial system acts as a bridge between savers and borrowers
2. It consists of a set of inter-related activities and services
3. It consists of both formal and informal financial sectors
4. It formulates capital, investment and profit generation
5. It is universally applicable at firm level, regional level, national level and international
level
6. It consists of financial institutions, financial markets, financial services, financial
instruments, financial practices and financial transactions.
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Components of Financial System
1. Financial institutions,
2. Financial markets,
3. Financial instruments and
4. Financial services.
 FINANCIAL INTERMEDIARIES/FINANCIAL INSTITUTIONS
A financial intermediary is an institution which connects the deficit and the surplus. The best
example of an intermediary can be a bank which transforms the bank deposits to bank loans. The
role of financial intermediary is to channel funds from people who have extra inflow of money
i.e., the savers to those who do not have enough money to fulfill the needs or to carry out the
basic activities i.e. the borrowers. Basically they are classified into two types:
1. Unorganized Sector
2. Organized Sector

Unorganized
Sector
The sector that is not governed by any statutory or legal authority is known as unorganized
sector. This sector consists of the individuals and institutions for whom there are no
standardized rules and regulations governing their financial dealings. They are not under the
supervision and control of RBI or any other regulatory body. This sector consists of the
individuals and intuitions for example : Local money lenders, Pawn brokers, Traders, Landlords,
Indigenous bankers, etc., who lend money to needy persons and institutions.

Organized
Sector
The sector that is governed by some statutory or legal authority is known as organized sector.
This sector consists of the institutions like Commercial Banks, Non Banking Financial
Institutions, etc. They are further classified into two:
1. Capital Market Intermediaries
2. Money Market Intermediaries

Capital Market
Intermediaries

Capital Market refers to the market for long term finance. The intermediaries provide long term
finance to individuals and corporate customers.
Participants: IDBI, SFCs, LIC, GIC, UTI, MFs, EXIM BANK, NABARD etc.

Money Market Intermediary

Money Market refers to the market for short term finance. The intermediaries provide short term
finance to individuals and corporate customers.
Participants: RBI, Commercial Banks, Co-operative Banks, Post Office Savings Banks,
Government (Treasury Bills) are in the organized sector providing short term finance.
FINANCIAL ASSETS
These assets are used for production or consumption or further creation of assets. The financial assets
are the claims of money and performs some functions of money.

Example: Cash, Bank Deposits, Shares, Debentures, Investment in Gold etc.

Classification of Financial Assets

Financial assets are classified in two ways

1. On the basis of marketability

2. On the basis of nature

Classification of Financial Assets on the basis of marketability

1. Marketable – The financial assets that can be bought and sold are called as marketable
financial assets.
Example: Shares, Government Securities, Bonds, Mutual Funds, Units of UTI, Bearer
Debentures
2. Non-marketable – The financial assets that cannot be bought and sold are called as
non- marketable finance assets.
Example: Bank Deposits, Provident Funds, LIC Policies, Company Deposits, Post Office
Certificates

Classification of Financial Assets on the basis of nature

1. Money or Cash Asset – Example: Coins, Currency Notes, Bank Deposits
2. Debt Asset – Example: Debenture & Bonds
3. Stock Asset – Example: Equity Shares & Preference Shares

FINANCIAL MARKETS
Financial markets are the centre that facilitate buying and selling of financial instruments, claims
or services. It caters the credit needs of the individuals, firms and institutions. It deals with the
financial assets of different types such as currency deposits, cheques, bills, bonds etc. Financial
markets serve six basic functions. They are briefly listed below.
1. Borrowing and Lending : Financial markets permit the transfer of funds from one agent to
another for either investment or consumption purposes.
2. Price Determination: It provides means by which prices are set both for newly issued
financial assets and for the existing stock of financial assets.
3. Information Aggregation and Coordination: It acts as collectors and aggregators of
information about financial asset values and the flow of funds from lenders to borrowers.
4. Risk Sharing: It allow a transfer of risk from those who undertake investments to those
who provide funds for those investments.
 5. Liquidity: It provides the holders of financial assets with a chance to resell or
liquidate these assets.
6. Efficiency: It reduce transaction costs and information costs.

Basically they are classified into two categories:

1. Unorganized Market
2. Organized Market

Unorganized
Market
The sector that is not governed by any statutory or legal authority is known as unorganized
sector. This sector consists of the individuals and institutions for whom there are no
standardized rules and regulations governing their financial dealings. They are not under the
supervision and control of RBI or any other regulatory body.
Example: Local money lenders, Pawn brokers, Traders, Landlords, Indigenous bankers, etc.,
who lend money are in the unorganized sector.

