Kathmandu University School of Management Kathmandu College of Management
Internship Report BANCASSURANCE- A STRATEGIC ALLIANCE, A CASE STUDY OF NABIL BANK As part of the requirement for BBA Program Internship Program Code: RIS 401
Internship Employer NABIL BANK LTD. Lalitpur Branch Work Supervisor: Mr. Ukesh Shrestha (Officer) Pulchowk, Lalitpur
Intern Ajita Singh, KUSOM‟S Redg No: A008080-07
June 19, 2011
To whom it may concern
Letter of recommendation
I certify that I have read this document thoroughly and in my opinion, it is satisfactory in scope and quality as an internship report as per requirement for the undergraduate course (BBA Program) held at Kathmandu College of Management, Kathmandu University, 2011.
Comments ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ………………………………………………
…………………. (Project Evaluator)
All rights reserved.
No part of this report may be reproduced or transmitted, published or extracted in an form or circumstances by any means now known to invented, electronic or mechanical including photocopying, recording or by any information storage or retrieval system without prior permission from the authors or by Kathmandu College of Management or NABIL Bank Limited. However, this report may be used as reference by giving due acknowledgment even without prior permission of the authorities.
April 2011, Kathmandu University, School of Management
The object of this report was to acquaint us with actual working environment and involve in practical decisions and actions rather than theoretical concerns. The views expressed in the report are those of authors and not of Kathmandu University, School of Management or Kathmandu College of Management.
The findings and other analysis included in the report are regarded as a pilot study and merely indicative of Banking Industry. The author is confident that this report will be taken as a guide for a comprehensive study on a future dates. The author is not responsible or liable legally and morally against the results of decisions and actions taken by the use of information contained in this report.
I, the undersigned declared that this project entitled is a result of my own research carried out in the year 2011. It has not been previously submitted to any other university for any examination.
…………………….. Ajita Singh BBA- A 2007-2011 KCM
This project has been the outcome of continuous upshot of various people and organization. Without their help and cooperation, this project would not have been achievable. First and foremost, my major indebtedness goes to Kathmandu College of Management for giving us an opportunity to use our theoretical knowledge in the practical field in course of my internship program. A sincere gratitude to Mr. Bishnu Raj Adhikari and the KCM faculty members, who have been continuously, source of information behind our effort in this project. I would like to evince my sincere appreciation to Mr. Rajeshwor Lal Shrestha, Branch Manager – Lalitpur, including Ms. Neelam Tuladhar Head - Branches and Distribution Network, Mr. Suresh P. Tripathee Head - Personal Lending, Mr. Rajendra Bahadur Malla- Head, Operation Risk, Mr. Satish Dawadi- Head, Banc assurance, Mr. Amit K.C. and Mr. Ukesh Shrestha- Marketing. We are thankful to Mr. Lakhpa Gelu Sherpa, my internship coordinator, for his consistent support and encouragement. I would also like to substantiate my heartfelt gratitude to Mr. Roshan Koirala, HR manager, for giving me the opportunity to do my internship program in Nabil Bank Limited, Lalitpur Branch. Finally I would like to express my gratitude to all the organization staffs for helping me and sparing their valuable time.
Yours Sincerely, Ajita Singh
Nabil Bank Limited, the first foreign joint venture bank of Nepal, started operations in July 1984. Nabil was incorporated with the objective of extending international standard modern banking services to various sectors of the society. Nabil, as a pioneer in introducing many innovative products and marketing concepts in the domestic banking sector, represents a milestone in the banking history of Nepal as it started an era of modern banking with customer satisfaction measured as a focal objective while doing business.
Operations of the bank including day-to-day operations and risk management are managed by highly qualified and experienced management team. Bank is fully equipped with modern technology which includes ATMs, credit cards, state-of-art, worldrenowned software from Infosys Technologies System, Bangalore, India, Internet banking system and Tele banking system. The internship report is divided into four parts. The first part include introduction, second part includes organization introduction and organizational strategies, and third part includes conceptual framework, methodology, analysis of the project and the conclusion. The last part is the reflection of internship. During the internship program, intern got an opportunity to work at Lalitpur Branch and was placed in different departments like Deposit Relationship Management (DRMPrivilege banking), Cash, General Service Department, Accounts, Banc assurance, Customer Service Department, Credit- risk analysis unit and Loan (personal lending unitPLU) and Marketing. The study is emphasized on the “Banc assurance.” Banc assurance is the new emerging service provided by the banking system of Nepal. Banc assurance service started in Sep 2011 in Nabil Bank Limited. Nabil Bank is among first few banks which started providing this service in Nepal. So Nabil Bank has the advantage to compete in the
market and formulate strategies to operate banc assurance service unit effectively and efficiently. Nabil Bank acts as an agent between the insurance company and the customers. The bank insures the loan granted by the bank itself. This reduces the risk of the loan failure, at the same time; it satisfies the need of the customer as well. In terms of auto loan and housing loan, it insures the risk of the damage of the house or the vehicle and requires the customers to pay the premium amount to the bank. Thus the research focuses on the implications of this newly emerged service “banc assurance,” of the banking sector of Nepal. It was a nine weeks internship that stimulated my critical and creative thinking. The internship report allowed me obtaining insights into career opportunities through interaction, observation and real work experience in the organization. It was a platform for me to develop basic research making skills that helped me to undertake independent analysis and appraisal of different situations. It no doubt had brought a positive change in me.
Recommendation letter from employer Recommendation letter from college supervisor Signature page Copy right Disclaimer Declaration Acknowledgement Executive summary TABLE OF CONTENTS PART I: INTRODUCTION 1. BACKGROUND……………………………………………………………….1 2. INTERNSHIP GOALS AND OBJECTIVES………………………………...2 3. ROLES/JOBS PERFORMED IN THE INTERNSHIP……………………..3 4. ROLES AND RESPONSIBILITIES OF INTERN’S SUPERVISOR……...5
PART II: INTRODUCITON OF NABIL BANK LIMITED 1. INTRODUCITON OF NABIL BANK………………………………………..8 a. Mission…………………………………………………………………………..9 b. Organizational strategies………………………………………………………...9 c. Major products of Nabil Bank…………………………………………………13 2. NABIL BANK’S GENERAL AND COMPETITIVE ENVIRONMENT...19
PART III: PRESENTATION OF MAJOR PROJECT UNDERTAKEN PROJECT: BANCASSURANCE- A STRATEGIC ALLIANCE, A CASE STUDY OF NABIL BANK SECTION I: INTRODUCTION 1. Introduction of Nabil Bank’s Bancassurance Service…………………25 2. Objective of studying the Bancassurance service……………………...27 3. Scope and Limitation of Bancassurance………………………………..29 SECTION II: CONCEPTUAL FRAMEWORK 1. Review of literatures of Bancassurance………………………………...31 SECTION III: METHODOLOGY…………………………………………….33 SECTION IV: PRESENTATION AND ANAYSIS OF THE PROJECT 1. Analytical presentation of Bancassuracne service……………………..36 2. Major findings……………………………………………………………40 SECTION V: CONCLUSION 1. Specific conclusion……………………………………………………….44 2. Specific suggestions………………………………………………………46
PART IV: REFLECTION OF INTERNSHIP………………………………...49 1. REFERENCES…………………………………………………………..51
PART I: INTRODUCTION 1. BACKGROUND As per four years course curriculum for Bachelors of Business Administration at Kathmandu College of Management (KCM), Kathmandu University requires its students to undergo an extensive internship program for a period of 8-10 weeks. During the course of internship, student should work as an employee in the selected organization. To build up a right track for challenging jobs and career, programs like internship is a great exposure to real working conditions. Its offers a practical approach rather than conventional theories and concepts. It provides an opportunity for students to carve a way to achieve their future goals and aspirations. The study is aimed to provide students with a variety of skills and ideas applied in a corporate environment. It actually prepares them to face real organizational challenges beforehand. Internship program requires students to offer their fresh, innovative ideas to the selected organization, thereby working with an increased level of maturity and professionalism. To fulfill these criteria, I, Ajita singh, the author of this report choose to work with Nabil Bank, a first joint venture bank in Nepal. I am very much interested to learn about a service industry. I especially chose to learn about the emerging trend of banc assurance services provided by the banks. Being a new service in Nepal, it is a topic not studied before. I wanted to study about current service provided by Nabil, whether the customers are satisfied or not. And what additional service would be valued by the customers, and how can Nabil build an edge to capture the banc assurance service market.
