MARKET SHARE (LIC) - NFIFWInfifwi.com/magazine/2008.010.pdf · Liberalisation , Privatisation and...

24

Transcript of MARKET SHARE (LIC) - NFIFWInfifwi.com/magazine/2008.010.pdf · Liberalisation , Privatisation and...

MARKET SHARE (LIC)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

Apr

-04

Jun-

04

Aug

-04

Oct-0

4

Dec-

04

Feb-0

5

Apr

-05

Jun-

05

Aug

-05

Oct-0

5

Dec-

05

Feb-0

6

Apr

-06

Jun-

06

Aug

-06

Oct-0

6

Dec-

06

Feb-0

7

Apr

-07

Jun-

07

Aug

-07

Oct-0

7

Dec-

07

Feb-0

8

Apr

-08

Jun-

08

MONTH

PE

RC

EN

TA

GE

SH

AR

E Composite Premium

Non single Premium

Composite Policies

Non Single Policies

CONTENTS

Page No

1. EDITORIAL 2

2. PERSPECTIVE 3

Secretary General’s Desk

3. COVER STORY 5

The Economic Mayhem

4. BURNING THE CHARIOT OF PROGRESS 9

Com. Gautam Sengupta

5. MEDIA WATCH 13

6. CIRCULAR FILE 19

OF INSURANCE FIELD WORKERS

Vol XXIII Book No 10 October 2008

NEWS BULLETIN

Chief EditorR. Jayprakash

Associate EditorsK. VenkateshS. Sreekumar

EditorsJ. BaburajanM. B. Vinod

Editorial BoardA. GopakumarShaji T ThellyP. K. AjayakumarHari T. Pillai

Please send yoursuggestions, articlesand contribution to

The EditorNews BulletinKalvit BhavanCapital HeightsPlamoodu, PattomTrivandrum - 4ormail [email protected]

The views &

opinion expressed

in the articles need

not necessarily be

that of NFIFWI

A new section - ‘Marketing Tips’ is given in ourwebsite : nfifwi.comPlease make use of it.

We also request contributionof more such tips and presentation from our members.

4

News Bulletin October 2008

EDITORIAL

The Crisis deepens….

‘The Economic melt down’ is continuing and worsening every day. News of banks and financialinstitutions bursting comes in every day. Investors watch with bated breath as stocks plunge to new depths.It was felt that Lehman Brothers may be the first and probably last. But AIG, Merril Lynch followed closely.Then it triggered panic in Europe, Britain, Germany and elsewhere in the world. The much touted bailoutpackage by the US Govt failed to impress the investors. It is generally felt this is morally and ethically notcorrect. The US has long believed in the freedom and ability of the private companies and financial institutions.They Preached that was the only way to a Prosperous tomorrow. When these ‘Economic wizards’ meettheir doom by their own actions, Is it proper to save them by pumping in the Ordinary citizen’s money ? TheOrdinary citizen has no role whatsoever in the decisions of these corporate giants. They are not evenentertained any where in the sprawling offices of these corporates. They are simply forgotten or ignored.They brag only of the new ‘Market System’ that gives only profits. A system that will never fail and onlygrow.

When a Crisis sets in, it is invariably the common man who has to bear the brunt of it. It is hismoney that is wiped off. Adding to that he is forced the bear the burden of the “bailout packages” of theGovt. In the US, every Citizen will have to bear 3 lakhs US dollars for no mistake of theirs. Nothing ofwhich they could even dream of.

It is heartening that the public Voice in the US and eminent economists like Joseph Stiglitz and PaulKrugman come out openly against it. “Those who were responsible for it, should bear it.” That is morallyright.

The hard fact of this disaster is that LIC too, which had for long ardently executing the objectives ofnationalization got entangled in this mire. The proud talk in 1992 was that “LIC lost not a penny in the stockmarket during the Harshad Mehta Scam”. The only institution which stood tall and high with trust was LIC.Is it so now? Is LIC keeping that trust of Investors. The decision makers have to answer that now.

Every time the Sensex falls, the Finance Minister appears in media and assures the investors.Whether a Finance Minister should be doing this for a mere 4% invested in stock market is for the public todecide.

But what should be deplored is the way LIC is forced to buy all the scrips when the market dips.This is actually squandering Public money irresponsibly. Investment is a skilled job to be done by experts togive maximum returns to all the policy holders. They are LIC’s trust and back bone. Is this investment bythe LIC bosses helping that? This should be a matter of concern for all. There should be a re-think on thisinvestment pattern.

We remember the sane prophecy of the respected actuary Sri. Chidambaram who wrote in anarticle for News Bulletin in March 2008 about this.

“It is difficult to believe that unit linked policyholders are aware of the dangers of the market.However much you forewarn them, a great many such forewarning either in unreadable smallprint and enigmatic super fast gibberish from the TV screens”.

“But under the unit linked the whole question of surplus or deficit is decided by the market. Theinsurer has no role in it except perhaps to the extent of what their portfolio manager can do tomaximize returns by a cautiously active sell, buy and hold policy.

“The facts seem to point that the emphasis has moved from security of insurance cover to marketrelated greed. This is certainly not in conformity with the avowed objectives LIC has set foritself.”

“By following suit LIC is getting as much exposed to market risks as other private insurers alsoand if any sinister thing happens to the market every insurer’s reputation as a provider of securitywill be at stake. There seems to be distant rumblings of a gathering market storm. Should LIC be

caught in it?”

