FINANCIAL SERVICES

JYOTHISH P 4TH SEMESTER

Financial services are the economic services provided by the finance industry, which encompasses a broad range of organizations that manage money, including credit unions, banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and some government sponsored enterprises

Financial services

Insurance service

Bank marketing

Housing & Financial intermediation

Factoring Services

Mutual funds

MARKETING OF INSURANCE SERVICES

India has about 300 million people who can afford to buy life, health and pension plan products. Out of this only 20% have insurance and that too covers only 25% of their needs and financial capacity. The remaining 80% have no insurance cover. The life insurance market of India, therefore, has tremendous growth potential.

Some points about insurance sector in India: The low level of penetration of life insurance in India compared to other developed nations can be judged by comparison of per capita life premium, which is extremely low in India. Life premium as a percentage of GDP is very low in India (1.29%) compared to other countries Life premium as a percentage of GDS (gross domestic saving) is also low in India

Insurance sector reforms: In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms"

MAJOR POLICY CHANGES Insurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. IRDA Act 1999 paved the way for the entry of private players into the insurance market which was hitherto the exclusive privilege of public sector insurance companies/ corporations. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions: Company is formed and registered under the Companies Act, 1956; The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company;

The company's sole purpose is to carry on life insurance business or general insurance business or reinsurance business. The minimum paid up equity capital for life or general insurance business is Rs.100 crores. The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores. The Authority has notified 27 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Reinsurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders' interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. The Authority has its Head Quarter at Hyderabad.

Insurance companies: IRDA has so far granted registration to 12 private life insurance companies and 9 general insurance companies. If the existing public sector insurance companies are included, there are currently 13 insurance companies in the life side and 13 companies operating in general insurance business. General Insurance Corporation has been approved as the "Indian reinsurer" for underwriting only reinsurance business. Particulars of the life insurance companies and general insurance companies including their web address is given below:

LIFE INSURERS

Websites Public Sector Life Insurance Corporation of India www.licindia.com Private Sector Allianz Bajaj Life Insurance www.allianzbajaj.co.in Company Limited Birla Sun-Life Insurance Company www.birlasunlife.com Limited HDFC Standard Life Insurance Co. www.hdfcinsurance.com Limited ICICI Prudential Life Insurance Co. www.iciciprulife.com Limited ING Vysya Life Insurance Company www.ingvysayalife.com Limited Max New York Life Insurance Co. www.maxnewyorklife.com Limited MetLife Insurance Company Limited www.metlife.com Om Kotak Mahindra Life Insurance www.omkotakmahnidra.com Co. Ltd.

SBI Life Insurance Company Limited www.sbilife.co.in TATA AIG Life Insurance Company www.tata-aig.com Limited AMP Sanmar Assurance Company www.ampsanmar.com Limited Dabur CGU Life Insurance Co. Pvt. www.avivaindia.com Limited GENERAL INSURERS Public Sector National Insurance Company www.nationalinsuranceindia.com Limited New India Assurance Company www.niacl.com Limited Oriental Insurance Company Limited www.orientalinsurance.nic.in United India Insurance Company Limited www.uiic.co.in

Private Sector Bajaj Allianz General Insurance Co. www.bajajallianz.co.in Limited ICICI Lombard General Insurance www.icicilombard.com Co. Ltd. IFFCO-Tokio General Insurance Co. www.itgi.co.in Ltd. Reliance General Insurance Co. www.ril.com Limited Royal Sundaram Alliance Insurance www.royalsun.com Co. Ltd. TATA AIG General Insurance Co. www.tata-aig.com Limited Cholamandalam General Insurance www.cholainsurance.com Co. Ltd. Export Credit Guarantee Corporationwww.ecgcindia.com HDFC Chubb General Insurance Co. Ltd. REINSURER General Insurance Corporation of www.gicindia.com India

MARKETING MIX IN THE INSURANCE SERVICES

PRODUCT:-

the life insurance contract provides for the payment of an amount on the date of maturity or at specified date at periodical intervals or unfortunate death if it occurs earlier. The General insurance is other than Life Insurance falls under the category of General Insurance. General Insurance comprises of insurance of property against fire, burglary etc, personal insurance such as Accident and Health Insurance, and liability insurance which covers legal liabilities. There are also other covers such as Errors and Omissions insurance for professionals, credit insurance etc.

1.
2. 3. 4. 5. 6.