2. INTERNSHIP GOALS AND OBJECTIVES Since the field (Management) entails doing things through other “people”, I should be good at the art of managing people. I should be good in networking with people, building contacts and using my contacts as and when needed. This skill is surely going to help me in my career too. As I did my internship in a bank, it was the best opportunity for me to refine this skill. Some of the main internship goals and objectives are mentioned below:
Acquire experience in a real life working environment in banking industry.
Problem solving skill through investigating problems and development of system/ strategy/ product in commercial banks.
Having the chance to try out own abilities without permanent commitment in a commercial bank.
Increased level of maturity and understanding of the banking and financial institution business culture.
Developing specific professional, personal skills in banking sector.
Getting an opportunity to work on a managerial and organizational project/ problem and improve or develop on the existing system of banks.
Enhancing skills and knowledge as well as career prospects in banking sector.
Developing personal relations in banking industry.
3. ROLES/JOBS PERFORMED IN THE INTERNSHIP The roles and jobs performed in the department I served; Banc assurance, Customer Service Department, Accounts and General Service Department, Privilege Department and Personal Lending Unit are listed below. Bancassurance Banc assurance is the selling of insurance and banking products through the same channel, most commonly through bank branches selling insurance. The sales synergies available have been sufficient to be used to justify mergers and acquisitions. Banc assurer is a bank offering a range of financial services to its customers, including insurance from a subsidiary insurance company. Nabil started this service in September 2010. Operational duties included filing of the insurance policies according to the date of expiry, making follow up calls to convince customers to pay the premium amount, convincing the customers to buy policies from the Nabil bank itself. Customer Relations Department Customers are valued entity; dealing with various requirements of different customers of the bank was a new experience for me. Customer service desk addresses to all customer queries. Customers can open new accounts, collect their new cheque books, and debit cards from the desk. Opening new accounts, delivering cheque books and Debit card and using Finacle to solve customer queries were some of the operational duties. Accounts department Accounts department mainly keeps records of all incomes and expenditure incurred at the branch and at the year end; it comes up with various performance reports. It also provides Bank statements and Balance certificates on demand for customers. This particular department also works as GSD- General Service Department. It manages all the materials and equipments in the bank premises, in case of any failures.
Operational duties included statement printing, collection, issuance of Balance certificates, salary transfer and listing: Introduction to Personal Lending Unit: Loan department includes personal lending unit, credit unit, recovery unit and cash unit. I was placed in marketing unit, credit analysis unit and risk analysis unit. It is committed to providing customers top notch services when it comes to financing their personal needs. Operational duties included making follow up calls to borrowers of the banks to pay installments on time, going through credit facility request files and going for marketing.
Introduction to privilege department Privilege banking offers one stop solution to all the banking needs of valued customers. Customers and corporations who have huge amounts of deposits in the bank get this kind of service. This is a value addition to normal services that the bank offers. The philosophy behind having a privilege department is that high valued customers should get extra service for the business they offer to the bank. Activities included directing dealing with customers, cash counting and solving problems through the software Finacle. Strengths and weaknesses in carrying out projects Strong foundation of academic theories and concepts helped me carry out research assignment. Problem identification and translation of the problem into research objective consequently became less difficult too. Punctuality and self discipline were traits; few inherent in me and few learned from KCM. These traits helped me to portray a positive image infront of my supervisors. My determination and perseverance to learn something new help me. Lack of perfection when handling the software “finacle” seemed to be a major weakness. Finacle is the software used in the bank to carry out all the operational duties.
4. ROLES AND RESPONSIBILITIES OF INTERN’S SUPERVISOR A) Relationship officer – Banc assurance Unit
To maintain good customer relations to get maximum business by selling insurance policies
To provide necessary information to customers regarding their account
To provide high quality and personalized services to customers
To coordinate with operational staff to achieve specified target and overall objective of bank
To assist operations
To provide prompt service to the external as well as internal customers efficiently maintaining harmonious relationship with them.
To take appropriate charges for particular transactions
To do all other departmental tasks assigned as and when required in the department with feeling of team work
To entertain the queries of customers regarding various products and information while selling policies
B) Assistant – Accounts and General Service Department
Statement printing on demand for customers.
Report printing in the morning ( trial balance and expense and others )
Locker with proper visit record and maintenance
Salary entries of Nabil‟s prime customer
Expense / vouchers entry and proper filing
Monitor and control expenses
Variance report – monthly
Issuance of balance certificates
IDT reconciliation and follow ups
NSB interest and timely claim from NRB
Maintain and update staff leave record
Assets sent for repair with gate pass
Assets listing and numbering
Timely destruction of old records as per destruction policy
Reply to various queries raised
Lessons learned from Coworkers Starting from the privilege department to customer service department to banc assurance; each day at Nabil bank was a learning experience for me. Every new day began with new aspirations and ended with new lessons. We came across people with different quantum of experience and qualifications in various departments that we served. Spending ample amount of time with those people gave us a good exposure to work culture. Following sections will describe our learning from coworkers in each department. Banc assurance Department:
Ability to create and sustain a network of important clients.
The fact that it‟s the smallest gestures that makes the most difference to the customers.
The art of bring tactful without appearing rude which we could observe in the way she used to handle customer complaints. Customer Service Department
Managing customer complaints plus regular queries even in the peak hours.
Keeping log of important tasks in order to avoid customer dissatisfaction.
The need to keep professional and personal life separate and appear in a “happy and willing to serve” mood in front of customers.
The need to appear presentable i.e. in appropriate attire and friendly tone to customers.
Quick service to customers.
The fact that the front desk represents the overall bank in front of the customers.
Handling customer complaints is always a challenging task.
Personal Lending Unit
Learnt about different property documents like Land ownership certificates, blue prints, four boundary disclosures and others.
As I started working with ROs, we learnt how to deal with clients, knowing their requirements, their eligibility criteria followed by lending procedures and documentation. It becomes very important to understand psychology of various clients and analyzing their ability to pay back the loan.
Importance of oral and communication skills.
Writing skills were equally important to prepare Credit Financial Reports (CFR) and sanction letters for loan disbursement.
PART II: Introduction of Nabil bank Nabil Bank Limited, the first foreign joint venture bank of Nepal, started operations in July 1984. Nabil was incorporated with the objective of extending international standard modern banking services to various sectors of the society. Pursuing its objective, Nabil provides a full range of commercial banking services through its 47 points of representation across the kingdom and over 170 reputed correspondent banks across the globe.
Nabil, as a pioneer in introducing many innovative products and marketing concepts in the domestic banking sector, represents a milestone in the banking history of Nepal as it started an era of modern banking with customer satisfaction measured as a focal objective while doing business. Operations of the bank including day-to-day operations and risk management are managed by highly qualified and experienced management team. Bank is fully equipped with modern technology which includes ATMs, credit cards, state-of-art, worldrenowned software from Infosys Technologies System, Bangalore, India, Internet banking system and Tele banking system. Nabil bank is surging ahead faster to build on the foundation they created to be the bank of 1st choice. Looking forward, they aspire to transform themselves in to the "1st Choice Provider of complete financial solutions" of all their stakeholders- customers, shareholders, regulators, communities and staff. The bank continues to deliver the highest levels of customer service and satisfaction, resulting in unprecedented business volumes and incomes. Nabil Team remains committed to live by their values in everything they do, which is termed as C.R.I.S.P. They aim to be; C- Customer focused, R- Result Oriented, I- Innovative, S- Synergistic, P- Professional
A. Mission “Mission is to provide quality and innovative service according to the needs of the customers.” Vision: “To become the Bank of First choice for customer, employees and investors” Objectives:
To provide high quality services to its customers
To provide efficient and innovative services to customers
To generate adequate resources for expansion and growth
To ensure optimum development of their human resources
To earn recognition as professional from the society
To promote the national economy, society and individual
To provide innovative new technology to enhance and facilitate transactions along with convenience and customer satisfaction
To invest capital in new areas in a productive manner
To generate employment opportunity and facilitate career development plans for employees
B. Organizational strategies Nabil Invest renders its institutional and retail clients wide range of services some of which are delivered currently while others will be delivered in due course with required exploration & innovation and due approval received from the Regulators as and when required, detailed as under: 1. Management of Public Offers/Further Public Offers Nabil Invest renders both its institutional and retail client services of managing public offer
shareholders/further public offer of securities etc to its clientele and has team of professional expertise to render quality services at competitive rates.