5

News Bulletin October 2008

PERSPECTIVE

From the Secretary General’s Desk

The Capitalism theory is failing and the

Countries are heading towards the worst economic

crisis and even bankruptcy. This is a alarming

situation . In short what happened in USA last month

was “PRIVATISATION OF PROFITS AND

NATIONALISATION OF LOSSES”. A well

regulated, balanced system is the need of the hour

and not any “isms”. Americans have lived beyond

their means is the finding now. During the food crisis

President George Bush tried to blame Indians for

eating more. Now the cat is out. We call upon our

Prime Minister and Finance Minister and policy

makers of India and more so, the advocates of

Liberalisation , Privatisation and Globalisation (LPG)

to wake up to the realities and change course in the

best interest of India and it’s citizens. In pursuit of

glamour, service and artificial growth, the world has

got into a rat race where people are forgetting the

basic purpose of life . The great fall from the state

of luxury to a state of starvation and increasing

suicides is intolerable and devastating. Our

government is following the footsteps of the West

and developed countries whereas the US government

has followed our footsteps of the 1956 of

Nationalising private companies. Today the

government proudly and confidently states that our

economy and systems are good. Thanks to the Public

sector banks and Insurance companies which has

helped India. The Government and LIC management

should learn a lesson out of this situation. Today,

Paul Krugman, the noted economist has been

awarded this year’s noble prize. He foresaw the

current economic crisis almost a decade ago and

insistently forewarned the world about it. Nobody

took him seriously and the world is facing the

consequence. Government should stop imitating the

west and instead protect Public sector companies

and the LIC management should stop imitating the

strategies of the Private companies which has

proved to be a disaster- like that of the AIG.

The Economies have crashed, stock markets

have crashed, banks, insurance companies are going

bankrupt, companies are filing for bankruptcy and

all this leading to the loss of wealth and the hard

earned savings of the common man. ULIP’s is not

a life insurance product but a mutual fund product

and investment product where the entire risk is on

the customer.

The NFIFWI had analysed and taken a clear

stand on ULIP’s in 2004. We also took a stand on

various decisions of the management and explained

the predicted consequences which will not be in the

interest of LIC and the nation as a whole. Today

our predictions have come true. Markets have

crashed and the slogans like “10 ka sola bar lo Jola”

is proving to be costly. Where are those managers

who instigated these misselling? The NAV’s of many

LIC and Private companies ULIP’s are in RED.

Better late than never, Comrades, focus on traditional,

conventional Life Insurance products. Let us follow

the basics. Life Insurance marketing is not investment

or Rate of Returns oriented. Life Insurance

marketing is need based marketing convincing people

the need for security and savings for long term goals

and peaceful retired life. Trust is the biggest ASSET

of LIC and we have to protect and promote it at any

cost. Meet agent’s and people and explain to them

why LIC is the best. Ask agents of Private

companies to join LIC. They can work peacefully

and live honorably working with LIC. Policyholders

can be at peace with a LIC policy.

Many FSEs have become agents under

D.Os. Talk to the CLIAs and convince them that

CLIA is harmful to them. Analyse their Individual

business in the last 3 years and in the current year.

CLIA Scheme is harmful to the agent himself , LIC

as a whole and policy holders who will suffer due to

lack of professional service. The good agent should

not be diversified from his business as he will lose

his income and instead he will waste his time and

skill to help somebody else earn. Comrades, follow

the guidelines and ensure good relationships are

maintained with all the agents and that nobody should

be allowed to misguide him or her or diversify them

or poach them. Management should scrap the

disturbing CLIA Scheme without further delay.

6

News Bulletin October 2008

We are pursuing all the pending matters fora concrete solution. Various matters are underprocess and only a satisfactory black and whitecircular will be the final solution. We are patientlyawaiting the solutions. We sincerely hope that themanagement will move fast and settle matters toequip and support us with the necessary and muchneeded spending power and motivating solutions onall our pending matters. We have explained therealities to the management that “ to competeaggressively in a dynamic market motivation andspending power by settlement of all issues,settlement of the injustice, removal of negativefactors like Graded credit, Disincentive for Growthand payment of expenses in the form of expensesare absolutely necessary”. The special rules of 1989which was a MOU should be settled fairly whichshould not affect D.O’s adversely and it should bea MOU.

Let us continue to strengthen our

organization. All divisions should register under the

FACTBOX - Nobel Economics prize

American economist Paul Krugman won the 2008 Nobel prize for economics

for work that helps explain why some countries dominate international trade.

Here are some key facts on the winner and the prize:

• The Royal Swedish Academy of Sciences said the prize recognised Krugman’s

formulation of a new theory to answer questions such as what is driving worldwide

urbanisation.

• Krugman’s work has integrated the previously disparate research fields of international trade and economic

geography, the prize committee said.

• His new theory sheds light on why global trade is dominated by countries that not only have similar

conditions, but also trade in similar products.

• Krugman has criticised the administration of President George W. Bush for policies that he argues led

to the current financial crisis.

• Krugman’s theories have helped explain how self-reinforcing processes of urbanisation and increased

large-scale production, as well as higher real wages and a more diverse supply of goods, can combine

to divide regions into a high-technology urbanized core and a less developed periphery.

• Krugman was born in New York City in 1953 and received a PhD at the Massachusetts Institute of

Technology.