General insurance include: Fire insurance Motor insurance Marine cargo insurance Marine hull insurance Non traditional/rural (crop hut etc) Miscellaneous insurance (theft, accident etc)

PRICING: In the insurance business the pricing decisions are concerned with: i) The premium charged against the policies, ii) Interest charged for defaulting the payment of premium and credit facility, and iii) Commission charged for underwriting and consultancy activities. With a view of influencing the target market or prospects the formulation of pricing strategy becomes significant. The pricing in insurance is in the form of premium rates. The three main factors used for determining the premium rates under a life insurance plan are..

 Mortality(deaths in a particular area):When deciding upon the pricing strategy the average rate of mortality is one of the main considerations. Expenses: The cost of processing, commission to agents, reinsurance companies as well as registration are all incorporated into the cost of instalments and premium sum and forms the integral part of the pricing strategy. Interest: The rate of interest is one of the major factors which determines peoples willingness to invest in insurance.

PLACE: This component of the marketing mix is related to two important facets i) Managing the insurance personnel, and ii) Locating a branch. The management of agents and insurance personnel is found significant with the viewpoint of maintaining the norms for offering the services. This is also to process the services to the end user in such a way that a gap between the services- promised and services offered is bridged over. In majority of the service generating organizations, such a gap is found existent which has been instrumental in making worse the image problem

PROMOTION: The insurance services depend on effective promotional measures. In a country like India, the rate of illiteracy is very high and the rural economy has dominance in the national economy. It is essential to have both personal and impersonal promotion strategies. In promoting insurance business, the agents and the rural career agents play an important role. Due attention should be given in selecting the promotional tools for agents and rural career agents and even for the branch managers and front line staff. They also have to be given proper training in order to create impulse buying. Advertising and Publicity, organisation of conferences and seminars, incentive to policyholders are impersonal communication. Arranging Kirtans, exhibitions,.

PEOPLE: Understanding the customer better allows to design appropriate products. Being a service industrywhich involves a high level of people interaction, it is very important to use this resource efficientlyin order to satisfy customers. Training, development and strong relationships with intermediaries arethe key areas to be kept under consideration. Training the employees, use of IT for efficiency, bothat the staff and agent level, is one of the important areas to look into.6. PROCESS: The process should be customer friendly in insurance industry. The speed and accuracy of paymentis of great importance. The processing method should be easy and convenient to the customers.Installment schemes should be streamlined to cater to the ever growing demands of the customers.IT & Data Warehousing will smoothen the process flow.

PHYSICAL DISTRIBUTION: Distribution is a key determinant of success for all insurance companies. Today, the nationalized insurers have a large reach and presence in India. Building a distribution network is very expensive and time consuming. If the insurers are willing to take advantage of Indias large population and reach a profitable mass of customers, then new distribution avenues and alliances will be necessary

BANK MARKETING

A "commercial bank" is what is commonly referred to as simply a "bank". The term "commercial" is used to distinguish it from an "investment bank," a type of financial services entity which, instead of lending money directly to a business, helps businesses raise money from other firms in the form of bonds (debt) or stock (equity).

DEFINITION

According to Kuppuswami "Creation and delivery of Financial services suitable to meet the customers need at a profit to the bank The most comprehensive definition of bank marketing is given by Deryk Weyer of Barclays Bank. He calls it as, "Consisting of identifying the most profitable markets now and in future, assessing the present and future needs of customers, setting business development goals, making plans to meet them and managing the various services and promoting them to achieve the plans - all in the context of changing environment in the market

customer

Bankers ability to anticipate customer needs

Bankers willingness to satisfy customer needs

Market orientation

Concept of marketing orientation in banking

Marketing is much more than just advertising and promotion; it is a basic part of total business operation. What is required for the bank is the market orientation and customer consciousness among all the personnel of the bank. Hence the total marketing function involves the following Market research: i.e. , identification of customers financial needs and wants and forecasting and researching future financial market needs and competitors activities

Product development i.e. appropriate products to meet consumers financial needs Pricing of services i.e. Promotional activities and distribution system in accordance with the guidelines and rules of the RBI and at the same time looking for opportunities to satisfy the customers better Developing market orientation i.e. Marketing culture among all the customerconsciousness personnel of the bank through training.

Market Research: Market research is any organized effort to gather information about markets or customers.