2. Underwriting Nabil invest on selective basis post independent appraisal of proposals reviewed through its professional team is rendering underwriting related services to its clientele as SEBON has made it mandatory for all institutions going public to underwrite at least fifty percent of the securities on offer prior public issue. 3. Portfolio Management The Clients can delegate all their investment management related decisions to a pool of corporate finance experts of Nabil Invest who in turn will use the vast pool of industry specific data collected and analyzed by its research unit for making investments for clients portfolio which focuses primarily on safety of principal investment along with maximization of returns to Clients. Nabil Invest will arrange to render services to a wider clientele as per their risk appetite and design their portfolios accordingly. The investors can utilize their time/energy saved in the process to focus on other more critical facets of life. 4. Registrar to Securities (RTS) Nabil Invest renders Registrar to Securities (RTS) related services to the valued shareholders of its institutional client and in the process keep on improving quality & timely delivery of services, the major hitch in this nature of services by competing institutions. 5. Trusteeship Services Institutions going for the public issuance of Bonds/Debentures can reach Nabil Invest requesting them to act as Trustee of the investors at large and for investors under private placement basis who apply for the securities on offer. Nabil Invest will render Trusteeship services with due diligence to track and facilitate the investors with true and timely information as required by the provisions of Trusteeship Agreement entered with the Company issuing the securities.
6. Advisory Services The Clients can make use of professional expert's advice given by Nabil Invest to make informed investment decisions so that they have true picture of the industry and certain scrip in particular. Further, Nabil Invest will also assist its Clients through its independent reports prepared on feasibility of certain Mergers & Acquisitions which will include the SWOT Analysis, valuation of equity of both firms, the conversion ratio, conclusions & recommendation etc. In addition, Nabil will also assist its corporate clients in capital restructuring of their institutions which allows them to meet their additional capital requirements for expansion and also have a proper debt-equity ratio to maximize returns with reduction in cost of capital. 7. Project Counseling The Clients can take the services of Nabil Invest to evaluate the feasibility of new projects in the offering, to identify the growth prospects of existing maturing firms for expansion or to have an independent view regarding feasibility of some existing/would be projects. The professional advice given by Nabil Invest will assist the Clients to have a clear sense of direction for their future course of actions. 8. Loan Syndication Nabil Invest will use its existing relationship with other Banks/Financial Institutions to acquire required financial support for the financial closure of certain projects which it identifies as feasible and recommends for investment. The financial closure will be reached with either one institution or a syndicate of Banks/Financial Institutions depending on the size of projects and the requirement to diversify the risks to various portfolios from the part of member Banks/Financial Institutions.
9. Valuation Nabil Invest will make use of one or a combination of few standard valuation techniques applicable internationally to value the status of certain scrip as of certain specific date. This will assist the firm to identify their actual market worth and further assist them during the time of making specific strategic decisions like going for Mergers & Acquisitions, selling significant portion of company's scrip to some strategic partners through issuance of fresh equity or through divestment of existing stake etc. 10. Venture Capital/Private Equity The research unit of Nabil Invest will keep on exploring and identifying various industry specific information like the growth prospects of certain firms both listed and unlisted, the current stage of life cycle of specific companies etc. Nabil Invest will thus assist these firms in obtaining the required source of finance from the market either through venture capital for growth oriented companies listed on bourse or through private equity for unlisted companies reaching certain maturity stage. Further, Nabil Invest will also be able to diversify its portfolio through investment in these institutions as per its requirements. 11. Assets Management Company (AMC) Once SEBON issues Rules relating to operation of Mutual Fund with the provision that allows existing Merchant Bankers being promoted by the same Sponsor perform the role of AMC, Nabil Invest with due approval obtained from SEBON on various schemes, will launch its services in accordance to cater the masses. The professional team of Nabil Invest will diversify the portfolio investment and maximize returns to the unit holders of various schemes by increasing the Net Assets Value (NAV) on its investments. 12. Other Services Besides the services identified, Nabil Invest will always keep on exploring innovative products and services that matches regional and global standards and target to launch the same in customization with the local market with due approval taken from the Regulators, if & when required.
C. Major products of Nabil Bank Working Capital Loan Overdraft and Short term loans are used to finance day-to-day business activities. Basically, this loan will help to build up inventory and receivables to a desired level, against which the loan will be disbursed. Fixed Capital Loan This loan helps to finance projects or acquire fixed assets. Generally, this is a long term loan for acquiring or purchasing machinery, equipment, land and building. The tenure of repayment is cash flow based. Import Loan For financing international and local trade transactions through letter of credit, Nabil provides finance to import goods in the form of trust receipt or time loan, bank's acceptance etc. Nabil facilitates import using extensive banking network around the globe. Bills discounting facility Under Suppliers Credit Nabil offers discounting facilities to suppliers against the import bills. Export Loan Nabil has different products to finance on funding requirement for completion of various stages of export processes such as pre-shipment loan, post-export loan (post-shipment loan), negotiation / documentary bill purchase etc. Such credit facility can be availed in foreign currency as well as local currency. Hire Purchase Nabil can finance the purchase of vehicles, exclusively used for commercial purpose.
Project Finance For any feasible project, Nabil is committed to take it up for funding from fixed capital to working capital loan - right from the establishment stage which may include financial services like letter of credit and guarantee. Consortium / Syndication Loan With Nabil bank‟s expertise in diverse field of business, it is capable of arranging consortium finance / loan syndications for large projects. Mortgage Loan Nabil bank allows one to step into the bank for loans to be used for any purpose by mortgaging your land and building. Within the scope of above-mentioned products, Nabil can also tailor their products and facilities in commensurate to one‟s business needs. Nabil bank‟s staffs have acquired indepth insight of business complexities and can render valuable advice that will help to enhance the success prospect of one‟s business because Nabil want their business to grow together with their customers. Personal lending Personal lending unit located at Lalitpur Branch, is committed to provide with top-notch services when it comes to personal financial needs. Whether one needs to buy one‟s dream house or the fast car, need to mortgage one‟s house for money for any reason or need funds for household items, Nabil bank is always helpful. Nabil bank‟s services include: Housing finance, Auto finance, Nabil property, Personal finance, Education loan
Clean Bills Nabil bank‟s national processing center is geared up to process cheques, drafts or traveler's checks and credit proceeds into customers accounts at the soonest possible, no matter where they have been drawn - on any bank in Nepal or anywhere else in the world with the established use of our correspondent banking relationship. The Privilege Banking Unit The privilege baking unit is committed to serve through their sophisticated and state-ofthe-art products and services. All the branches are connected to each other through VSAT and radio links and no matter where customers open their deposit accounts, they can have full access to their accounts from any of the branches spread all over Nepal - either for statements or deposits or withdrawals of cash. For those who are Internet-savvy, they can have access over their accounts from the comfort of their homes or office through the Internet using Nabil Net, our Internet banking system. For investment or safety, customers can choose their accounts from an array of deposit schemes Nabil offer. Nabil bank‟s range of card products, wide network of ATMs and extended banking counters including 365 days banking from Kantipath Branch all complement to exclusive banking experience with Nabil. Nabil offers different privileges in the forms of personalized banking and discounts for high-value accounts. SWIFT Transfer Through the SWIFT transfer mechanism, one can transfer their fund to virtually anywhere in the world. Likewise one can receive the fund for their account with Nabil from virtually any bank in the world. SWIFT stands for Society for Worldwide Interbank Financial Telecommunication System, which is a reliable communication network speeding up fund transfer and other financial messages. One does not need to have an account with Nabil Bank for fund transfers through SWIFT.
E-Banking In keeping with the commitment to be the "Bank of 1st Choice" Nabil Bank is constantly moving towards enhancing customer services by providing enhanced products and services. Along the same line, Nabil is pleased to provide with Nabil Net, their Internet banking system (online banking), Nabil Tele, their telephone banking system. Types of accounts Current Account, Call Deposit, Time Deposit, Normal Savings Deposit, Nabil Lok Bachat, Nabil Bachat, Nabil Student Saving, Nabil Bal Bachat, Nabil Jestha Bachat, Nabil Jestha Muddhati, Retirement Fund, Provident Fund, Nabil Nari Bachat, Nabil Muddati Bancassurance In line with the international trend, Nabil Bank has set up Bancassurance unit for selling life and non life insurance policies to its customers through various distribution channels. „Nabil Bank' has obtained required permit from Insurance Board. Nabil Bancassurance has made an arrangement with various insurance companies to provide insurance policies instantly to bank‟s customers from any branch/unit, once insurance request is made and premium are paid there on. Being a corporate agent, Nabil Bancassurance plays a bridge role between the customers and the insurance companies. Advantage of Nabil Bancassurance:
Availing the insurance service in addition to other banking services (one stop financial solution)
More trust and stability of dealing with a Bank in operation for over 2 and ½ decades.