• He has been professor of economics and international affairs at Princeton University, New Jersey, since

2000.

• Krugman has written for publications such as the New York Times and Foreign Affairs and is the author

of 20 books and more than 200 papers in professional journals.

• He has also taught at Yale, MIT and Stanford University.

• His current work centres on economic and currency crises.

Trade union Act as directed at the earliest. Ensure

timely payment of subscription and dues to the

organization to make it financially strong. Continue

to be bold, courageous, patient and vibrant.

LIC is the BEST and the DEVELOPMENT

OFFICERS-TIED AGENCY system are the BEST,

DEPENDABLE Marketing force….

Keep marching ahead strongly and

vigorously. Victory is ours.

National Federation Zindabad…. Zindabad…..

Development officers unity Zindabad……

Yours Comradely

R.Jayprakash

Secretary General

7

News Bulletin October 2008

COCOCOCOCOVER SVER SVER SVER SVER STTTTTORORORORORYYYYY

“ECONOMIC MAYHEM”

A good day for democracyJoseph Stiglitz

(Joseph E. Stiglitz is university professor at Columbia University and recipient of theNobel prize in 2001. He was chief economist at the World Bank at the time of the last global financial crisis.)

A sad day for Wall Street but it may be a glorious

day for democracy. Now the U.S. Congress must

draw up a plan in which the costs are borne by

those who created the problem.

What are we to make of the Congressional rejection

of the Paulson proposal? The politics is simple:

elections are a rare moment of accountability in our

political process and all 435 members of the House

of Representatives are up for re-election in a matter

of weeks. The Bush administration has lost the

confidence of the American people, and so has Wall

Street.

Those who created the problem are now the doctors

offering the prescriptions. A little while ago, we

were told everything was fine. Then, less than six

months ago, we were told that the economy was on

the mend. Now we are told the patient needs a

massive transfusion, but everyone can see that the

patient is suffering from internal bleeding; in

California, the number of foreclosures may already

be outpacing voluntary sales. Yet nothing is being

done to stem the haemorrhaging.

While the president says the economy faces the

risk of economic meltdown, he threatens to veto a

stimulus package which would create jobs - and he

seems particularly adamant about a stimulus

package that includes improved unemployment

benefits. Traditionally, this is done when there is a

threat of an economic downturn; if the downturn

doesn’t materialise, it doesn’t cost anything. And

while the administration and Wall Street promise

this is just a temporary loan, not a bail-out, there

was strong opposition to making the financial industry

pay for any losses. Why would that be, if they are

so sure that there won’t be losses?

The rescue bill left enormous discretion to an

administration on the wane, an administration which

has shown unparalleled incompetence, an

administration which even tried to politicise the

attorney general’s office. Americans worry that

there will be political favourites among the recipients

of the hundreds of billions of dollars; that treasury

secretary Hank Paulson seemed tough on Lehman

but reversed course when his old firm Goldman

Sachs was at risk is hardly reassuring.

Corporate welfarism

If the administration really thought the problems

were as severe as claimed, shouldn’t they have put

forward a bill that was less outrageous? Did they

really think that Americans would swallow giving

them authority to spend $700b, without oversight or

judicial review, in a bill of a few pages? Normally, if

you think there is a crisis, you try to forge a

compromise with those who see the world

differently - workers who worry about the loss of

jobs and homeowners who worry about the risk of

foreclosure.

Americans have lost faith not only in the

administration, but in its economic philosophy: a new

corporate welfarism masquerading behind free

market ideology; another version of trickle-down

economics, where hundreds of billions to Wall Street

that caused the problem was supposed to somehow

trickle down to help ordinary Americans. Trickle-

down hasn’t been working well in America over

the past eight years.

The very assumption that the rescue plan has to

help is suspect. After all, the IMF and U.S. treasury

bail-outs for Wall Street 10 years ago in Korea,

Thailand, Indonesia, Brazil, Russia and Argentina

8

News Bulletin October 2008

didn’t work for those countries, although it did enable

Wall Street to get back most of its money. The

taxpayers in these other poor countries picked up

the tab for the financial markets’ mistakes. This

time, it is American taxpayers who are being asked

to pick up the tab. And that’s the difference. For all

the rhetoric about democracy and good governance,

the citizens in those countries didn’t really get a

chance to vote on the bail-outs. Had they, most

would have suffered the same fortune as Paulson’s.

There is, in fact, a widespread consensus among

economists about what should be done. The

economy is weak and would remain so even with a

good rescue plan. That is why there is a need for a

strong stimulus. The February stimulus package was

badly designed and its anaemic effects offset by

soaring oil and food prices. Given the enormous

increase in the deficit during the past seven years

(from $5.7 billion to over $9 trillion - and that doesn’t

include the bills yet to be paid for the Iraq and

Afghanistan wars) we have to be sure that we get

the biggest bang for the buck. We need increased

unemployment benefits and aid to states and

localities, who otherwise will be forced to cut back

on expenditures, depressing the economy further.

We need more investment in both the public and

private sectors.

The fundamental problem with the financial system

is that there have been large losses. Loans were

made to people who couldn’t repay. They were

made on the basis of collateral whose value was

inflated by a bubble. That bubble has burst and the

collateral is now worth less than the loan. The

experts believe real estate prices have still a way

to fall. This is not a matter of market confidence.