Organized
Market
The sector that is governed by some statutory or legal authority is known as organized sector.
This sector consists of the institutions for whom there are standardized rules and regulations
governing their financial dealings. They are under the supervision and control of RBI and other
statutory bodies. They are further classified into two:
A. Capital Market
B. Money Market
C. Foreign Exchange Market

A. Capital
Market
Capital Market refers to the market that deals with long term finance. It works as a channel for
demand and supply of debt and equity market.

Capital Market is further classified into the following three:

a) Industrial Securities Market
b) Government Securities Market
c) Long-term Loans Market

a) Industrial Securities Market - The financial market where industrial securities like equity
shares, preference shares, debentures, bonds, etc., are dealt with is called as Industrial Securities
Market. In this market, the industrial concerns raise their capital and debts by issuing
appropriate securities. This market is again classified into the following two viz., Primary
Market and Secondary Market.

Primary Market - The financial market concerned with the fresh issue of industrial
securities is
called as primary market. It is also called as new issue market. In this market, industrial
securities which are issued for the first time to the public are dealt.
 Secondary Market - The financial market concerned with the purchase and sale of
already
existing industrial securities is called as secondary market. In this market, industrial securities
which are already held by the individuals and institutions are bought and sold. Generally,
these securities are quoted in the stock exchanges. This market consists of all the stock
exchanges recognized by the
Government of India. Securities Contracts (Regulation) Act, 1956 regulates the stock
exchanges and Bombay Stock Exchange is the main stock exchange in India which leads the
other stock exchanges.

b) Government Securities Market or Gilt-edged Securities Market - The financial market

where Government securities like stock certificates, promissory notes, bearer bonds, treasury
bills, etc., are dealt with is called as Government Securities Market. The long term securities
issued by the Central Government, State Governments, Semi-government authorities like City
Corporations, Port Trusts, etc., Improvement Trusts, State Electricity Boards, All India and State
level financial institutes and public sector enterprises are bought and sold in this market.

c) Long-term Loans Market - The financial market where long-term loans are provided to the
corporate customers is called as Long-term Loans Market. Development Banks and
Commercial Banks play a major role in this market. This market is classified into three
categories viz., Term loans market, Mortgages market and financial guarantees market:
Term loans market - This market consists of the industrial financing institutions which
supply
long term loan to corporate customers. They are created by the Government both at the
national level and regional level. They provide term loans to corporate customers and also help
them in identifying investment opportunities. They also encourage new entrepreneurs and
support modernization efforts. Example: IDBI, IFCI, ICICI, SFCs, etc., come under this market.
Mortgages market - This market consists of the institutions which supply mortgage loan
mainly
to individuals. The term ‘mortgage’ refers to the transfer of interest in a specific immovable
property to secure a loan.
Financial guarantees market - This market consists of the institutions which provide
financial
guarantee to individuals and corporate customers. The term ‘guarantee’ refers to a contract
whereby one person promises another person to discharge the liability of a third person in case of
his default. There are different types of guarantees prominent among them are Performance
guarantee and Financial guarantee.

B.
MoneyMarket

Money Market refers to the market for short term finance. Financial assets which have a short
period of maturity are dealt in this market. Near money like Trade Bills, Promissory Notes, Short
term Government Papers, etc are traded in this market.

Composition of money market (Financial instruments dealt in money market) - The money
market comprises of the following:
1. Call money market
2. Commercial bills market
3. Treasury bills market
4. Short-term loan market

Call money market - The market where finance is provided just against a call made by the
borrower is called call money market. In this market finance is provided for an extremely short
period of time.
Commercial bills market - The market where finance is provided by discounting of
commercial bills
is called as commercial bills market. The term ‘commercial bills’ refer to the bills of exchange
arising out of genuine trade transactions.
Treasury bills market - The market where finance is provided against the treasury bills is
called as
treasury bills market. The term ‘treasury bill’ refers to the promissory notes or finance bills
issued by the government for its short-term finance requirements.
Short-term loans market - The market where finance is provided in the form of short term
loans is
called as short term loans market. The term ‘short-term’ refers to a period less than
one year.
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Commercial banks provide short term loans in the form of overdrafts and cash credits.
These loans are
given to meet the working capital requirements of traders and
industrialists.