Convenience in premium payments
Convenience in receiving policies
Assistance in expeditious claim settlement
Import LC Documentary Credit (DC), popularly known as letter of credit is the safest and convenient means of paying for exports among all other existing methods of payment. It is widely used to effect payments in domestic and international trade. A written undertaking is issued by a bank (usually referred to as the issuing bank) on the instructions of the buyer of goods to the seller. The payment is made under conditions stated in the undertaking. Payments are always up to a stated limit and against stipulated documents. As per the definition of International Chamber of Commerce (ICC) "documentary credit is any arrangement however named or described whereby a bank, (the issuing bank) acting at the request and in accordance with the instructions of a customer (the applicant), is to make payment to or to the order of a third party (the beneficiary) or is to pay, accept or negotiate bill of exchange (drafts) drawn by the beneficiary, or authorize such payments to be made or such drafts to be paid, accepted or negotiated by a other bank against stipulated documents in compliance with stipulated terms and conditions." Nabil team at Trade Operations - Import is dedicated for a quality customer service with a swift and reliable output. Nabil understands their customers' requirement and are also equally concerned for the risks to which their customers are exposed while doing their import transactions. Therefore Nabil team will not only process customer requests but will also provide customers with important information useful for their business. Card products Nabil Bank is the pioneer of Card Industry in Nepal. Nabil is the principal member of Visa and MasterCard International since early 1990s. Nabil started issuing credit cards since 1993. Today, Nabil prides on being the service provider with widest range of card services ranging from issuance of local currency Visa credit cards, Visa debit cards, Visa prepaid cards, MasterCard credit cards in local currency and US Dollars, US Dollar Prepaid cards. Nabil also accepts Visa and MasterCard cards issued all around the globe through our extensive network of ATMs and Merchant locations in Nepal. In order to provide
superior services to the merchants, Nabil has exclusive arrangement with American Express here in Nepal for accepting American Express card through our POS Terminals.
Nabil also renders online payment services for payments of various services offered by international organizations through their websites. Nabil Installment Nabil Installment is a unique service of Nabil Bank for its Local currency Visa and MasterCard credit cardholders. It provides cardholders the flexibility to purchase an array of products and repay in Equated Monthly Installment (EMI) with or without interest. Visa Debit The features of Visa Debit card are as follow: 1. Valid in Nepal and India 2. Can be used for purchases of merchandise / services or cash withdrawal 3. Round the clock service 4. Prompt service / No queue 5. Accepted in over 100,000 POS terminal merchants 6. Accepted in over 5,000 ATMs 7. No interest, late fee or penalty/ No hassle of limit 8. Secured transactions due to electronic environment 9. Highly economical to obtain and use 10. Added facility of balance inquiry and PIN change 11. No service charge on use at Nabil ATMs and all POS terminals
2. NABIL BANK’S GENERAL AND COMPETITIVE ENVIRONMENT
SWOT Analysis SWOT is an acronym used to describe particular Strengths, Weaknesses, Opportunities, and Threats that are strategic factors for a specific company. SWOT analysis is an effective way to conduct environmental scanning. It helps to identify the strategic factors- those external and internal elements that will determine the future of a corporation. Strengths of Nabil
Nabil Bank is a pioneer in introducing modern banking and numerous innovative products in Nepal.
It is ranked among top financial institutions in Nepal in terms of its market share in handling Nepal's trade.
Major strength of Nabil Bank is that it is the first Joint Venture Bank; therefore has gained years of experience in banking industry and has gained paramount trust in public.
Dedicated and experienced manpower
Wide range of network across the kingdom. It has the largest branch network amongst any joint venture bank in Nepal.
Wide array of products and services offered.
State of the art technology “Finacle”
The bank has maintained very good relationships with its customers. Renowned organizations like JiCA, Youth Vision, DFID, DED, Nepal Telecom, Spice Nepal and many others are regular clients of the branch. Weaknesses of Nabil
Less marketing activities and promotion of services offered by the bank.
Delay in decision making
High employee turnover.
The bank enjoys the status of largest international bank currently operating in Nepal. So, bank staffs gain international exposure at Nabil and once they have gained, they leave Nabil and join other domestic banks and financial institutions for higher job designations or higher pays.
It increases recruitment and training costs.
Stringent control mechanism.
Nabil has rigid lending policies compared to other banks. Loan applicants have to fulfill strict rules of documentation, which increases lead time for final disbursement of loans. Due to this, customers may have negative perception regarding overall functioning of the bank. Opportunities for Nabil
Investment opportunities in Hydropower projects, Floriculture, electrical and electronic industries, computer and software development.
Use of proper IT base and Branch Network
Increasing banking knowledge amongst people gives an opportunity to provide better banking services to customers.
New Products can be introduced.
Capturing new emerging banking technologies like internet banking, SMS banking and others.
Opportunity to acquire more deposits with the establishment of more branches in the valley.
Opportunity to maintain better USD debit card acceptance and ATM visa electron services with minimal downtime in comparison to other Banks. Threats for Nabil
Highly competitive industry
Growing financial institutions which provide similar service as of banks to customers.
Political instability of the nation
Unstable socio-economic condition in the country
Due to WTO regime, international banks can open their branches in our country hence making the competition more intense.
Branch Manager's less authority in comparison to responsibility causes delay in decision making.
Bringing in new technologies to compete in ever-changing dynamic world. SWOT analysis, as we have discussed, will surely help Nabil to capture the market opportunities while capitalizing on its strengths and to improve upon its weaknesses while avoiding the threats. Role of Nabil in context of current Nepalese economy
Generating employment opportunities
Various schemes of deposits favorable to public
Advancing loans- overdraft, direct loans, discounting bills of exchange.
Savings / Deposit Mobilization
Providing bank guarantees, issuing letter of credit.
Facilitates international trade- imports and exports.
In long term, it facilitates Infrastructure development through project financing.
In short term, it offers Retail banking services to consumers.
Purchase of Government Bonds INDUSTRY ANALYSIS Despite the above bitter fact banks are a necessity in every economy. Especially in a developing economy like ours where investment and more investment is the need of the hour, bank is a resource for development. Banking industry has stood as the most vulnerable yet the most profitable sector in Nepalese economy. Commercial banks have gained paramount trust in public. They deal with trade, commerce, industry and agriculture that that seek regular financial help for
growth and development. They have remarkable contribution in financial intermediation, capital creation, fund transfer, boosting of trade and employment generation. The banking sector is prospering with much lesser difficulty in spite of increasing economic downturn and political instability in the nation. The clear picture is reflected in Nepal stock exchange; where 90% of stock traded is that of financial sector of which majority shares are held by commercial banks. With more number of commercial banks catering to the same market, it has given rise to the intense competition. With increasing number of finance companies, development banks and cooperatives; commercial banks had no option but to increase their banking services, thereby maintaining competitive edge over others. Banks are now focusing more on consumer finance, hire-purchase loans, personal loans, short-term loans which were initially provided only by finance companies. Banking industry has grown highly competitive. The competitive scenario of commercial banks can be classified in terms of Market leader, market challengers and market follower. In terms of market competitiveness, market leaders in banking sector are Standard Chartered Bank, Himalayan Bank, NABIL Bank, Nepal Investment Bank. The market standing and leadership is evaluated in terms of innovation and introduction of new services or system in the market. For example: Kumari Bank has stood as the market leader in terms of online internet banking. Competitiveness of the industry can be expressed in terms of Porter‟s five force model. PORTER'S APPROACH to Six Forces model The intensity of competitiveness is determined by following competitive forces:
Threat of New Entrants
Rivalry among existing firms
Threat of substitute products or services
Bargaining power of buyers
Bargaining power of suppliers
Relative power of other stakeholders. Threat of New Entrants Banking industry is the most regulated sector in an economy. Under the supervision and regulation of Central Bank, every commercial bank needs to follow rules and regulations regarding commencement of a new bank, capital requirements, and reserve requirements. NRB has made major changes in its directives, which includes increase in capital adequacy requirement, strict measures for loan classification and provisioning, revision in single borrower limit and industry concentration limits. As the banks have to follow a high international standard, it is difficult for a new bank to enter the market and compete with existing major players. Joint venture banks also create a significant barrier to entry due to its huge capital, experience and access to resources. Rivalry among existing firms The level of competition amongst commercial banks is very high. The banking services offered by many of them are almost similar. Introduction to banc assurance services, various deposit schemes, interest rate benefits and aggressive marketing strategy adopted by the banks has made the industry more competitive. They have introduced services such as 365 days banking, 8 to 8 hours banking, ATM, Debit and Credit card facilities, etc. Emerging concept of e-banking has further increased the level of competition.