This is a matter of market reality. Paulson would

have us believe otherwise, but the American people

know better. The fact that he and Federal Reserve

chairman Ben Bernanke don’t seem to grasp these

realities undermines confidence that they know what

they are doing.

In environmental economics, there is a basic concept

called the polluter pays principle. It is a matter of

fairness, but also of efficiency. Wall Street has

polluted our economy with toxic mortgages. It should

now pay for the cleanup.

What is so sad about this whole debacle is that is

was predictable. Predictable and avoidable. Perhaps

Paulson and the administration believed that they

could bamboozle Americans into doing whatever

they asked. But Americans had been bamboozled

before - into signing a blank cheque for the Iraq

war.

A sad day for Wall Street, but it may be a glorious

day for democracy. Hopefully Congress will now

devise a plan that is not based on trickle-down

economics. A plan that identifies the real sources of

the problem and does something about them - a real

stimulus to the economy, a real programme to stem

the flood of foreclosures and a transparent

programme for filling the holes in bank balance

sheets. A plan that assures U.S. taxpayers the costs

will be borne by those who created the problem.

Accountability means paying for the full

consequences for one’s actions - and the financial

system has much to account for.

(Courtesy - The Hindu)

“NEWS BULLETIN” thanks

Our Comrades :Our Comrades :Our Comrades :Our Comrades :Our Comrades :

Rajiv Gulati

H.R. Narasimhan

Davinder Singh

Vivek Singh

Himanshu Pandya

Gautam Sen Gupta

T.V. Krishnakumar and other contributors to this issue.

9

News Bulletin October 2008

The failure of the American financial giants

means that the growth prospects of America will

be affected. Many of our industries, especially

in the service sector, depend on markets in the

US and they will be affected, says S.

VENKITARAMANAN

Outsourcing industry, which depends on the level

of demand in the US and Europe, may take a hit.

Recent events have shown that the American

financial system is not as robust as its advocates

claim. In fact, it has been the practice of American

ideologues to canvass in other countries for copying

the American financial system with all its checks

and balances.

The power of stock markets to raise and allocate

capital is their climb to pre-eminence. The “efficient

markets hypothesis” claims that markets are

particularly efficient in discovering process and

determining where capital should flow. It is important

to realise, however, that in recent years the American

financial system has encountered serious problems.

Sparked by sub-prime crisis

Some of these arose as a result of the sub-prime

crisis, followed by fall in house prices and

exploitation by lenders to credulous sub-prime

borrowers by offering them loans at initially low

interest rates and subsequently raising the rates.

What made matters worse was that the sub-prime

loans were packaged, securitised so to say, and

marketed to investment banks.

The investment banks did not, however, have a direct

contact with the borrowers. They did not have a

clue as to how reliable the sub-prime borrower was.

When defaults started, the investment banks realised

they were getting on worthless securities.

What was worse was that the sub-prime related

securities were also invested in by various

international banks, including those in Europe, such

COCOCOCOCOVER SVER SVER SVER SVER STTTTTORORORORORYYYYY

“ECONOMIC MAYHEM”

Global shockwaves from US financial systemS. Venkitaramanan

as UBS. Many of the banks, which had such

exposures, were persuaded to make such investments

because of optimistic rating by various reputed rating

agencies.

The latest episode of failures was led by the collapse

of the State Guaranteed Mortgage Institutions,

known as Fannie and Freddie. Apart from the fact

that these institutions accounted for the bulk of the

mortgage lending in the US, they were also attracting

investments in their debt securities from various

central banks of the world, especially because their

debt was implicitly guaranteed by US Government.

However, the collapse of Fannie & Freddie became

a national crisis.

In view of their importance both domestically and

globally, the US Treasury Secretary, Mr Hank

Paulson, and the US Administration decided to bail

them out, a bailout that was hailed by many observers

as a victory for the US financial managers’

pragmatism.

Heavy burden on US taxpayers

It must be granted that this saved various investments

by international investors in the Fannie & Freddie

debt securities, but the fact remains that the bailout

will leave a heavy burden on US taxpayers, especially

because the prices of houses, which form the basis

of securitisation, cannot be expected to be at a level

to sustain the value of the debt paper. The gap will

be a burden on US taxpayers.

While the US Treasury managers tried to stave off

a widespread effect of Fannie & Freddie crisis, they

did not do so when the latest victim of the crisis

came in the form of the century old investment bank,

Lehman Brothers. Lehman Brothers have links with

many other financial institutions in the US and

elsewhere.

The arguments in favour of the bailout of Fannie &

Freddie and Bear Stearns could apply equally to

Lehman Brothers. But Hank Paulson must have

10

News Bulletin October 2008

thought that enough is enough and the market should

learn to live with the consequences of its actions.

The result of this decision not to intervene in Lehman

Brothers’ case has been that the American financial

market has seized up. Liquidity has become very low

and the American stock markets have collapsed,

leading to further failures of some banks and financial

institutions.

The venerable insurer, AIG (American International

Group) has been bailed out with a $85-billion infusion.

The Federal Reserve has agreed to extend a two-

year loan to AIG in exchange for a 79.9 per cent

equity stake in the company and change in the top

management.

What was the proximate reason for this catastrophe?

Analysts have been quick to point out that the bursts

of irrational exuberance in the Greenspan years set

by low interest rates was partly responsible for

creating a complacent attitude amongst the markets

and the investment banks. It led to a built-in sentiment

that catastrophes would be averted and further the

Government would take care if any unforeseen events

happen.

