Insurance companies and insurance repositories are working on issues connected to the proposal. Several aspects related to making insurance policies available in demat form have been discussed, Life Insurance Council secretary general SB Mathur said
New Delhi: After shares and mutual funds, it is now the turn of insurance policies to be digitised, with the Insurance Regulatory and Development Authority (IRDA) expected to give the nod for making policies available in demat form.
Insurance companies and insurance repositories are working on issues connected to the proposal. Several aspects related to making insurance policies available in demat form have been discussed, Life Insurance Council secretary general SB Mathur said.
An insurance repository is a company maintaining data on insurance policies in electronic form on behalf of insurers, including the history of transactions during the term of the policy.
“Finally, it has to be vetted and approved by the IRDA,” he said.
According to a senior official of a private sector life insurance company, there are certain issues with respect to life policies being available in demat form. These include pricing and the cost of demat and who would bear the cost.
If the proposal becomes a reality, new life insurance policies and over 35 crore life insurance policies issued by 24 life insurance companies that are currently in force will have the option of being held in electronic form.
Shares and mutual funds were ‘dematerialised’ many years back and it is no longer possible or necessary to have a physical instrument to prove or acquire ownership of these assets as they are kept and traded in electronic form, making them safer and easier to manage.
In fact, life insurance policies are the only major retail financial product that are still issued and maintained entirely in physical, paper form.
India would probably be the first country in the world to undertake such a huge exercise to transform physical insurance policy certificates into electronic form.
According to sources, IRDA is expected to give the green signal for some of the insurance repositories to start operations, paving the way for opening of e-insurance accounts and issuance of e-policies soon.
IRDA has already shortlisted five entities—CAMS, Karvy, NSDL, CDSL and STCI—to set up and operate insurance repositories.
While eventually all policies of an individual—life, health and general—can be held in electronic form, IRDA is likely to start with life insurance policies in the first phase.
In term of benefits, electronic policies are safe, convenient and easy to manage. Most of the traditional life insurance policies are long-term contracts and safe-keeping and ease of access for dependents in their hour of need can be quite challenging for holders of these policies. E-policies will take that burden off the shoulders of policy holders.
Banks, which have long-term association with such SMEs as lending partners, can further this relationship by providing consultancy on finance, cash-flow management, taxation and other related things for a fee, RBI deputy governor KC Chakrabarty said
Mumbai: The Reserve Bank of India (RBI) has asked banks to set up dedicated verticals to help small and medium enterprises (SMEs) to deal with financial matters, reports PTI.
“An SME-promoter knows the product, but he doesn’t know finance,” RBI deputy governor KC Chakrabarty said, speaking at an industry seminar organised by the SME Chamber of India here over the weekend.
Banks, which have long-term association with such SMEs as lending partners, can further this relationship by providing consultancy on finance, cash-flow management, taxation and other related things for a fee, he said.
“I think this is a product innovation, which needs to be done by banks and it needs to be done across the globe,” Mr Chakrabarty, whose responsibilities include customer services, said.
A desk should be available centrally that will help SMEs and can handle multiple SMEs, he said.
SMEs will have to pay for such service, he said. “I am not saying anything is free, you charge them for that.”
However, banks should eye volumes in the business and ensure that the costs are low, Mr Chakrabarty added.
He also came down hard on the high interest rates charged by banks in lending to SMEs, asking if they can be compared with rates charged to corporates.
As a matter of proper governance, Mr Chakrabarty said, “I will be happy if banks disclose this in the balance sheet.”
In a related development, State Bank of India (SBI) has decided to waive guarantees and annual service fees on loans given to small and medium businesses, guaranteed under the Credit Guarantee Fund Trust scheme.
To improve credit flow to the SME sector, the government-appointed Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) acts as a guarantor for loans up to Rs1 crore. CGTMSE charges the above-mentioned twin fees to borrowers.
“The fees are basically a kind of insurance premium. To help clients, we have now decided to pay up to the trust from our books,” SBI managing director (national banking) A Krishna Kumar said. The decision was taken two weeks ago.
The trust, which came into being four years ago, charges a guarantee fee ranging from 1% to 1.5% of the loan amount while the annual service fee ranges from 0.50%-0.75%.
Mr Kumar parried a question on the financial implication of the move on the bank’s balance sheet, but said this is a long- term arrangement, not a short-term move to lure customers.
Explaining the rationale, Mr Kumar said the presence of such a commission clause dissuades ‘good borrowers’, who feel it is unnecessary to take the extra burden in loan servicing.