Market Research in Indian Banks The following broad areas of market research were considered for the study. New service development New service product acceptance R&D of existing financial service Bank image study Measuring banks advertising effectiveness Measurement of market potentials Market research of competitive service products Customers opinion study, Customer profile study & market share analysis

Areas of future marketing research: Many banks not even understood that marketing is applicable to all three major functions of banks deposits, advances and other services marketing approach required A detailed understanding of marketing principles and activities by the top management Adoption of demonstrated commitment to marketing at the top level management More emphasis on product development Exploitation an adaptation of new technology A commitment to customer orientation marketing

Summary of bank marketing Indian banking sector has been slow in adopting the modern marketing knowledge. Firstly, there is no realisation that marketing can be use to them. Secondly, they are not even clear about the scope and dimensions of marketing, as applicable to service industries, and thirdly the banking industry has carried out marketing research in a limited way, which is the first step of marketing.

HOUSING AND FINANCIAL

INTERMEDIATION

The total housing shortage in the country in 1997 was estimated to be 13.66 million units, of which 7.57 million units were in urban areas. More than 90 per cent of this shortage was for the poor and low income category. Against this background, the National Housing and Habitat Policy (NHHP) was formulated in 1998 and stressed on: removing legal, financial and administrative barriers for facilitating access to loans, finance and technology; ensuring that housing, along with supporting services, was treated as a priority and at par with the infrastructure sector; the creation of surpluses in housing stock; and providing quality and cost-effective shelters especially to the vulnerable groups and the poor.

The draft National Urban Housing and Habitat Policy, 2005, while focussing on urban shelters, emphasised on the promotion of larger flow of funds to meet the revenue requirements of urban housing and infrastructure using innovative tools. It recognised that based on historical growth patterns, the urban population of India was likely to grow to 360 million in the year 2010 and to 533 million by the year 2025. The document noted the Planning Commissions projection of total requirement of urban housing during the 10th Plan period (2002-2007) of 22.44 million dwelling units including the backlog of 8.89 million units at the beginning of this Plan. With rising incomes, favorable demographic profiles, swelling middle class and rapid urbanisation, the demand is projected to rise to 73.96 million units for rural and urban areas during the 11th Plan period (2007-2012).

HOUSING FINANCE COMPANIES

Role of the National Housing Bank The National Housing Bank (NHB), a fully-owned subsidiary of the Reserve Bank of India, was set up in 1988 to accelerate housing finance activity in India and to promote the Housing Finance Companies (HFCs) by providing financial support to them. It acts as the apex institution and regulator of the housing finance industry. The NHB has issued guidelines to the HFCs on prudential norms for income recognition, asset classification, provisioning for bad and doubtful debts, capital adequacy and concentration of credit investment. The NHB also conducts inspection of the HFCs to ensure proper compliance with the prudential norms and prevent the affairs of any of them being conducted in a manner detrimental to the interests of the depositors or their own. Guidelines for asset liability management system for the HFCs have also been issued by the NHB

Housing Development Finance Corporation Limited (HDFC) Housing Development Finance Corporation Ltd (HDFC) is one of the leaders in the Indian housing finance market with almost 17% market share as on March 2010. Serving more than 38 lakh Indian customers as on March 2011, HDFC also offers customized solutions that fit to the need of the customer. State Bank of India Home Finance (SBI) State Bank of India is another major player in the Indian housing finance market with 17% of the market share, same as HDFC's share as on March 2010. The SBI Housing Loan schemes are specifically designed to meet the varied requirements of the customers. Can Fin Homes Limited (CFHL) Can Fin Homes Limited is another big player in the Indian housing finance market with an extensive network of 40 branches. It is also the first and one of the biggest bank-sponsored (sponsored by Canara Bank) housing finance companies in India

Housing Urban Development Corporation (HUDCO) Through its Niwas scheme, HUDCO offers housing loans for the buying/constructing house/flat. Loans are also offered for renovation/extension/alteration of existing house/flat. LIC Housing Finance Limited LIC Housing Finance is another major player in housing finance sector in India with about 8% of market share. Promoted by Life Insurance Corporation of India, LICHFL has an extensive distribution network with a strong brand presence. GIC Housing Finance Limited GIC Housing Finance Limited, one of the leading housing finance companies in India, was initially established as GIC Grih Vitta Limited on December 12, 1989. Promoted by General Insurance Corporation of India, GIC Housing Finance Limited offers extensive range of housing finance solutions to its customers through its wide network of 24 Business Centers and 3 Collection Centers across the nation

ICICI Home Finance Company Limited ICICI is the third largest housing finance company in India with almost 13% market share. It offers various types of home loans for its customers which may have tenure up to 20 years. IDBI Homefinance Limited (IHFL) Founded in January 10, 2000, IDBI Homefinance Limited has become one of the major players in the Indian housing finance market with about 4% market share as on March 2010. It offers a range of housing financial solutions to its customers including Individual Home Loans, Home Improvement Loan, Home Extension Loan, Home Loans for NRIs, Plot Loans, and Loan Against Home etc. PNB Housing Finance Limited PNB Housing Finance Limited offers a wide range of loans for purchase/construction of property to resident Indians as well as NRIs. It also offers housing finance for renovations, repairs and enhancement of immovable properties. Dewan Housing Finance Corporation Limited (DHFL) Dewan Housing Finance Corporation Limited is one of the largest housing finance solution providers in India with an extensive network of 74 branches, 78 service centers and 35 camps spread across the nation.