Impact on rest of the world

Whatever the causes for its failures, the American

financial system, the main engine that drives the

world’s economy, is indeed in trouble. This has had

some disturbing consequences. America’s financial

investments are looking to Sovereign Wealth Funds,

their bete noire, to save them. They are also driven

to the ultimate irony of nationalisation of their private

sector.

This leads me to the question of the impact of these

collapses on India and the rest of the world. Despite

all the talk of India decoupling from the American

economy, the fact remains that India, like the rest of

Asia, is very much linked to the health of the American

financial system. For one thing, capital flows in the

Indian stock market under FII depend on the easy

liquidity in the American financial system. When the

recent catastrophic events blocked the liquidity, we

saw a corresponding fall in the stock markets of the

US, Asia and Europe. Further, the failure of the

American financial giants means that the growth

prospects of America will be affected. Many of our

industries, especially in the service sector, depend on

markets in the US and they will be adversely

affected.

Outsourcing industry vulnerable

This takes me to the unintended effects of

globalisation. The outsourcing industry of India

depends very much on the likes of AIG, Citibank and

Lehman Brothers. Our service industry will lose

business substantially when there are serious

problems in these institutions. The same is the case

with reference to our textile exports, which depend

on the health of demand in the US and Europe.

Perhaps, one offsetting fact is the decline in the price

of oil as a result of likely “de-growth” of the American

economy. Consequent on the financial sector collapse,

among other reasons, crude oil has been touching

sub-$100 prices. This is a bit of good news for the

Indian economy where inflation may abate.

But there is another down-side to it, namely, that

decline in capital flows into the stock market as a

result of fall of share prices has led to a change in

exchange rate and fall in the rupee vs dollar. While

this is cheering news for the exporting community, it

is not so good news for the fisc. The declining rupee

means that imports will cost more and the subsidy on

crude oil may not decrease in tandem with the decline

of oil prices.

In conclusion, it is difficult to insulate India or any

other country from the effects of the American

problems. While it is true that we can learn many

lessons from the crisis of the American imbroglio,

the answer is not quite simple.

Better regulation is not by itself an answer. The

problems arose because of the complexity of the

financial products and innovations introduced in the

American financial system. Innovation for the sake

of innovation can be disastrous.

The American experience should be a guide to us to

avoid such pitfalls. Governor Reddy took a tough line

in regard to encouraging innovations, but with

sufficient safeguards. May Dr Subbarao continue the

same tradition, learning from the US experience!

11

News Bulletin October 2008

The management of LIC has now pressed the alarm

bell, they seems to be hugely concerned with the

drastic fall in the market share, poor growth rate

and even negative growth rate. The rate of agency

recruitment looks even more dismal. They are now

sending signals to Dev. Officers, whom they were

neglecting till recently with haughty disdain, now

comes forward before each Dev Officer, with fervent

appeal, in order to tide over the precarious situation.

But Dev. officers are now a demoralized lot, caused

due to strings of event starting from GOIB in 2004

to recent desperately pushing of CLIA. Does

management of LIC has any answer to this present

specter of gloomy situation and more over the

question arises, who is responsible for all these? Why

such a situation arises when the protagonist of the

institution claimed, envisaged and envisioned huge

growth as well as market dominance with

overhauling of the entire incentive pattern and service

condition of Dev. Officer? These nagging question

would be reverberated all across for quite sometime

till a convincing answer is found as to who inflicted

injury to the robust and fast moving corporation.

When the field workers - the Dev. Officers had laid

a besiege before the LIC management praying for

their voice to be heard, expressing their concern

about the short sighted adventurism, the management

subverted the entire process of dialogue and thus

compelled Dev. Officer to divest itself of whatever

view point founded by them to SAVE LIC AND

PROTECT LIC. In fact the management of LIC

struck to their new independent mooring with the

strong belief that the ship will be most safe, but was

it?

A management which functions with unrestrained

and absolute executive power can not find virtue in

democratic processes and practices and it therefore

remains addicted to its thought process and thus falls

prey to historic blunders. The theory of GOIB as

emanated by LIC management is now proved beyond

doubt that it is nothing short of a Blunder. It is pity

that the management did not find any virtue to its

huge experience that it has gathered from its five

decades of existence, but has rather blindly and avidly

embraced itself to the present dictates of neo

liberalism, which prescribes to keep employees

Burning the chariot of ProgressCom. Gautam Sengupta

always under perpetual fear, holding them at ransom

and thus extracting maximum possible doling

pittance.

The pit falls of GOIB were not noticeable for the

first two years due to the huge buoyancy in the stock

market, which had its effect on the insurance market

as well, but with the great fall in the same market

the scheme of incentive has now turned topsy-turvy.

The ill and faulty designed scheme of incentive is

now proving counter productive and ultimately it is

the Corporation and the Dev. Officer who are

bearing the cross.

Now let us examine how the scheme of GOIB has

malfunctioned, what are its defect in its design and

structure. For this we will have to first understand

how incentive schemes are formulated and what its

fundamental are and its basics. The basic premise

underlying incentive wage scheme is that the money

can be used to induce effort on the part of the

employee. The objective of the incentive is generally

to improve the productivity and this is expected to

be achieved by relating increased wage payment

with increased productivity.