Threat of substitute products or services The threat of substitutes exists in form of private lenders, development banks, finance companies and cooperatives in the market. Public trust in banks is immensely higher than in other institutions. The industry is highly competitive and therefore some innovative services provided to customers may substitute banking services. Threat of substitutes is of medium impact. Bargaining power of buyers The depositors and borrowers are the prime customers for any bank. Banks are in need of large pool of deposits which give their clients a moderate amount of power. Bargaining power of buyers is high because of large number of competitors in the market, hence providing many options and services to customers. With increasing competition, banks are offering better and quality services to their customers. Bargaining power of suppliers It is difficult to identify actual suppliers in case of banks. Suppliers may be identified in terms of stationary supplies, computer hardware suppliers, software suppliers, credit card suppliers (e.g. VISA) etc. As there are many alternative suppliers in the market, the bargaining power of suppliers is seen weak. However, the bargaining power of Credit Card Company remains higher in terms of Nepalese market. Relative power of other stakeholders Stakeholders of banking industry play a major role in shaping up the banking policies and operations. Major stakeholders include NRB, shareholders, BOD and employees of the bank. NRB is the regulator of commercial banks. The relative power of NRB is high; all commercial banks operate in accordance to directives of NRB. Shareholders are the major stakeholders who have special interests on annual reports and performance of their banks.
PART III: PRESENTATION OF MAJOR PROJECT UNDERTAKEN PROJECT: BANCASSURANCE- A STRATEGIC ALLIANCE; A CASE STUDY OF NABIL BANK SECTION I: INTRODUCTION 1. Nabil Bank’s Bancassurance Service Bancassurance today has evolved into a very powerful tool in the hands of insurers, bankers and wealth management institutions. Insurers see it as a tool to increase penetration and market share and bankers use it to augment their fee income and to smoothen the volatility of interest income. For wealth management entities, it works as a wrapper to the core investment product and makes it more attractive. Bancassurance shall continue to evolve over period of time. Bancassurance is the selling of insurance and banking products through the same channel, most commonly through bank branches selling insurance. The sales synergies available have been sufficient to be used to justify mergers and acquisitions. Bancassurer is a bank offering a range of financial services to its customers, including insurance from a subsidiary insurance company. Some of the sales synergies come through the extensive customer base that banks have. Some come from opportunities to sell insurance together with some banking products. For example, banks generally insist on life insurance for mortgage borrowers. Although borrowers are not obliged to buy insurance from the lender, many do (despite it often being very over-priced) as it is an easy option. Credit cards and personal loans create opportunities for banks to sell protection insurance (another high margin business) and the knowledge a bank has of its customers' finances creates opportunities to sell other products. Bancassurance has become significant. Banks are now a major distribution channels for insurers and insurance sales a significant source of profits for banks. The latter partly being because banks can often sell insurance at better prices (i.e., higher premiums) than
many other channels, and they have low costs as they use the infrastructure (branches and systems) that they use for banking. The Bank Insurance Model ('BIM'), also known as 'Bancassurance', is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products. BIM allows the insurance company to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff. Bank staff and tellers, rather than an insurance salesperson, become the point of sale/point of contact for the customer. Bank staff are advised and supported by the insurance company through product information, marketing campaigns and sales training. Both the bank and insurance company share the commission. Insurance policies are processed and administered by the insurance company. The concept combines private banking and investment management services with the sophisticated use of life assurance as a financial planning structure to achieve fiscal advantages and security for wealthy investors and their families. The sale of insurance and other similar products through a bank is the bancassurance. This can help the consumer in some situations; for example, when a bank requires life insurance for those receiving a mortgage loan, the consumer could purchase the insurance directly from the bank. Some critics feel that bancassurance gives the bank too much control. Banc assurance is not legal in all countries. Current Scenario Insurance industry follows closely the fortune of the financial sector and is directly impacted by the movements at the macro-economic level. Economic growth spurs insurance activities and a recession creates manifold problems for the insurance industry. Recession is an outcome of slowdown in economy and is evidenced by successive periods of negative growth in production.
Right partnership Goal congruence leads to selection of right partner. Selecting a right partner is of paramount importance for the success Bancassurance. Banks bring the brand or distribution network and insurance companies stitch the products based on their market knowledge and risk-taking abilities. The combined synergy leads to customer satisfaction and each partner is able to achieve its stated goals. Selection of a right partner is also the most difficult part in the entire process of making Bancassurance work. From a bank‟s perspective, the size of the insurance company or the commission structure it offers to the bank should not be the sole criteria. Rather creativity, product innovation, customer support, IT systems and long term commitment should be the guiding principle in the selection of a partner. Similarly, insurance companies should demand long term commitment and sharing of revenue based on underwriting profits from the bank.
2. Objective of studying the Bancassurance service
All Bancassurance models rest on three pillars: Bank, Customers and Insurance Company. Each of them has their own goals and objectives. Banks may be interested in maximizing their fee income while insurance companies may be looking at volume expansion so as to reach the critical mass. The customers would obviously look at convenience and cost reduction. Similarly at other times, banks may look at product diversification but the insurance company may look at customer acquisition. Therefore, unless there is goal congruence amongst all the partners in Bancassurance, it can‟t succeed. So we need the study the relationship of banks, customers and insurance companies.
We need to study the recent trend in bancassurance. Important shift in Bancassurance has been the focus on non-life insurance products like insuring property and vehicle. Banks like Nabil, already in Bancassurance have slowly been moving to general insurance products.
Sales of insurance product are beneficial because it adds to the portfolio of retail products already offered by the Bank. It helps in bundling and packaging the existing core banking products like adding deposit life insurance on a pure term deposit product. It is a risk management device, since the fee increase earned on the sale of insurance can be used to offset the loss on account of bad loans. It helps increase customer loyalty since they have more reason than just the banking to continue their relationship with the bank.
Integration of various distribution channels is important to study. It seems very difficult for a single distribution channel to successfully reach the bancassurer's goals and specific target markets. Many bancassurers are using multiple distribution channels. This way they avoid becoming locked into one channel and they can offer services to a greater number of target markets. Multiple distribution channels provide another valuable feature. They enable the enterprise to offer customers multiple options for access. However, conflicts may arise among the various channels and also within channels under a multi-channel system. To avoid this it is necessary to ensure the following: -
colleagues within a channel are motivated to cooperate
there is communication of the importance of every link in the distribution process
cultural differences are communicated and respected
the goals of every partner in the distribution process can be fulfilled by the process
the specific role and performance expectations of each channel member are clearly stated, understood and accepted
communication between channels is encouraged channel leadership is strong and committed to success.
3. Scope and Limitation of Bancassurance Best Practices in Bancassurance Bancassurance is unwinding itself. From being just another offering from a bank‟s product basket, it has become an important bookmark in a banks‟ strategy document. Extreme competitive pressure on interest income worldwide has led banks to redraw their strategies and demand more from Bancassurance. The result is visible in increased number of tie ups, mergers or cross-shareholding between banks and insurance companies. The move towards Bancassurance however has been a roller coaster ride; sometimes slow and sketchy and in some cases spectacular. Culture An effective bancassurance strategy acknowledges the fundamental cultural conflict between the bank and the insurance company by aligning the bank's interests with those of the insurance company. Without the bank's total commitment to the insurance strategy, any bancassurance program is doomed to fail. One of the more effective ways to achieve this commitment is for the bank to have an equity interest in the insurance company. With a stake in the financial results of the insurance operation, the bank has a powerful incentive to support the insurance strategy. Technology Bancassurers should plan a technological infrastructure that will exploit customer information found in the bank's database to uncover sales opportunities and produce transactional simplicity for insurance customers. The information banks have about their customers' buying habits, economic status and money management practices constitutes a valuable asset often unrecognized even by large, sophisticated banking institutions. Using technology to order information about the economic behavior of customer segments can provide valuable insights about insuranceselling opportunities. For instance, customers buying a home through a bank mortgage
can be approached for a variety of insurance products. With a traditional insurer, behavioral information about policyholders is usually unavailable, but even when known, can only be employed by agents (who have an economic interest in thwarting a direct relationship between the company and the client). Bancassurers should use technology to simplify the insurance purchase as much as possible, thereby making the purchase an easier, more pleasant experience and further differentiating themselves in the process. Buying insurance in the traditional way means dealing with agents and the complications of the underwriting process, which bancassurance can eliminate. Branch customers are usually in a hurry and don't want to wait, so banks will serve them best by simplification. With point-of-sale technology, customers should be able to buy policies in a short time and leave the bank with coverage in hand. Particularly with an intangible such as an insurance policy, the buying experience itself is a key part of the purchase. Bancassurers should make the experience as positive as possible, and technology can contribute greatly to this effort.