FACTORING SERVICES MARKETING

FLOW CHART OF FACTORING

Factoring is a financial service covering the financing and collection of receivables in domestic as well as international trade Main functions of factor are: a) Providing finance against bills receivables and trade debts b) Undertaking sales ledger administration responsibilities of the client including maintenance of books, accounting, asset management, collection of debts and furnishing information to the client c) Providing debt insurance facility to the client d) Offering relevant consultancy services in the areas of finance, marketing etc

Factoring in India

A Committee, set up by the RBI in 1988.The Committee was constituted to examine the feasibility of factoring services in India, their constitution, organisational setup and scope of activities. The group recommended setting up of specified agencies or subsidiaries for providing the factoring services in India. While attempting to assess the potential demand for factoring services in India, the study group under the leadership of Mr.C. S. Kalyansundram estimated the value of outstanding open account credit sales available for financing during 1989-90 at Rs.12,000 crores in respect of SSI and Rs. 4500 crores for medium and large scale sector. Assuming only 50% of the abovebusiness will be available for factoring, the aggregate potential demand for factoring was expected to be around Rs. 4000 croresper annum mainly emerging from the SSI and large and medium companies. The Vaghul Committee Report on Money Market Reforms has stressed on the need for factoring services to be developed in India as part of the money market instruments

Characteristics of factoring Usually the period for factoring is 90 to 150 days. Some factoring companies allow even more than 150 days. Factoring is considered to be a costly source of finance compared to other sources of short term borrowings. Factoring receivables is an ideal financial solution for new and emerging firms without strong financials. This is because credit worthiness is evaluated based on the financial strength of the customer (debtor). Hence these companies can leverage on the financial strength of their customers. Bad debts will not be considered for factoring.

Credit rating is not mandatory. But the factoring companies usually carry out credit risk analysis before entering into the agreement. Factoring is a method of off balance sheet financing. Cost of factoring=finance cost + operating cost. Factoring cost vary according to the transaction size, financial strength of the customer etc. The cost of factoring vary from 1.5% to 3% per month depending upon the financial strength of the client's customer. Indian firms offer factoring for invoices as low as 1000Rs For delayed payments beyond the approved credit period, penal charge of around 1-2% per month over and above the normal cost is charged (it varies like 1% for the first month and 2% afterwards).

Different types of Factoring Disclosed and Undisclosed Recourse and Non recourse A single factoring company may not offer all these services. Disclosed In disclosed factoring client's customers are notified of the factoring agreement. Disclosed type can either be recourse or non recourse. Undisclosed In undisclosed factoring, client's customers are not notified of the factoring arrangement. Sales ledger administration and collection of debts are undertaken by the client himself. Client has to pay the amount to the factor irrespective of whether customer has paid or not. But in disclosed type factor may or may not be responsible for the collection of debts depending on whether it is recourse or non recourse.

Recourse factoring In recourse factoring, client undertakes to collect the debts from the customer. If the customer don't pay the amount on maturity, factor will recover the amount from the client. This is the most common type of factoring. Recourse factoring is offered at a lower interest rate since the risk by the factor is low. Balance amount is paid to client when the customer pays the factor. Non recourse factoring In non recourse factoring, factor undertakes to collect the debts from the customer. Balance amount is paid to client at the end of the credit period or when the customer pays the factor whichever comes first. The advantage of non recourse factoring is that continuous factoring will eliminate the need for credit and collection departments in the organization.