Broadly speaking incentive wage scheme can be

classified into individual and group or company wide

incentive schemes. These classifications with further

sub classification arise from the differences in work

situation, the difference in the assumed motivational

principles, and from different measures of

productivity used.

Individual incentive schemes has two distinct sub

classification and they are - Payment by Result

(PBR) system and 2) Measured Day Work (MDW)

system i.e. payment by time. Now what is PBR

system:-

Payment by Result System (PBR):-

The PBR system has a continuous relation between

money and result (output), therefore, different result

would fetch different wages, although, theoretically

the PBR scheme provides for payment only through

increase in output. It therefore suffers from various

limitation and thus the scheme are modified to

12

News Bulletin October 2008

accommodate the modern day requirement that

worker should be guaranteed minimum flat wage rate

and from this principle has raised the concept of

Accepted productivity Level. The APL is the level

of output above which the incentive wage payment

starts. This is the pace of work which is considered

as normal or fair and the level of productivity that

can be expected from unmotivated but otherwise

conscientious and fit workers. Since there are, so

many assumptions of normality and fairness the APL

are generally established jointly by management and

labor.

There is another level that is called Motivated

Productivity Level (MPL). The Management is more

interested for MPL which is the incentive pace which

can be maintained day after day without any harmful

effect on the worker. As with APL, the worker is a

normal worker but he is now financially motivated.

MPL is a function of human ability and of

management’s expectation - about average workers

productivity - derived there from. With an expenditure

of a certain amount of additional money, management

desires to raise the current productivity level to the

practicable motivated productivity level. Since the

human work ability has a limit and the extra wages

cost also have a limit, MPL is used for establishing

of APL with concurrence of the workers.

In order to formulate an incentive scheme we need

a ratio called Participation Ratio. Depending on the

MPL and APL, therefore, the Participation Ratio (i.e.

percentage increase in wages for one percent

increase in Productivity) can be established. In is to

be noted that MPL are physiological and psychological

norms and therefore, the employees can bargain with

management about these norms. The generally

presumed relationship is that MPL is one third or even

one fourth more than APL but management and labor

may arrive at different figures.

We shall not discuss Measured Day Work (MDW)

system or Company Wide Bonus Scheme (CWBS)

as Dev. Officers incentive is based on Payment by

Result System. Let us now discuss the probable flaws

or defects in the incentive scheme offered to Dev.

Officers which is known as GOIB, based on the

widely accepted principle and theory of incentive as

practiced by various industries. One of the major

problems of organization today is the same problem

that was faced by people for centuries i.e. to develop

technique that will give to people who do not have it,

a will or desire to achieve. It is therefore every

incentive scheme should include a fair amount of

factors that can motivate each worker; otherwise

the scheme proves to be futile and barren as it does

not yield. Let us now examine point by point how the

goose laying golden eggs was killed employing factors

in haste to seek and expedite huge growth with clear

disregard towards the theory and experience.

1) As discussed in the theory above, Acceptable

Productivity level and Motivated Productivity

Level are determined jointly by the labor and

management. LIC management failed to arrive

at any consensus with the representative of the

NFIFWI and had evolved a floor level and bench

mark with huge spurt in the level of productivity

to be achieved. The APL and MPL were

arbitrarily and whimsically set, not giving any

consideration to the real market condition. They

even simply skewed the scheme as per their

requirement and agenda, not giving a proper

disciplined judgment to work measurement,

resulting in demoralized field force, taking

recourse to dispute etc.

2) The GOIB brought huge instability in the earning

of the Dev Officers. The income of Dev.

Officers drastically fell despite clocking better

and improved production due to the inherent fault

in the scheme. It was a sordid tale of parental

authority where the management set a trap with

every step, the Dev Officers was required to

undertake thus virtually turning the scheme to a

trick of Heads I win tail you loose kind of a

situation. Today it is evident that even Dev.

Officers working in the range of 8 to 10 percent

of cost even do not receive any incentive.

3) The PBR system itself means a fluctuating

income for a worker since the work may not be

there all the time and the worker may himself

may not be able to work at the same high pace

on all occasion given the various condition (of

market for DO’s). In a competitive scenario, as

the present day, it is perceptible for an industry

like insurance whose demand are mostly inelastic

in nature, every scheme of incentive must take

into consideration the associated economic

factors or situation like slump, depressions etc.

Thus the scheme must be so designed that a

13

News Bulletin October 2008

stable higher wage is ensured, so that the senseof uncertainty can be minimized in order to keepthe productivity level augmented. Contrary tothe theory as propounded, the management ofLICI has envisaged a scheme where a hugedrop in wages with every reduction inproductivity through the proposed Special Ruleof 2007 (work norm) has been set. These mattersare disheartening the Dev. Officer.

4) Going by the theory again, it is evident thatincentives are paid whenever one crosses theacceptable productivity level and reaches themotivated productivity level. But in GOIB theparticipation ratio is not diligently set, anunnecessary large grey area is deliberatelycreated in order to keep a large number ofworkers out of the purview of incentive etc.

5) Incentive wage is paid when one attains theMotivated Productivity Level of performance,but when factors like growth etc are aligned withincentive scheme based on market conditionthen there should not be any disincentiveconnected with bench mark growth for not beingable to attain the same. As with everypercentage growth, profitability is achievedtherefore the worker should be compensated forit and no negative factors should be attached.