SECTION II: CONCEPTUAL FRAMEWORK 1. Review of literatures of Bancassurance Economics of Bancassurance Bancassurance has long been looked upon by the banks as an additional source of fee income. It is however seen more in the role of a „savior‟ at the times of falling interest rates and intense competition from the peers rather than as a strategic initiative based upon sound economic rationale. Banks make interest income from the difference between the lending and borrowing rates charged to customers. These rates are largely dependent upon the „bank rate‟ and „repo rate‟ controlled by the respective central banks. Current market conditions however, have put a strain on the interest income as cost of borrowing funds have risen substantially and lending (particularly term lending) has become too competitive to provide worthwhile interest income. Increased cost of funds can only be offset by smart deployment of those funds into various asset classes and with intense competition in the asset market place; it‟s no mean job for banks. Bancassurance steps in here to compensate for the loss of interest income and helps to stabilize the profits. (Manoj Kumar, ACII (UK), CPCU (USA), Bankers Middle East in July 2007 (Issue 85)) Innovation and Challenges The challenge of Bancassurance lies in innovation. Both partners, whether banks or insurance companies must be creative in thinking. Banks need to think differently and analyze (probably anticipate) customers‟ requirements and put a demand on the partner insurance company to reciprocate. The insurance company on its part must be able to manufacture products in tandem with bank‟s requirements. Other challenges facing Bancassurance today are complexity of regulation, lack of long term vision and commitment from top management, too much emphasis on fee income and sometimes mis-selling by banks. Banks would do well to factor these before they embark on a Bancassurance journey.
The success of Bancassurance also lies in integrating it within the bank‟s structure so as to harness its full potential. Each division within the bank whether corporate or retail, has to accept the new neighbourhood called Bancassurance and should be willing to share the leads and customer relationships. There are challenges ranging from assimilation process within the bank to the ownership of the customer; from profit sharing between multiple divisions within banks to bringing in the sales culture. (Manoj Kumar, ACII (UK), CPCU (USA), Bankers Middle East in July 2007 (Issue 85))
Bad Bank Concept in Insurance Industry The direct impact of current financial crisis was unlikely, had insurers not been involved in the structured financial products which otherwise have been the domain of specialized financial institutions. Global economy continues to nosedive despite relentless efforts by governments and regulators to put the economy back on rails. Insurance industry though affected by the global recession and despite having issues with its asset base, does not appear to be toying with the idea of segregating its toxic assets on the lines of good bank / bad bank concept. The insurance industry is a barometer of overall economic conditions prevailing in the marketplace and its fate is generally interlinked with other financial institutions. There is a definite decline in volumes, investment income and overall profitability but it is due to the overall economic downturn rather than any systemic failure. Considering the state of global economy, the insurance industry appears to have done remarkably well compared to their peers in the banking industry and have shown a greater resilience and character and proven that they are better risk managers than banks. (Manoj Kumar, ACII (UK), CPCU (USA), Bankers Middle East in July 2007 (Issue 85))
SECTION III: METHODOLOGY Study approach In the first stage of our study, a basic thing in the banking industry and a brief introduction about Nabil Bank Ltd. has been done. After this, the real study and analysis part are carried out based on the insurance companies prevailing in the market and the share that Nabil enjoys. Some of the listed insurance companies are -
United insurance company,
Everest insurance company,
Siddhartha insurance company
Sagarmatha insurance company
Premier insurance company
Himalayan general insurance company
Nepal insurance company
National insurance corporation
The formal plan for carrying out the research is called research methodology. This research is carried out by following the steps and procedures prescribed in Marketing Research Text Book (Malhotra and Dash).
1. Research Design Formulation This research was conducted as exploratory research to analyze about the various insurance services provided by banks being an agent between the customer and the insurance company.
2. Nature of the data: The data collected are categorized into two parts:
i). Primary Data Unstructured Interviews with the banks employees
ii). Secondary Data Published articles and Journals Information from website of the banks
3. Secondary Data Analysis Website of Nabil Bank and other banks helped us to gain a brief insight about our project. Following information are obtained regarding Insurance Schemes Interest rates Loans/ Advances ATM Facilities
4. Methods of collecting data Unstructured interviews with the banks employees We asked several questions regarding our queries to the employees that helped in completing the project with detail analysis. We asked them questions face-to-face and communicated via email.
5. Data preparation and Analysis Unstructured interview helped us to analyze the various shortcomings and strengths of the different banks. It provided us insight about the existing scenario of competitive attributes of various banks.
Some Case Studies ING, the Dutch giant announced disinvestment of its insurance operations to repay the USD 14.9 Billion bailout by the government. The decision was actually thrust upon them by the regulators rather than the sell-off being part of a proactive business initiative to come out of troubled waters. The insurance business was profitable and constituted almost 50% of the balance sheet of the group. Had ING not have the insurance business under their belt, they could well have been following Lehman Brothers' path.
Allianz / Dresdner Bank group similarly did not abandon Bancassurance, it just changed the business model and moved from insurance risk taking model to distribution model. Allianz sold off Dresdner Bank to Commerzbank in order to acquire a majority stake in the new bank and to gain greater market access to distribute its products through a much larger distribution network. By taking this route, Allianz actually perpetuated Bancassurance rather than moving away as any onlooker would think. Bancassurance being a business concept allows for flexibility and creativity and Allianz used it to further their advantage.
SECTION IV: PRESENTATION AND ANALYSIS OF BANCASSURANCE
Bancassurance: A SWOT Analysis Bancassurance in its simplest form is the distribution of insurance products through a bank's distribution channels. Demographic profile of the country decides the kind of products Bancassurance shall be dealing in with, economic situation will determine the trend in terms of turnover, market share, etc., whereas legislative climate will decide the periphery within which the Bancassurance has to operate. The motives behind Bancassurance also vary. For banks it is a means of product diversification and a source of additional fee income. Insurance companies see Bancassurance as a tool for increasing their market penetration and premium turnover. The customer sees Bancassurance as a bonanza in terms of reduced price, high quality product and delivery at doorsteps. Actually, everybody is a winner here. Strengths
Banks enjoy several advantages compared to insurance companies that make them ideal vehicles to carry the message of insurance to the masses, across a wide cross section of society, and in the process increase their business and improve their bottomline. By marketing a whole range of insurance products in the life and non life sectors, Banks, not only spread awareness of these products and facilities among the people, but also make a handsome amount of money by extending this service.
It is felt that Banks have a more personal relationship with the public and a better understanding of their financial needs. Hence people are more responsive to their Banker's advice.
Bank personnel are familiar and comfortable with financial language and terminology, and so can easily learn the subject of insurance, in order to sell these products. Further they are good at number crunching and making a sales pitch that gives them a distinct advantage.
Banking and Insurance products can often be combined to offer a better product mix to the consumer, in order to leverage the benefits of both the products and services.
The provision of insurance products through the banking channel enables the insurance companies to depend less upon the agents to sell their products. It costs the insurance companies a lot to select, train, motivate, and remunerate the insurance agents to push their products.
It is mutually beneficial for the Banks and the Insurance companies, when Banks crosssell insurance products, as both of them can leverage each others' products and services.
Banks get an additional source of income from commissions and fees from their insurance business. Especially the excessive competition for interest based products has affected the bottom line of the Banks who are trying to build up alternative sources of income, through provision of non banking products and services.
Banks cater to both categories of customers- the classes and the masses. Insurers can take advantage of this by pushing relevant products through these distribution channels. Simple products for the masses, and more sophisticated ones for the classes. Weaknesses
Bancassurance is not rosy all the way for both Bankers as well as insurers. There are several issues that both of them are concerned about.
One of the most important issues and indeed the fear of Bankers are losing business to the Insurers, in relation to similar products. For instance, a basic banking product like a fixed deposit may be placed at a disadvantage compared to a money market related insurance product that offers both growth as well as insurance cover.
Insurers have their own perceptions of Bankers as their marketers and feel that often Bankers do not do enough to push their products.
Banks feel that insurers gain more from Bancassurance, as they do not incur expenditure on infrastructure, manpower, etc., whereas, the returns accruing to Banks from this business are not worth the trouble taken by them.
When Banks are trying to cut costs by providing more and more services offsite, it is felt that servicing insurance clients onsite (by Banks), may not be practicable, as it only adds to their costs.
Banks also stand the risk of facing the wrath of the customers for poor follow up service, like claim settlement, etc., on part of the insurers.