Factoring companies in India Can bank Factors Limited SBI Factors and Commercial Services Pvt. Ltd The Hongkong and Shanghai Banking Corporation Ltd Foremost Factors Limited Global Trade Finance Limited Export Credit Guarantee Corporation of India Ltd Citibank NA, India Small Industries Development Bank of India (SIDBI): Standard Chartered Bank:

MUTUAL FUNDS MARKETING

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost

MUTUAL FUND OPERATION FLOW CHART

 Types

of mutual funds:

By Structure
Open Ended Schemes Close Ended Schemes Interval Schemes Growth Schemes Income Schemes Balance Schemes Money Market Schemes Tax Saving Schemes Index Schemes Sector Specific Schemes

By Investment Objectives

Other Schemes

Special Schemes

GROWTH OF MUTUAL FUNDS IN INDIA The Indian Mutual Fund has passed through three phases. The first phase was between 1964 and 1987 and the only player was the Unit Trust of India, which had a total asset of Rs. 6,700 crores at the end of 1988. The second phase is between 1987 and 1993 during which period 8 Funds were established (6 by banks and one each by LIC and GIC). The total assets under management had grown to 61,028 crores at the end of 1994 and the number of schemes was 167. The third phase began with the entry of private and foreign sectors in the Mutual Fund industry in 1993. Kothari Pioneer Mutual Fund was the first Fund to be established by the private sector in association with a foreign Fund.

As at the end of financial year 2000(31st march) 32 Funds were functioning with Rs. 1, 13,005 crores as total assets under management. As on august end 2000, there were 33 Funds with 391 schemes and assets under management with Rs 1, 02,849 crores. The securities and Exchange Board of India (SEBI) came out with comprehensive regulation in 1993 which defined the structure of Mutual Fund and Asset Management Companies for the first time. Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the private players has risen rapidly since then. Currently there are 34 Mutual Fund organizations in India managing 1,02,000 crores.

10 TRENDS FOR FINANCIAL SERVICES MARKETING IN 2011

1. Customer Engagement is not a passing fad. Customer engagement occurs every day on an offline basis in the branch banking environment. The challenge for those branch-based institutions currently is replicating that level of engagement in the online world. This will remain a key issue in 2011, especially as engagement must be thought of not only in terms of your engaging with your customers, but also with how your customers engage with each other about you. For institutions without an extensive branch network, the challenge is to establish and then maintain an engaging relationship with and by your audience. 2. Data Integration becomes mission critical. Financial institutions have always been faced with this challenge and were early adopters of MCIF (Marketing Customer Information File), CIF (Customer Information File), and other capabilities to bring data about their customers together. However, the explosion of web analytics, social media and other digital channels has created new sources of data with different integration challenges, adding complexity to linking and managing both the online and offline content

Marketing Analytics is red hot. This data fuels the growth in the importance of marketing analytics. But the new social conversations are generating a different data stream of unformatted data. The number of people skilled in analyzing this data are difficult to find, and in general arent clamoring to breach the walls of the local financial institution. Most institutions will need to rely on external partners for these insights, and will compete with most other companies for these resources. 4. Social Media Marketing will mature. While the rest of the world has jumped feet first on to the social media bandwagon, banks and other financial institutions have proceeded more cautiously. In fact, some have gone so far as to say that social media is a waste of time for most banks and credit unions. I think that banks and other financial institutions will remain cautious in 2011, but will begin to more strongly leverage social media as a marketing channel. 5. Technology vendors are blurring the distinction between products and services. ASPs, Software as a service, To the Cloud. As Kenyon says, expect more technological confusion, not less, in 2011

6. Segmentation becomes schizophrenic. Cohorts, personas, or clusters whatever segmentation methodologies you are currently using (you are, arent you?) should be reviewed in 2011 to ensure that youre capturing and leveraging the new data that is now available to you. A recent study by eDigitalResearch and IMRG shows that 65% of people are happy to make bill payments online (us). 7. Touch point Attribution emerges as the new buzzword for 2011. The challenge of allocating sales to a particular communications channel is somewhat easier in the financial services space, because financial institutions simply dont do as much multi-channel marketing as non-financial marketers do. 8. Mobile marketing explodes. Not so much mobile marketing, but I expect that mobile banking will gain a much stronger foothold in 2011. The recent growth in capable smart phones and other platforms (iPhone, Android phones, iPad, etc.) will make banking-on-the-go a reality for more customers in 2011.

9. Privacy wars heat up. For financial institutions, it wont so much be heating up as it will continue at a full boil. Do not track legislation that is being considered will add complexity and slow the adoption of full social media efforts by banks and other institutions in 2011, with some sitting it out until the legislative picture clears. 10. Right Touching makes sense. Due to security and privacy concerns, multichannel marketing capabilities have been slower to grow in most financial service firms. Phishing scams have made many distrustful of an email from their bank and, outside of the online only banks and other FIs has complicated the rollout of full multichannel capabilities by those institutions entrusted with our financial security. But financial institutions also have a head start in this regard existing networks of ATMs and online banking help to self-identify users, so the right message can be presented when that channel of choice is used