6) The GOIB is particularly a multi factoredscheme, it is a complex scheme and the averageDev. Officer is unable to comprehend it to itsentirety. It is because of these complicatedintricacies that Dev. Officer is unable tomaximize his income and therefore they areloosing heavily.

7) In a Payment by Result System (PBR) the onusis on the management to provide continuouslygood materials and well maintained machine ontime in order to ensure smooth production andthis involves tangible and intangible cost. It is adistinct case for Dev. Officer, who has to findand fend for him selves both the materials, toolsand infrastructure. Further the tools (agents inhis case) with whom he has to function havealso to be fabricated by him. For this purposeLICI had allocated expenses for Dev. Officerin the form of Additional Conveyance Allowance

and Reimbursement of Expenses. These are

also withdrawn and have thus caused huge wage

drift, i.e. while the expenses remain the samethe wages are reduced. The reduction in wageshas caused various activities of Dev. Officerinoperative leading to a cascading effect on hisperformance.

8) Every industry adopts various measures toovercome problem related to protection ofquality. LIC therefore has rightly removed thefirst year lapsed premium from the scheduledfirst year premium income earned by the Dev.Officers, while calculating incentive bonus. Butthe question here arise when the incentive bonusis calculated based on the first year premiumthen why second year’s lapsation has beenaligned with the scheme. Moreover theallocation cost of incentive of Dev. Officer areincluded in the first year premium then whypenalize severely the Dev. Officer for secondyear lapsation based on renewal premium onwhich he has no role to play. Even in general,lapses occur due to various influences and thereare many factors which are external in natureand these are all beyond the control of the Dev.Officer. Most of the lapses as studies undertakenby the regulator have revealed that they aremostly due to customer specific feature. Thusnetting of premium for quality maintenance, byadministering second year lapsation is nothingbut reducing the income of Dev. Officer indisguise.

9) The most dominating de motivating factor in theentire scheme of GOIB is the gradation aspect.In general, more incentive is offered for betterretention, low attrition rate and for creation ofprofessionals for a supervisory kind of job.Management of LIC has taken a contrary viewi.e., more the experienced and professionalscreated, lesser the incentive offered. It isparadoxical that a veteran Dev. Officer who hasreared a good professional agency organizationmay receive less incentive than a new entrant.A simplistic solution based arithmetically foraugmenting more recruitment of agents may notact as simple as being thought, the gradation actmore as a dissatisfier and it is due to this, thetrend of recruitment of agent has gone down.One must remember that every Dev. Officerhas a characteristic norm for pace of work andapplication which can be changed very little onthe whole by aligning several factors of

14

News Bulletin October 2008

disincentives. Moreover the matter of gradation

has conferred the entire scheme of incentive

incongruous to the accepted principles of

operation management. This has also been

illegally and illogically thrust; let us observe here

what the legal luminary Mr. Venkat Ramani,

Senior Advocate, Supreme Court of India, has to

say. While offering his legal opinion on the matter

of gradation as sought by NFIFWI, he said ‘‘it

appears that graded Credit System is more a

arithmetical formula without any nexus with

ground realities of task of functioning of Dev.

Officer. In a country like India, where a wide

range of economic and social groups are to be

targeted and where the task of assuring the

people is conditioned by these factors as well as

rural urban divide, any scheme of performance

appraisal must be flexible and informed by field

conditions. It also appears to me that the graded

system of credit disregards any other relevant

element of performance, which may have bearing

on the quantity of productivity. The Dev. Officer

can certainly complain about excessive emphasis

on the factors included in graded credit system.”

10) It has been experienced by various industries and

management expert that incentive wage

anomalies may arise due imperfect work

measurement or due to varying bargaining

capacities of individual. A Dev. Officer since long

has been consistently good worker but a bad

bargainer. This bad bargaining capacity has stem

from the fact that his entire bargaining power

has been nullified and eroded from the year 1981,

when an amendment was brought in the LIC Act

of 1956, which fully empowered LIC

management vide section 48 subsection (ii), to

bring change and modification in the service

condition of the employees at any point of time

as deemed fit by them. This legislation gave them

the absolute powers; yes it is of course true, they

do indulge in a process of consultation, which is

a kind of showcasing of a democratic process,

more of a facade but deep inside practicing

authoritarianism, whereby it conceals the fact that

it has already made a decision. During the

process of negotiation they adopt a bullying

tactics, involve in arm twisting and thus pressurize

the opposite party to obtain their consent to the

decision already taken by them, so that they claim

that the discussion is democratically evolved.

When their scheme of things fails, they

unilaterally impose it on the class of employees.This modus operandi is always adopted and it istherefore mostly the scheme framed do not

function upto the desired level

Finally the behavioral aspect of incentive, in everyincentive scheme whether PBR or Group Companywide schemes all rely on the presumption that every

man is capitalist as heart. Human behavior is,however much more complex in nature. Firstly it iswell known through the theories of the behaviorists

that money is most often a ‘hygiene’ factor or thatlack of it is a ‘dissatisfier’. Money could perhaps beused as motivator provided various other ‘dissatisfier’

are minimized, which means:

I) Managerial, Supervisory and other socialrelationship are good.

II) The worker feel secure physically and

emotionally; and

III) Working condition is adequately satisfactory.

Does such situation exist in the corporation? Recentlywhile introducing the GOIB and CLIA schemes

management has made a mess of the entire situation.They have denigrated the Dev. Officer’s image intoa veritable quagmire; they have even alienated Dev.