C. Foreign Exchange
Market
The market where foreign currencies are bought and sold against domestic currency is called
foreign exchange market. In other words, the system where the domestic currency is
converted into foreign currency and vice-versa is called as foreign exchange market.

Financial services

Financial services refers to a broad range of more specific activities such as banking, investing,
and insurance. Financial services is limited to the activity of financial services firms and their
professionals Example intermediary services, merchant banking services, brokings etc.

Structure &Types of Banks

Some important types of banks in countries like India are discussed below:

(a) Organized and unorganized banking:

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Indian banking system can broadly be classified into two categories:

(i) Organized banking (ii) Unorganized banking.

That part of Indian banking system which does not fall under the control of our central bank (i.e.

Reserve Bank of India) is called as un-organised banking. For example: Indigenous banks.

Whereas, organized banking system refers to that part of the Indian banking system which is

under the influence and control of the Reserve Bank of India. Example: Commercial Banks,
Industrial Banks, Agricultural Banks.

(b) Scheduled and Non-scheduled banks:

Under the Reserve Bank of India Act, 1939, banks were classified as scheduled banks and non

scheduled banks. The scheduled banks are those which are entered in the second schedule of RBI
Act, 1939.

All Commercial Banks, Regional Rural Banks, State Cooperative Banks are scheduled banks.
These banks are not included in the second schedule of RBI Act, 1934.

(c) Indigenous Bankers:

From very ancient days indigenous banking as different from the modern western banking has

been organized in the form of family or individual business. They have been called by various

names in different parts of the country as Example: Shroffs, Sethus, Sahukars, Mahajans,
Chettis and so on.

(d) Central Bank:

In each country there exists central bank which controls a country’s money supply and monetary

policy. It acts as a bank to other banks, and a lender of last resort. Reserve Bank of India (RBI) is
the Central Bank.

(e) Commercial Bank:

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A bank dealing with general public, accepting deposits from making loans to large numbers of

households and firms. Through the process of accepting deposits and lending, commercial banks

create credit in the economy. Example: (commercial banks in India are State Bank India (SBI),
Punjab National Bank (PNB) etc.

(f) Development Banks:

Development banks are specialised financial institutions. To promote economic development,

development banks provide medium term and long term loans the entrepreneurs at relatively low

rate o interest rates. Example: of development banks in India are Industrial Development Bank
of India (IDBI), Industrial Financial Corporation of India (IFCI), Industrial Credit and
Investment Corporation of India (ICICI) etc.

(g) Co-Operative Banks:

Co-operative banks are organized under the provisions of the Co- operative societies law of the

state. These banks were originally set up in India to provide credit to the farmers at cheaper rates.
However, the co-operative banks function also in the urban sectors.

(h) Land Mortgage Banks:

The primary objective of these banks is to provide long-term loans to farmers at low rates in

matters related to land, The land mortgage banks are also known as the Land Development
Banks.

(i) Regional Rural Banks:

Regional Rural Banks (RRBs) are established in the rural areas to meet the needs of the weaker
section of the rural population.

(j) National Bank for Agricultural and Rural Development (NABARD):

This bank was established in 1982 in India in view of providing the rural credit to the farmers.
Actually, it is an apex institution which coordinates the functioning of different financial

institutions working in the field of rural credit. NABARD has been making continuous efforts
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through its micro-finance programme or improving the access of the rural poor to formal

institutional credit. The self help group (SHG) – Bank linkage programme was introduced in
1992 as a mechanism to provide financial services to the rural poor people on a sustainable basis.

(k) Exchange Banks:

These banks are engaged in buying and selling foreign exchange. These banks help the growth of
international trade.

(i) Exim Bank:

It is popularly known as ‘Export Import Bank’. Such banks provide long term financial
assistance to the exporters and importers.

Role of Banks

1. Mobilising Saving for Capital Formation:

The commercial banks help in mobilising savings through network of branch banking. People in

developing countries have low incomes but the banks induce them to save by introducing variety

of deposit schemes to suit the needs of individual depositors. They also mobilise idle savings of

the few rich. By mobilising savings, the banks channelise them into productive investments.
Thus they help in the capital formation of a developing country.
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2. Financing Industry:
The commercial banks finance the industrial sector in a number of ways. They provide short-

term, medium-term and long-term loans to industry. In India they provide short-term loans.