Additionally, paying up the fees from the bank’s own books will act as a ‘psychological deterrent’ to the bank’s staff, who can become complacent as the trust stands guarantor to such loans, Mr Kumar said.
If a loan turns bad, CGTMSE pays back 75% for the principal to the lending bank and an additional up to 15% depending on the case, he added.
Despite an improving picture for the global economy, earnings reports of MNCs with operations in Asia and other emerging markets have seen lower growth in the 4th quarter. However, managements of these companies are quick to reassure investors that things would improve in the second half of 2012
The present stock market optimism is based on a very benign view of the world. The US economy continues to add jobs, although not as many as it should. Greece’s negotiations with its private creditors are going well and they will work out a deal to avoid default. Or at least that is what we are told to say nothing about increasing problems in Portugal and Spain. The emerging markets have been growing rapidly with Egypt up 25%, Hungary up 21% and Turkey up 21%. Perhaps surprising considering Egypt’s political upheaval, Hungary’s debt levels and Turkey’s double digit inflation.
But the best news is from China, where the official Purchasing Managers’ Index (PMI) was 50.5 in January, beating analysts’ expectations of 49.5. Of course, the government figures were contradicted by a private-sector version of the survey put out by HSBC. Its number was 48.8, which indicates a slight contraction and was unchanged from December. What is more interesting than the Chinese government’s PMI fudge is that the statistics bureau decided not to publish figures on investment and other activity in January due to “distortions related to the national week-long holiday.” Were they that bad?
Despite all of these encouraging numbers demonstrating an improving picture for the global economy; it might be a good idea to look a little deeper into the earnings reports for the 4th quarter. Since the crash of 2008 the developing world has experienced slow or no growth. The recovery was helped by the massive stimulus in China and insanely accommodative central banks in developed countries. This wall of money helped China and most emerging markets achieve robust growth while the developed world stagnated.
It was not only the emerging market economies, especially those in Asia, which grew. Many of the US’ largest companies grew with them. Although their revenue growth in Europe and the US remained anaemic, many of them racked up double-digit growth in Asia and other developing markets. This has gone on quarter after quarter until now. Apparently in this reporting season there are definite signs that things are changing.
Take the case of Siemens, the giant German industrial company that makes everything from wind turbines to medical diagnostic equipment. Considering the problems in Europe, it would be considered natural if Siemens’ sales slowed, but the problem was not in Europe. New orders from China slowed by 16%. While Siemens’ chief financial officer, Joe Kaeser, acknowledged that “there had been a ‘clear slowdown’ in China”, he was quick to reassure investors that things “in China could actually brighten in the second half.”
Siemens was not the only large company to experience problems in Asia. Eaton, the US manufacturer of industrial equipment and components for trucks and aircraft had problems too. Their sales have been hit by the slowdown in Chinese construction. Eaton’s CEO, Sandy Cutler, was not fazed. He told analysts that he still expected economic growth would be faster in emerging economies such as China and India.
The American manufacturer 3M had similar problems. Its chief executive said: “Our China team anticipates continued below-trend growth in the first half of 2012.” United Technologies, the manufacturer of Otis elevators had the same experience for its sales in China, which slowed by 7% in the fourth quarter. Also, the Swedish-Swiss power and automation company ABB’s orders dropped 5% due to weaker demand for its power systems in China.
The problems are not limited to manufacturing companies. The largest US chemical company DuPont also had issues. Their sales in the Asia-Pacific region fell by 23% in the fourth quarter of 2011. The management of UPS ascribed the slower global growth to Europe, but also acknowledged that the Asia-to-US package volume slipped 3% and that it had reduced its Asia-to-US capacity by about 10% because of the lower demand.
Certain segments of the automotive sector have also been hit by a slowdown in Asia. The commercial vehicles group, Volvo, warned last summer that Chinese demand for construction equipment fell, but of course they assured investors that it was just ‘temporary’. Ford experienced declining sales in both Europe and Asia as did Johnson Controls Inc, a US auto parts manufacturer.
Not all car companies had problems. Luxury brands like BMW and Volkswagen’s Audi had record-breaking sales. Like the 35% rise in gambling revenues in Macau, these sales might represent instability and corruption. But even these might have problems. Wynn Macau just reported slower growth.
One US company, Caterpillar, also saw a drop in sales in China, but the stock still has risen 20% in January. Part of the expectation is Caterpillar can profit from sales in the US although those are still only 50% of their peak in 2006. The other bright spot for the company is sales to mining companies which look forward to booming demand for their commodities in, you guessed it, China.
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages. Mr Gamble can be contacted at [email protected] or [email protected])