Bankers may not appreciate certain finer points of insurance products they sell, and consequently face administrative and legal hassles from the customers. Opportunities According to a recent sigma study, bancassurance is on the rise, particularly in emerging markets. Worldwide, insurers have been successfully leveraging bancassurance to gain a foothold in markets with low insurance penetration and a limited variety of distribution channels.
Bancassurance, the provision of insurance services by banks, is an established and growing channel for insurance distribution, though its penetration varies across different markets. The research shows that social and cultural factors, as well as regulatory considerations and product complexity, play a significant role in determining how successful bancassurance is in a particular market. The outlook for bancassurance remains positive. While development in individual markets will continue to depend heavily on each country‟s regulatory and business environment, bancassurers could profit from the tendency of governments to privatize health care and pension liabilities. In emerging markets, new entrants have successfully employed bancassurance to compete with incumbent companies. Given the current relatively low bancassurance penetration in emerging markets, bancassurance will likely see further significant development in the coming years.
Though bancassurance has traditionally targeted the mass market, bancassurers have begun to finely segment the market, which has resulted in tailor-made products for each segment. The quest for additional growth and the desire to market to specific client segments has in turn led some bancassurers to shift away from using a standardised, single channel sales approach to adopting a multiple channel distribution strategy. Some bancassurers are also beginning to focus exclusively on distribution. In some markets, face-to-face contact is preferred, which tends to favour bancassurance development. Nevertheless, banks are starting to embrace direct marketing and Internet banking as tools to distribute insurance products. New and emerging channels are becoming increasingly competitive, due to the tangible cost benefits embedded in product pricing or through the appeal of convenience and innovation. Nevertheless, bancassurers have shown a willingness to expand their product range to include products beyond those related to bank products. Threats The shift away from manufacturing to pure distribution requires banks to better align the incentives of different suppliers with their own. Increasing sales of non-life products, to the extent those risks are retained by the banks, require sophisticated products and risk management. The sale of non-life products should be weighed against the higher cost of servicing those policies.
Banks will have to be prepared for possible disruptions to client relations arising from more frequent non-life insurance claims. Economic downturn has made organizations unsure of themselves and financial institutions in particular are forced to redraw their strategies. 'Back to basics' slogan is in vogue and extra baggage is being shed. There is no evidence to suggest however that objectives and rationale for banks entering into insurance business have undergone any change.
Bancassurance platform provides width to the banks in terms of the offerings it can make to its customers and tie them for a longer period. Bancassurance also provides a hedge between banking and insurance business as deficit at one place may be offset by the earnings at the other place. A typical Bancassurance life cycle starts with the distribution model where banks just sell or distribute insurance products for a fee rather than participate in the risk. Such product offering comes from unrelated insurance companies and hence banks are insulated from the vagaries of the risk taking business and are assured of steady fee income. This is in contrast to the risk taking model where banks participate in the risk and reap benefits accordingly.
Under the current economic confusion also called as 'recession', when even the basic banking is under stress, clearly directors and senior managers are playing it safe by reverting back to distribution model. Major findings A deeper look actually points to the success of Bancassurance as most of these disinvestments and de-mergers have actually helped banks to reinvent themselves under such testing times. Some of the key objectives for banks entering into insurance business have been 'spread of risk' and 'smoothening of profits'. Banks who divested their insurance portfolio achieved 'smoothening of profits' with the sales proceeds while banks who continue to be in the insurance business are meeting the objective of 'spread of risk'. Impact of Recession on Insurance Industry Insurance companies traditionally have thrived more on investment income than core underwriting business. Competitive pricing and below par risk rating have been protected by shrewd investment decisions. Current global recession and consequent economic crisis has put a lid on this maneuverability. Falling prices in real estate sector and nose-diving stock markets have already depleted shareholders‟ equity and moved the investment portfolio of insurance companies in red zone.
There are several issues that need to be debated. Where does insurance industry stand today amidst current crisis? What the future beholds for the insurance industry? Can it sustain itself on underwriting results alone? How deep the investment losses would impact the balance sheet and consequential stability of the companies? There are no straight answers, yet indicators and pointers provide an overview of the situation. Cause-Effect on Insurance Industry New construction and infrastructure projects have dried up and ongoing projects have been stalled due to inadequate cash injection in the market. Banks are not releasing installments to firms even on limits which were agreed prior to this crisis. This has impacted the engineering class of business in the insurance sector. Inquiries for CAR (Contractors‟ All Risks), EAR (Erection All Risks), Machinery Breakdown and Equipment Insurance have almost dried up in the last few months. Construction, infrastructure projects by governments and energy projects by private as well as governments have either been shelved or being delayed and insurance industry will have to live without large premiums from the project insurance for some time. Continued recession shall have impact on property class of business too. Cost-cutting in the corporate sector may lead to reduced expenditure on insurance. Falling market prices of property shall further bring down the premium volume on property insurance. Business Interruption or Loss of Profit premiums also shall go down due to reduced profit forecasts for most corporate. Life insurance sector is likely to see even bigger erosion in volumes and profits. Employee benefit schemes, Workmen‟s Compensation, Medical Insurance, Group Life and Personal Accident Insurance, etc. are likely to take maximum hit. With the investment portfolio almost gone, most unit-linked policies, Pension Funds and other investment backed insurance products shall show negative NAV (Net Asset Value) and consumer confidence shall further nosedive. Policy holders are already requesting cancellation of their policies in order to preserve cash in this moment of crisis. All this doesn‟t bode well for the insurance sector.
Retail insurance sector has similar problems. Low consumer confidence and stringent lending norms for retail customers by banks have led to reduced demand for products and services. Automobile companies are struggling to keep afloat due to negative sales growth. This directly affects motor insurance premium. Travel industry including airline companies are witnessing lower traffic resulting into reduced travel insurance premium. Reduced sale of property is resulting in reduced premium income on mortgage insurance and householders‟ insurance. Declining international trade and consequent reduction in export and imports have resulted in inflated inventories and consequent redundancy of work force has increased job loss claims. Reduced international trade has also impacted marine cargo and marine hull insurance businesses and premium incomes have dropped substantially. There are other issues too to ponder. Insurance industry is likely to see multiple bad moral hazard cases as depressed market conditions may lead to payment defaults and corporate frauds. Such situation stimulates claims on fire losses, business interruption losses and losses arising out of Directors‟ and Officers‟ liability litigation. Retrograde Bancassurance Recent phenomenon of some large financial conglomerates divesting their insurance activities might suggest a retrograde trend in Bancassurance. Giant institutions like ING, Fortis and UOB of Singapore have segregated their banking and insurance activities and sold off insurance businesses to return to basic banking. They did this to maintain segregation between banking and insurance activities. There are several reasons why banks should seriously consider Bancassurance, the most important of which is increased return on assets (ROA). One of the best ways to increase ROA, assuming a constant asset base, is through fee income. Banks that build fee income can cover more of their operating expenses, and one way to build fee income is through the sale of insurance products. Banks that effectively cross sell financial products can leverage their distribution and processing capabilities for profitable operating expense ratios.
By leveraging their strengths and finding ways to overcome their weaknesses, banks could change the face of insurance distribution. Sale of personal life insurance products through banks meets an important set of consumer needs. Most large retail banks engender a great deal of trust in broad segments of consumers, which they can leverage in selling them personal life insurance products. In addition, a bank‟s branch network allows the face to face contact that is so important in the sale of personal insurance.
Another advantage banks have over traditional insurance distributors is the lower cost per sales lead made possible by their sizable, loyal customer
SECTION V: CONCLUSION The changed equation between banking and insurance businesses under the current circumstances does not indicate any paradigm shift in Bancassurance. Banks across the globe still continue to own insurance subsidiaries and get involved in risk taking business. Banks who want to play it safe, just distribute products for a fee. Banks still need fee income from the cross sale of insurance products and probably the need for such fee income is more acute now than ever. Product Integration The success of Bancassurance lies in understanding the life cycle of Bancassurance and integrating the product and distribution mix according to the stages of the life cycle. Most Bancassurance partnerships go through three stages: early stage, youth stage and mature stage. Early stage is basically the passive mode of Bancassurance. This stage involves predominantly product bundling and there is hardly any sales pitch. Simple insurance products like term life, car insurance, home insurance and travel insurance are bundled with core banking products like credit cards or savings account and offered as a packaged product to the bank‟s customers. Customers generally don‟t have a choice as the cost of insurance is not shown separately but factored in the product being sold by the bank. Bancassurance moves into the youth stage as the banks‟ hunger for fee income grows. Insurance products are sold on a standalone basis rather being bundled. The emphasis is on higher commission (fee income) and therefore sales efforts and processes are beefed up. Typically, whole life, universal life and unit linked investment products are sold at this stage. The mature stage comes after the bank has gained enough experience and confidence in selling insurance products. There is a desire to do something different at this stage. Risk taking options are considered.
