Share prices in no-man’s land: Thursday Closing Report

If Nifty falls below 5,480, the market will head lower

The market opened flat ahead of the weekly food inflation figures, with the Sensex just one point over its previous close of 18,395 while the Nifty shed three points to resume trade at 5,524. Concerns about the slowdown across the world also kept investors guarded. The Sensex touched its intra-day high in the first hour of trade at 18,450 and the Nifty climbed to 5,540 in noon trade.

The gauges were range-bound, when the announcement of a nearly one percentage hike in food inflation numbers put some pressure on the market, pushing the indices to intra-day lows in noon trade. At the day's low the Sensex was down 67 points at 18,327 and the Nifty had lost 25 points to 5,502.

Subsequently, some buying in select stocks along with a positive opening on key European bourses enabled the domestic indices inch into the green, even as volatility continued through the session. The market closed near the opening levels with the Sensex shedding nine points to 18,385 and the Nifty losing six points at 5,521.

Today the Nifty was not able to touch the first resistance of 5,550, signalling a pause in the uptrend. However, we can still expect the current upmove to continue if the Nifty can manage to stay above 5,480.

The advance-decline ratio on the National Stock Exchange was 607:780.

Among the broader markets, the BSE Mid-cap index was down 0.12%, while the BSE Small-cap index added 0.08%.

BSE Consumer Durables (up 1.44%), BSE Capital Goods (up 0.92%) and BSE Power (up 0.30%) were the noteworthy gainers in the sectoral space. The losers were led by BSE Auto (down 0.57%), BSE Healthcare (down 0.32%) and BSE IT (down 0.15%).

NTPC (up 1.74%), Larsen & Toubro (up 1.27%), BHEL (up 0.91%), Reliance Industries (up 0.71%) and TCS (up 0.59%) were the top performers on the Sensex. The laggards were Jaiprakash Associates (down 1.85%), ONGC (down 1.80%), State Bank of India (down 1.31%), Hero Honda (down 1.29%) and Reliance Communications (down 1.27%).

The top Nifty gainers were SAIL (up 1.94%), L&T (up 1.66%), NTPC (up 1.51%), Axis Bank (up 1.43%) and BHEL (up 1.25%). The major losers were Ambuja Cement (down 2.13%), Jaiprakash Associates (down 2.09%), BPCL (down 2.02%), ONGC (down 1.87%) and Kotak Bank (down 1.57%).

Economic concerns continued to roil the Asian markets for yet another day. Adding to the disappointing jobs data from last week, Australia created only 7,800 jobs in May, after a fall of 29,000 in April, government data showed. Hong Kong shares fell for a sixth straight session, mainly on a sell-off in banking stocks. The Chinese benchmark index closed at its lowest in four-and-half months on concerns about further rate-tightening steps by the country's central bank.

The Shanghai Composite tumbled 1.71%, the Hang Seng fell 0.23%, the Jakarta Composite declined 0.51%, the KLSE Composite shed 0.06%, the Straits Times was 0.17% down, the Seoul Composite ended 0.57% lower and the Taiwan Weighted fell 0.07%. Bucking the trend, the Nikkei 225 gained 0.19%.

Back home, participation by institutional investors was meagre on Wednesday. Foreign institutional investors were net buyers of stocks worth Rs50.43 crore and domestic institutional investors were net buyers of equities worth Rs85.47 crore.


Good monsoon will bring down inflation by Oct-end: PMEAC chief

Prime Minister’s Economic Advisory Council chairman C Rangarajan exuded confidence that headline inflation would decline down to 6.5% by March 2012 and that monsoon would lead to a decline in prices from the current level of 8.66% (April)

New Delhi: On a day when food inflation again breached the 9% mark after a gap of two months, prime minister’s top economic advisor C Rangarajan today said prices will decline by the end of October in the event of a good monsoon, reports PTI.

“If the monsoon is favourable, food prices will come down over the next 2-3 months. Overall inflation rate will come down slowly by October-end”, Prime Minister’s Economic Advisory Council (PMEAC) chairman C Rangarajan told reporters here.

Mr Rangarajan also exuded confidence that headline inflation would decline down to 6.5% by March 2012 and that monsoon would lead to a decline in prices from the current level of 8.66% (April).

“Once the monsoon picture becomes clear, I expect decline in prices. We could see WPI (wholesale price index based inflation) at 6.5% by March-end,” Mr Rangarajan said.

Food inflation jumped to a two-month high of 9.01% for the week ended 28th May on account of costlier fruits, onions and protein-based items.