Income of the Latin American countries like Guatemala, they advance medium-term loans for
one to three years. But in Korea, the commercial banks also advance long-term loans to industry.

In India, the commercial banks undertake short-term and medium-term financing of small scale

industries, and also provide hire- purchase finance. Besides, they underwrite the shares and

debentures of large scale industries. Thus they not only provide finance for industry but also help
in developing the capital market which is undeveloped in such countries.

3. Financing Trade:
The commercial banks help in financing both internal and external trade. The banks provide

loans to retailers and wholesalers to stock goods in which they deal. They also help in the

movement of goods from one place to another by providing all types of facilities such as

discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc.

Moreover, they finance both exports and imports of developing countries by providing foreign
exchange facilities to importers and exporters of goods.

4. Financing Agriculture:
The commercial banks help the large agricultural sector in developing countries in a number of

ways. They provide loans to traders in agricultural commodities. They open a network of

branches in rural areas to provide agricultural credit. They provide finance directly to

agriculturists for the marketing of their produce, for the modernization and mechanization of
their farms, for providing irrigation facilities, for developing land, etc.

They also provide financial assistance for animal husbandry, dairy farming, sheep breeding,

poultry farming, pisciculture and horticulture. The small and marginal farmers and landless
agricultural workers, artisans and petty shopkeepers in rural areas are provided financial

assistance through the regional rural banks in India. These regional rural banks operate under a
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commercial bank. Thus the commercial banks meet the credit requirements of all types of rural
people.

5. Financing Consumer Activities:

People in underdeveloped countries being poor and having low incomes do not possess sufficient

financial resources to buy durable consumer goods. The commercial banks advance loans to

consumers for the purchase of such items as houses, scooters, fans, refrigerators, etc. In this way,

they also help in raising the standard of living of the people in developing countries by providing
loans for consumptive activities.

6. Financing Employment Generating Activities:

The commercial banks finance employment generating activities in developing countries. They

provide loans for the education of young person’s studying in engineering, medical and other

vocational institutes of higher learning. They advance loans to young entrepreneurs, medical and

engineering graduates, and other technically trained persons in establishing their own business.

Such loan facilities are being provided by a number of commercial banks in India. Thus the

banks not only help inhuman capital formation but also in increasing entrepreneurial activities in
developing countries.

Types of Products and Services

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To discuss some of the above:

Debit Cards

Debit cards are similar to ATM cards. You can use your debit card with your personal
identification number (PIN) to withdraw cash from your bank account at your bank’s ATMs.
One can also use it to purchase goods and services
Overdraft
An overdraft facility allows you to write cheques or withdraw cash from your current account up
to the overdraft limit approved. It is a short-term standby credit facility which is usually
renewable on a yearly basis. It is repayable on demand by the bank at any time.
Online banking allows you to conduct nearly all of your banking transactions—including
transferring money and paying bills—over the Internet through a secure website.
Mobile banking allows you to use your cell phone and other mobile devices to conduct simple
banking transactions by remotely linking into a banking network. Mobile banking also allows
you to have certain account alerts sent to your phone—like warning you when your account
balance is low or when a monthly bill payment is due.

Cheques

A cheque is a negotiable instrument that orders a payment of money from a bank account. A
current account holder can write cheque to order payments of money.

Credit Cards
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A credit card is a form of borrowing. It may be a convenient mode of payment as it allows you to
buy goods and services without using cash, but it is not intended to be a long-term credit facility.

Money-Changers

Money-changing involves an exchange of notes denominated in different currencies. Exchange

rates may vary depending on market conditions and the money-changer’s cost of funds. If you
need to exchange currencies, you may approach a bank or licensed money-changer that offers
these services. It is against the law to operate a money-changing business without a valid licence.
You should not engage the services of unlicensed persons.
Remittance

A remittance service involves the transfer of funds to persons resident in another country or a
territory outside Singapore. If you need to remit money to another country, you may approach a
bank or licensed remittance agent that offers this service. Banks and remittance agents may
impose different commission and exchange rates. However,do not choose the remittance agent
based on cost alone. Be aware of the possible risks posed by different remittance channels.
Other services provided by banks include Standing Orders, Electronic Funds Transferred at Point
of Sale, Payment Orders, Phone Banking and Internet Banking.