Product and Distribution Mix Product roll-out and distribution strategy closely follows the partner selection process. Products have to be in line with the customer profile of the bank and distribution channel must be in sync with the product being offered. Customer base needs to be segmented in a scientific way and could be based on income, age, occupation, sex, etc. and products should be developed with the specific customer segment in mind. Product differentiation is another key factor contributing to the success of Bancassurance. Standard and off-the-shelf insurance products have no place in Bancassurance. Exclusive and customer-centric products with add-ons like premium payment in instalment or free additional coverage may work wonders. Similarly, a product may need to be sold through multiple channels, e.g. direct mailer, call centre and through branch network. It is important to remember that all products can‟t be sold through all channels. Distribution Channels in Bancassurance One of the most significant changes in the financial services sector over the past few years has been the growth and development of bancassurance. Banking institutions and insurance companies have found bancassurance to be an attractive and profitable complement to their existing activities. Distribution is the key issue in bancassurance and is closely linked to the regulatory climate of the country. Over the years, regulatory barriers between banking and insurance have diminished and have created a climate increasingly friendly to bancassurance. Bancassurers make use of various distribution channels: Career Agents, Special Advisers, Salaried Agents, Bank Employees / Platform Banking, Corporate Agencies and Brokerage Firms, Direct Response, Internet, e-Brokerage, Outside Lead Generating Techniques.
Specific suggestions Making Bancassurance work is more an art than a science. It requires human skills and intuitive approach rather than structured processes alone. Banks around the world have taken to various models of Bancassurance. Some of them have succeeded while many stumbled. A successful Bancassurance at one place may not make a mark at other places for reasons related to cultural, social, legal, demographic and economic environment. Best practices therefore is to craft a model which leads to goal congruence for bank, customers and insurance company and that alone can lead to a successful Bancassurance. Corporate Bancassurance Bancassurance provides more ways to earn fee income for the bank. As discussed earlier that every relationship provides an opportunity to cross sell Bancassurance products whether it is retail or corporate. Corporate relationships provide an opportunity for corporate Bancassurance which is taking shape slowly but steadily. All commercial enterprises need insurance for their buildings, factory or warehouses and banks can capitalize on this existing need for insurance cover. There is more fee income in distributing commercial property or liability insurance to corporate house as volume and turnover are high. It is easy to cross-sell commercial insurance at the time of term lending or providing Letter of Credit since it will be value addition from the customers‟ point of view. Further, lending is an asset creation process for the bank and it makes sense even from the credit risk management perspective to have an insurance security of your choice.
Fire insurance, workers compensation insurance, group medical insurance and contractors‟ insurance are just some of the commercial property and liability insurance which can be sold to the corporate customers of the banks thereby generating additional source of fee income. Similarly, Trade finance or operations division within the bank provide opportunity to cross-sell marine insurance. The importance of corporate Bancassurance lies in further cross-selling opportunity to the individuals within those companies.
Overall Recommendation to Nabil Bank:
Introducing innovative products and services Banking industry is one of the highly competitive industries. New banks are coming up in the market in increasing number. And all banks are providing almost similar products and services. To address to this crucial problem, Nabil should opt for introducing new range of products and services, new policies that is different from what market is offering. Nabil is the most preferred bank when it comes to taking consumer loans. So, there is a greater scope for business expansion in consumer lending. Also, the bank may introduce some novel deposit schemes that will delight customers.
Enhancing new investments Our country is going through serious political and economic downturns since past many years. Investments in industries and new businesses have dropped significantly. But we still have a 'hope', as the saying goes- 'where there's life, there's hope'. There are investment opportunities in hydropower, real estate, industries, businesses and other sectors which will hopefully improve.
Focusing on Marketing mix Being an established and one of the top-rated banks of the nation, Nabil is more easy-going on its marketing functions. However, it should not overlook that even the best product needs marketing. There are many people who are unaware of numerous facilities provided by Nabil. Product- Focus on creating innovative products and schemes that will appeal to a wider mass of audience. Price- Deposit interest rates provided by Nabil is the least. It should increase deposit rates a little higher. And the loan interest rates must be lowered; it should be brought closer to competitors'. As such, Nabil can serve a larger clientele base.
Place- Plan on expanding the branch network and the facilities. There are many untouched markets which can be served profitably. That includes rural areas as well; they call for serious development efforts. Promotion- Integrated marketing communications (IMC) would assist Nabil to send a consistent message throughout various media sources. Nabil has not yet developed any TV commercials yet. TVCs can address to larger audiences that will have a greater impact on customers' minds. Promotion of services can further attract a pool of deposits and loan assets that will be of much value to Nabil.
Focusing on customers of every income level The bank targets high income group customers when it comes to giving business and consumer loans. The bank has strict documentation procedures which restrict granting loans to deserving clients who have enough potential to play on their strengths and payback the loan amount. Only large-scale banks like Nabil are in position to take risks in investments and contribute to developing of Nepalese economy.
Maintaining long term partnerships and focusing on quality Communication strategies play a substantial role to develop long term relationships and profiting from them. Nabil should therefore focus on developing and maintaining partnerships with current and prospective customers, employees, suppliers on international level. Nabil provides quality services and it should continue doing so. One should never compromise on quality so as to outperform competitors.
Expansion of locker facilities This particular branch also provides locker facilities to its customers, known as "Vault". Customer demand for lockers is very high at the branch. In response to high demand, they should plan to expand the facility as soon as possible.
PART IV: REFLECTION OF INTERNSHIP
The nine weeks of internship at Nabil Bank has enabled me to refine the skills and knowledge needed in the banking sector. I could learn the skills required to operate different department of a bank. The departments I got to serve were cash department (privilege banking), customer service department, bancassurance unit, accounts and general service department and personal lending unit. From these entire departments, I acquired the knowledge to handle specific tasks. Being in the customer service department (CSD), I‟ve learnt the importance of keeping customers satisfied even in the busiest of hours. Even though the job in CSD seems routine like opening new accounts, delivering cheque books but addressing different needs of different customers is a challenging task. One weeks‟ time in the CSD taught me that it is important to be tactful when you have to deal with customers. Privilege department is where I spent the first week of the internship period. Some of the important things I learned serving the privilege department are as follows:
Ability to create and sustain a network of important clients.
The fact that it‟s the smallest gestures that makes the most difference to the customers. Gestures like a warm welcome greeting or even a smile when they are leaving shows that “we care”
The art of bring tactful without appearing rude.
Talking to clients who are not well versed in our language as well as English language. Such clients are from organizations like Jica and they need to be treated well. So it‟s a skill communicating with them.
As a whole, now I know how to operate a cash department and deal with customers. Being in personal lending department, I‟ve acquired skills in the following areas.
Interviewing customers to get information about them which I have actually practiced with a couple of them
Preparing sanction letter
Filling documents in order
Keeping up to date with customer‟s process and informing them.
Though these tasks may seem too trivial to mention, they form the workflow of each departments. Therefore, in order to be successful in one department, we must know what it takes to run that department. I‟ve learned skills required to operate the overall framework of each department that I served. Technology has revolutionized the banking functions. All banks use softwares to maintain transactions and create report. And, almost all of them use “finacle” software. I find myself fortunate to have got the opportunity to practice finacle. This is a technical skill that will add to my portfolio. For the specific task, I chose to do a research on “improving service of education loan at Nabil Bank”. As I got to explain to the customers‟ about the bank's charges, documents required and the regulations and solve their queries, I improved on my communication skills. I also assisted the relationship officers to prepare Credit Financial Reports (CFR) and sanction letters for loan disbursement. That helped me to improve my business writing skills. These skills and knowledge are going to be my strength in future. When I join any bank then I will use these findings in my workplace. Some of the main internship goals and objectives mentioned above have been fulfilled. Now I have the experience of working in a real life working environment. I have inbuilt the problem solving skill through investigating problems and development of system/ strategy/ product. Now I have the increased level of maturity and understanding of the business culture, specific professional and personal skills. I‟ve developed personal relations as well.
Websites www.nabilbank.com www.ceoexpress.com
Online newspaper article The Himalayan times Republica
Officials publications The Harvard business review
Text book Rose, Peter S. Richard, Commercial Bank Management, USA: Irwin Inc.