The PMEAC, which proposes to come out with its Economic Outlook for 2011-12 next month, today held detailed discussions with industry leaders during which the issue of inflation figured prominently.

The industry representatives also expressed concerns over high interest rate and its impact on economic growth.

Other issues that came up for discussion include land acquisition laws, slow growth in exports in certain sectors like textile, infrastructure bottlenecks and other impediments threatening the industrial growth.


Bancassurance turns into an assurance that is not bankable

Bancassurance has under-delivered till now. Mis-selling by untrained personnel, fat upfront fees from insurers—ultimately drawn from customers—and lack of customer service has been ailing the ‘future’ of the insurance distribution channel

The Insurance Regulatory and Development Authority (IRDA) had set up a committee in 2009 to look into how the bancassurance channel can be more efficiently utilised and re-engineered to meet the needs of tomorrow. Based on the recommendation of the committee, banks may soon be allowed to sell products of two sets of insurers—two in the life insurance sector and two in the general sector, as opposed to banks currently selling products of one life and one general insurer.

The committee report clearly suggests that the banks have a lot of catching-up to do on the productivity front. They would also be well-advised to allocate a greater share of their resources to bancassurance activities, since these banks are ideally positioned to leverage on their existing clientele for distribution of insurance products at a negligible additional cost.

The report quotes Deepak Satwalekar, former chief executive officer, HDFC Standard Life, "Banks are unwilling to assume any responsibility, or risk, of the result of their mis-selling. The RBI (Reserve Bank of India) is also wary of banks taking on the role of a 'broker' as it would mean that they assume the role of a 'principal' in the sale process with the consequential responsibility and potential risk. Possibly, banks are better aware of the deficiency in the sales process practised by them and hence their reluctance to assume any risk arising thereon. It is rather unfair that banks expect insurance companies to assume the risk arising out of their deficient sales process. If bankers believe that they are well-trained professionals, they should have no hesitation in taking on the liabilities arising from their sales."

Hefty fees

The report states that several banks charged hefty fees for entering into the referral agreement, over and above the fee which was linked to sale. Further, upfront fee was being collected for providing infrastructure for locating an insurer's staff and advertisements in bank premises. IRDA had earlier issued guidelines on referral arrangements. Most insurance companies are circumventing the Referral Agreement circular No. 004/2003 issued by the Authority by interpreting the wordings to their advantage, thereby paying the higher referral fee to the banks.

The regulator is concerned that the iniquitous relation between the insurers and the banks will ultimately put the insurers at risk of under-pricing the risk of doing business and overcharging the customer to pay the banker. The insurer ends up paying a fat upfront fee running into tens of crores of rupees. At least 1/4th of the prospective business, training costs, infrastructure costs, bank brochures, expenses towards transactions, incentives, travel, and entertainment for the bank staff are some of the heads under which the insurer is fleeced. The accounts at both ends are opaque and the payouts exceed the prescribed commission by a large measure.


Due to the asymmetry of the relationship, an insurer has hardly any say in the manner of marketing of their products. The regulations prescribe that insurance products have to be sold only by trained persons. Only persons familiar with features of the products and the risks they cover can do justice to the customers.

Banks at present do not have trained persons in all branches, which means that solicitation is happening through untrained personnel. This opens up the possibility of mis-selling by bank staff, which in turn shifts the liability to the insurance company. The risk of mis-selling and the insurer being held liable is higher in products which also have savings features. As banks are not directly under IRDA for regulatory purposes, this poses a challenge to the insurance regulator in the prevention of mis-selling. Opening up the sector for multiple tie-ups for banks with insurers carries the danger of aggravating the problem of mis-selling by banks.

Regulations shall mandate that the bank staff be fully trained in handling insurance products so that the sale process is transparent and the policyholder gets full disclosure of the features of the product. There is a need to strengthen the certification criteria for bank sales personnel for the purpose of selling health insurance, ULIPs (unit-linked insurance products), pension and other complex products. One-time rigorous training may be given to the sales personnel of a bank, with added stress on complex products. The training of bank staff is an important task of the insurer and the substantial sales force of the bank can be trained only in a phased manner because of business contingencies.

Hence, the substantial initial period of the tenure will elapse before a banker is equipped with the necessary skills and the ability to sell insurance products in a proper fashion. Further, as the term of an agreement nears the end, the banker looks forward to new tie-ups which will provide them with higher income. This will put the relationship in cold storage even before the agreement has come to an end. In order to ensure that the instability does not affect the relationship between the banker and the insurer, the committee has recommended that the tenure of the agreement between the banker and the insurer shall be not less than five years.