RECENT TRENDS IN BANKING

1) Electronic Payment Services – E Cheques

Now-a-days we are hearing about e-governance, e-mail, e-commerce, e-tail etc. In the
same manner, a new technology is being developed in US for introduction of e-cheque, which
will eventually replace the conventional paper cheque. India, as harbinger to the introduction of
e-cheque, the Negotiable Instruments Act has already been amended to include;
Truncated cheque and E-cheque instruments.

2) Real Time Gross Settlement (RTGS)

Real Time Gross Settlement system, introduced in India since March 2004, is a system
through which electronics instructions can be given by banks to transfer funds from their account
to the account of another bank. The RTGS system is maintained and operated by the RBI and
provides a means of efficient and faster funds transfer among banks facilitating their financial
operations. As the name suggests, funds transfer between banks takes place on a ‘Real Time'
basis. Therefore, money can reach the beneficiary instantaneously and the beneficiary's bank has
the responsibility to credit the beneficiary's account within two hours.

3) Electronic Funds Transfer (EFT)

Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make
payment to another person/company etc. can approach his bank and make cash payment or give
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instructions/authorization to transfer funds directly from his own account to the bank account of
the receiver/beneficiary. Complete details such as the receiver's name, bank account number,
account type (savings or current account), bank name, city, branch name etc. should be furnished
to the bank at the time of requesting for such transfers so that the amount reaches the
beneficiaries' account correctly and faster. RBI is the service provider of EFT.

4) Electronic Clearing Service (ECS)

Electronic Clearing Service is a retail payment system that can be used to make bulk
payments/receipts of a similar nature especially where each individual payment is of a repetitive
nature and of relatively smaller amount. This facility is meant for companies and government
departments to make/receive large volumes of payments rather than for funds transfers by
individuals.

5) Automatic Teller Machine (ATM)

Automatic Teller Machine is the most popular devise in India, which enables the
customers to withdraw their money 24 hours a day 7 days a week. It is a devise that allows
customer who has an ATM card to perform routine banking transactions without interacting with
a human teller. In addition to cash withdrawal, ATMs can be used for payment of utility bills,
funds transfer between accounts, deposit of cheques and cash into accounts, balance enquiry etc.

6) Point of Sale Terminal

Point of Sale Terminal is a computer terminal that is linked online to the computerized
customer information files in a bank and magnetically encoded plastic transaction card
that identifies the customer to the computer. During a transaction, the customer's account is
debited and the retailer's account is credited by the computer for the amount of purchase.

7) Tele Banking

Tele Banking facilitates the customer to do entire non-cash related banking on telephone.
Under this devise Automatic Voice Recorder is used for simpler queries and transactions. For
complicated queries and transactions, manned phone terminals are used.

8) Electronic Data Interchange (EDI)

Electronic Data Interchange is the electronic exchange of business documents like

purchase order, invoices, shipping notices, receiving advices etc. in a standard, computer
processed, universally accepted format between trading partners. EDI can also be used to
transmit financial information and payments in electronic form.

Insurance
Insurance is defined as a contract, which is called a policy, in which an individual or organisation
receives financial protection and reimbursement of damages from the insurer or the insurance
company.
An entity which provides insurance is known as an insurer, insurance company, or insurance
carrier. A person or entity who buys insurance is known as an insured or policyholder.
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Important Principles of Insurance

1. Nature of contract:
Nature of contract is a fundamental principle of insurance contract. An insurance contract comes
into existence when one party makes an offer or proposal of a contract and the other party
accepts the proposal.
A contract should be simple to be a valid contract.
2. Principal of utmost good faith:
Under this insurance contract both the parties should have faith on each other. As a client it is the
duty of the insured to disclose all the facts to the insurance company. Any fraud or
misrepresentation of facts can result into cancellation of the contract.
3. Principle of Insurable interest:
Under this principle of insurance, the insured must have interest in the subject matter of the
insurance.
An insurable interest must exist at the time of the purchase of the insurance. For example, a
creditor has an insurable interest in the life of a debtor, a person is considered to have an
unlimited interest in the life of their spouse etc.
4. Principle of indemnity:
Indemnity means security or compensation against loss or damage. The principle of indemnity is
such principle of insurance stating that an insured may not be compensated by the insurance
company in an amount exceeding the insured’s economic loss.