Lack of customer service

The data on bancassurance reveals the preponderance of single-premium products.  This brings in the aspect of service to be provided by the bank as an agent to the policyholder. An agent is supposed to be accessible to the policyholder and be an active interface and facilitator on all policy or claim-related matters. The exclusion of regular premium products from this channel can well be an indication of deficit in the servicing aspect of insurance. This can also mean that the bank channel is more focused on new premiums, which results in higher commission. Till recently, the tie-ups between banks and insurers lasted for a year or two. The short term of the tie-up resulted in the major burden of servicing falling on the insurer. This also prevents an insurer from taking a long-term interest in training of the bank staff in insurance-related subjects. This has also resulted in many policies going 'orphan' when the tie-up ends. The bank customer, being loyal to the bank rather than the insurer, has also resulted in the switching of an insurer by the policyholder along with the bank.

This has pushed the insurer's costs upwards as first-year expenditures are typically much higher. This militates against the long-term nature of the insurer's business model and is a cause of concern for the regulator.




3 years ago

Nothing can be worse than the toxic partnership of Standard ch.Bank ,as referral partner of Bajaj Allianz Life insurance Co,till 2010.The bank ,with its illiterate staff regarding ulip products,only experise in misselling and churnning.Though ,any referral partner not authorised to sell insurance products from its premises/or else where.Insurer connivines to fraudulant activity,as the referral partner in dictating terms,being large business provider to bank.Whatever leads provided by bank.insurer obliges,resulting damage to the pocket of policyholders.


5 years ago

The best solution would be prohibit banks to sell as agents/brokers, but allow them to give space in their premises to multiple insurance companies where employees (not agents) of such company will be posted to facilicate direct selling of the policies. Since customer can have access to multiple products from multiple insurers, they can take a better decision. Banks can get a flat fee per desk provided & insurer would anyway have to spend that on agents or its own infrastructure. That might be a win-win, if done in a legal way (no unofficial kick-backs from insurer to bank managers/staff).


6 years ago

The Banks ought to stick to improving banking services. No amount of training can equip them to deal with either general or life insurance covers. It is not their core activity and end up in mis-selling and they certainly can't render after sales services because they are simply not geared or have domain knowledge. They end up in misguiding the customers. Bottom line simple Banks must not assure!

B R Sanjay

6 years ago

Bankers are today BYANKERS. Mangers refuse to give you OD facility if you refuse to buy 3rd party products. RBI should step in and tell Banks to do Bank Activities but can continue to sell 3rd party products as a separate company altogether and not withing the Bank Premises.


6 years ago

Insurance and investment are two sepraet thing why govt. is allowing product like ULIP and crying for misselling.

Madhusudan Thakkar

6 years ago

To add insult to injury IRDA may permit Banks to tie-up with TWO INSURERS.
Why similar thing is not thought for IFAs?To begin with all agents who have completed at least 3 years should be allowed to sell policies of more than one company.

Melvin Joseph

6 years ago

At the time of privatisation of Life Insurance in 1999-2000 , most of the banks tied up with LIC of India for distribution of Life Insurance. Lack of involvement from the bank employees,lack of support from their unions, lack of training etc. resulted in most of the bancassurance tie up resulted into a name sake business for the banks.
Later, aggressive private sector Life insurance companies created huge revenue models for banks, with high commission products. This was an eye opener for most of the banks to explore their luck in distribution.
Every bank want to participate in this growth story and the fee based income has grown very well in the last 5-7 years.
Life Insurance sales and after sales service depends a lot on the bonding between the policy holder and the agents. Successful insurance agents built their business on this trust factor only. When it comes to a bank employee and a policy holder, this bonding is not happening and this resulted in lot of policies getting lapsed due to service issues.Transfer of bank employees, lack of follow up to service these orphan policies etc. added to the issues.
While, the banks were concentrating on their fee based income, customers were taken for granted with policies which are front loaded with huge expenses. Lots of bank employees enjoyed incentives and foreign trips, at the cost of customers. There were many incidents, where a policy has become a mandatory condition for sanction of any loan!
With each banks going to distribute multiple Insurance products, the competition will become more unhealthy, and customers will be again exploited to large scale looting.
The insurance regulator should join IBA to control this channel to save the potential customers from this.
While individual agents were doing Misselling in retail, Banks were doing misselling in Whole sale.


raj pradhan

In Reply to Melvin Joseph 6 years ago

good comments

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