5. Principal of subrogation:
The principle of subrogation enables the insured to claim the amount from the third party
responsible for the loss. It allows the insurer to pursue legal methods to recover the amount of
loss, For example, if you get injured in a road accident, due to reckless driving of a third party,
the insurance company will compensate your loss and will also sue the third party to recover the
money paid as claim.
6. Double insurance:
Double insurance denotes insurance of same subject matter with two different companies or with
the same company under two different policies. Double insurance policy is adopted where the
financial position of the insurer is doubtful. The insured cannot recover more than the actual loss
and cannot claim the whole amount from both the insurers.
7. Principle of proximate cause:
Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This principle is applicable
when the loss is the result of two or more causes. The proximate cause means; the most dominant
and most effective cause of loss is considered. This principle is applicable when there are series
of causes of damage or loss.

Different Types of Insurances

A)Life Insurance

Life Insurance is a contract providing for payment of a sum of money to the person assured or,
following him to the person entitled to receive the same, on the happening of a certain event. It
is a good method to protect your family financially, in case of death, by providing funds for the
loss of income.
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TERM LIFE INSURANCE : Under a Term Life contract, the insurance company pays a
specific lump sum to the designated beneficiary in case of the death of the insured. These
policies are usually for 5, 10, 15, 20 or 30 years.

Term life insurance are the most popular in advance countries but were not so popular in India.
However, after the entry of the private operators and aggressive marketing by few players this
kind of policies are becoming popular. The premium on such type of policies is comparatively
quite low when compared with other types of life insurance policies, mainly due to the fact that
these policies do not carry cash value.

PERMANENT LIFE INSURANCE :

In a Permanent Life contract, a portion of the money paid as premiums is invested in a fund
that earns interest on a tax-deferred basis. Thus, over a period of time, this policy will
accumulate certain "cash value" which you will be able to get back either during the period of the
policy or at the end of the policy.

This type of policy not only provides protection for your dependents by paying a death benefit to
designated beneficiary upon death, but it also allows to use some part of the money while alive
or at the end of the policy. Some examples of such policies are :- Whole Life, Universal Life
and Variable-Universal Life.

ENDOWMENT POLICIES

These policies provide for period payment of premiums and a lump sum amount either in the
event of death of the insured or on the date of expiry of the policy, whichever occurs earlier.

ULIP (Unit Linked Insurance Plan)

ULIP is a life insurance product, which provides risk cover for the policy holder along with
investment options to invest in any number of qualified investments such as stocks, bonds or
mutual funds.

In Unit Linked Insurance Plans (ULIP), the investments made are subject to risks associated with
the capital markets. This investment risk in investment portfolio is borne by the policy holder.
e.g. HDFC Life Click 2 Wealth, Bajaj Allianz Life Goal Assure

MONEY BACK POLICIES

These policies provide for periodic payments of partial survival benefits during the term of the
policy itself. A unique feature associated with this type of policies is that in the event of death
of the insured during the policy term, the designated beneficiary will get the full sum assured
without deducting any of the survival benefit amounts, which have already been paid as money-
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back components. Moreover, the bonus on such policies is also calculated on the full sum
assured.

ANNUITY / PENSION POLICIES / FUNDS

This policies / funds require the insured to pay the premium as a single lump sum or through
installments paid over a certain number of years. The insured in return will receive back a
specific sum periodically from a specified date onwards (the returns can can be monthly, half
yearly or annually), either for life or for a fixed number of years. In case of the death of the
insured, or after the fixed annuity period expires for annuity payments, the invested annuity fund
is refunded, usually with some additional amounts as per the terms of the policy.

Annuities / Pension funds are different from from all other forms of life insurance as an annuity
policy / fund does not provide any life insurance cover but merely offers a guaranteed income
either for life or a certain period. Therefore, this type of insurance is taken so as to get income
after the retirement.

General Insurance Types and Features

Motor Insurance
Motor insurance, that includes car insurance and two wheeler insurance, covers all damages and
liability to the vehicle. Moreover, according to the Motor Vehicles Act, 1988, driving a motor
vehicle without insurance in a public place is a punishable offense.
A motor vehicle can be covered either by a Liability only policy which is a statutory requirement
and covers the legal liability for injury, death, and/or property damage caused to a third party in
the event of an accident caused by or arising out of the use of the vehicle, or a package policy
which includes the Liability Only policy and also covers the damage to owner’s vehicle.
The common motor insurance plans include:
Car insurance: A comprehensive coverage against physical damage and bodily injury to the car,
and also covers against third-party liability.eg. Accidental loss etc.
Two wheeler insurance: A comprehensive two-wheeler insurance policy provides hassle-free
protection to your bike or scooter against physical damage, theft and third party liability.
Commercial vehicle insurance: Commercial vehicle insurance is a liability only policy for
commercial vehicles across the various classes of vehicles like goods carrying vehicles – private
and public carrier, passenger carrying vehicles, miscellaneous and special types of vehicles.
Health Insurance
Ill health can result in a major halt in your life and work. Moreover, the escalating price of health
care costs means that you would be shelling out a massive amount of money to bear the brunt of
these costs. This is the reason why you would need health insurance to cover your medical
expenses following hospitalization from sudden illnesses or expenses caused by accidents.
Other health insurance covers:
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 Personal Accident
 Hospital Daily cash Allowance
 Critical Illness

Travel Insurance
Travel insurance covers the insured against these misfortunes while traveling.
The different travel insurance policies include:

 Individual travel policy

 Family travel policy
 Senior citizens travel policy
 Student travel insurance

In addition, there are insurance companies that offer special plans such as a corporate travel
policy or a comprehensive policy for travel to a special place such as Asia.
Home Insurance
Your home is a priceless possession and possibly one of the largest financial investments that
you have made. It needs to be safeguarded from unforeseen events. Along with your home,
property insurance also protects the valuables and other assets that are the interest of the insured.

Commercial Insurance
Commercial insurance offers solutions for all sectors of the industry ranging from automotive,
aviation, construction, chemicals, foods and beverages, manufacturing, oil and gas,
pharmaceuticals, power, technology, telecom, textiles, transport and logistics.
Some common types of commercial insurance include:

 Property insurance
 Marine insurance
 Liability insurance
 Financial lines insurance
 Engineering insurance
 Energy insurance
 Employee benefits insurance
 International insurance solutions

IRDA
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Insurance Regulatory and Development Authority of India (IRDAI) regulates and develops
the insurance industry in India.

The duties, powers and functions of IRDA :.

 The IRDA Authority has the duty to promote, regulate and ensure orderly growth of the
insurance and re-insurance businesses across India, subject to the provisions of this Act
and any other additional law that is being enforced.

Without prejudice to the generality of the provisions contained in sub-section (1) of

IRDA Act, the powers and functions of the Authority shall include:

 Issuing a certificate of registration to the applicant as well as modify, renew, withdraw,

suspend or cancel any such registration that is deemed unfit.

 Protecting the interests of the policyholders in matters concerning assigning of insurance

policy, nomination by policyholders, settlement of insurance claim, insurable interest,
surrender value of policy and other terms and conditions based on contracts of
insurance.

 Specifying requisite qualifications, practical training and code of conduct for insurance
intermediaries, insurance brokers and agents.

 Specifying the code of conduct for surveyors and loss assessors.

 Levying fees, commission and other charges for carrying out the purposes of this Act.

 Calling for data or information from, undertaking inspection of, conducting enquiries
and investigations, conducting audit of the insurers, intermediaries, insurance
intermediaries and other organizations connected with the insurance business.

 Regulating the maintenance of margin of solvency by the Insurers.

Bancassurance

Banc-assurance means selling insurance product through banks. Banks and insurance company
come up in a partnership wherein the bank sells the tied insurance company's insurance products
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to its clients.

Selling insurance. means distribution of insurance and other financial products through Banks.
Bancassurance concept originated in France and soon became a success story even in other
countries of Europe. In India a number of insurers have already tied up with banks and some
banks have already flagged off bancassurance through select products.

Bancassurance primarily rests on the relationship the customer has developed over a period of
time with the bank. And pushing risk products through banks is a much more cost-effective affair
for an 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 welcome.

Advantages of Bancassurance:

The following factors have mainly led to success of bancassurance

(i) Bancassurance offers another area of profitability to banks with little or no capital outlay. A
small capital outlay in turn means a high return on equity.
(ii) A bank, which is able to market insurance products, has a competitive edge over its
competitors. It can provide complete financial planning services to its customers under one roof.
(iii) Opportunities for sophisticated product offerings.
(iv) Opportunities for greater customer lifecycle management.
(v) Diversify and grow revenue base from existing relationships.
(vi) Diversify risks by tapping another area of profitability.
(vii) The realisation that insurance is a necessary consumer need. Banks can use their large base
of existing customers to sell insurance products.
(viii) Bank aims to increase percentage of non-interest fee income
(ix) Cost effective use of premises