Officer from every process of Participation andthought. LIC since long has always employed liberallysmall reward and big punishment (small carrot and

long stick) for motivating Dev. Officer. The theory isnot presently working to its full potential. The modernpsychologist has long been interested in what happens

when people’s internal drives are replaced by externalmotivation. A host of experiments have shown thatwhen big threats and small rewards enter the picture,

they tend to destroy the inner drives. Pay, incentivecheque and pink slips (termination letter) might bepowerful reasons to get workers out of bed early but

they turn out to be surprisingly ineffective and evencounter productive - in getting people to perform attheir best.

If there is any lesson to be learnt from the present

situation, it is to win back the mind, body, heart andsoul of every Dev. officers as well as other workersand to create a situation whereby every workers

internal drive reigns supreme and through this the

corporation will soon regains its lost glory, otherwise

the hard facts will not obscure so easily.

15

News Bulletin October 2008

ICICI Bank: The fall and recovery

Source : CNBC-TV18

When the markets were in shambles on September

29 the ICICI Bank stock was down 11.97% on

rumours that the bank’s UK operations had

exposure to the bankrupt Lehman Brothers. The

bank’s UK subsidiary has an exposure of around

USD 80 million, against which there are provisions

of USD 12 million.

To stem the fall in the stock on September 30,

Chanda Kochhar, Joint MD and CFO, ICICI Bank,

said India’s largest private sector bank has a very

healthy capital position, “In the past few days, there

have been rumours being circulated about ICICI

Bank’s financial health in certain parts of the country.

These rumours are baseless. We wanted to clarify

that ICICI Bank has a very healthy capital position.

About 98% of the bank’s UK subsidiary investments

are in investment grade and above category. We

have also clarified that the capital adequacy not only

of ICICI Bank but also of the subsidiaries are very

comfortable.”

Earlier on the same day, the Reserve Bank clarified

that ICICI Bank and its subsidiaries abroad were

well and sufficiently capitalized. “The bank has

enough liquidity to meet the requirements of our

depositors.” Post-these two statements, the stock

rallied and ended the day up 8.56%.

Between October 1 and October 8, the stocks fell

15.89%. However, the Sensex fell just 13.23% in

the period under review.

But the pain was not over yet. On October 10, the

stock touched a 52-week low and ended around 20-

21% lower. At one point, it was trading 26% down.

The downfall was fuelled by alleged rumours that

the bank’s joint venture with Prudential was in

danger. There were also rumours of a stake sale by

promoters, and fall in deposits.

In its usual fire-fighting mode, Kochhar said the bank

had adequate rupee and global liquidity of Rs 12,000

crore. “We have no international investments, only

loans on our balance sheet. Our exposure to the

UK market is very small given our size and

profitability. NPAs stand at 0% in the UK subsidiary.

Over 90% investments in UK market are to

companies with at least ‘A’ rating.” She added that

the bank has not seen a scale-down in deposit growth.

On October 13, rating agencies like Standard &

Poor’s and Moody’s said the bank’s credit

fundamentals continued to remain strong. Both

agencies felt that the overseas exposure could be

easily absorbed by the bank.

To further reassure investors post the October 10

fall, KV Kamath, Managing Director and CEO,

ICICI Bank, said the bank is very well-capitalised

at 150% of the requirement. He added that the bank

is among the soundest financial institutions in the

world. “The anatomy of rumours suggests they are

intended to destabilize the bank. The bank will

continue to report malicious messages to the

regulators, and that rumours are being spread by a

market intermediary, and not by any bank. We can

see a clear patter of disinformation which is a cause

for worry. Rumours are playing negatively on the

sentiment of people.” He clarified that there has not

been any drastic decline in deposits in the last three

weeks.

Special team to inquire into ICICI Bank’s

complaint

MUMBAI: The city police will form a special team

to inquire into ICICI Bank’s complaint against a bear

cartel of brokers for allegedly hammering down its

share prices through rumours, a senior official said

on Monday.

Commenting on a 22-page complaint filed by ICICI

Bank, Joint Commissioner of Police (Crime) Rakesh

Maria said Economic Offences Wing (EOW), along

with Cyber Crime Investigation Cell, would

investigate the matter.

A bear cartel of certain high-profile brokers in

Bombay Stock Exchange, who have been selling the

shares of the bank for quite some time, might also

be behind the circulation of malicious rumours about

its financial status, the bank has alleged in its

complaint.

MEDIA WATCH

16

News Bulletin October 2008

“The bank has not named any specific individual or

organisation in the complaint,” Additional

Commissioner of Police (EOW) Sanjay Saxena said.

The police will be conducting investigations into the

allegations, along with the Securities and Exchange

Board of India (SEBI), he said.

ICICI had said it had conducted preliminary

investigation utilising its own machinery as regards

the source of such misleading statements, e-mails

and SMSs based on false, baseless information.

The complaint also said that malicious messages were

sent by a mass/group SMS sending website and

Maya news, having a strength of about 15,500

members.

Market turmoil rocks insurance industry

MUMBAI: The turmoil in the equity markets appears

to be taking a toll on the life insurance industry as

well. Growth rates for the industry have slowed

down and initial estimates from companies show that

companies are unlikely to fare better in the month of

September. Upto end August ’08 the life insurance

industry recorded a premium income of Rs 26,451

crore marginally lower than Rs 27,491 crore in the

corresponding period last year recording a growth

of 56%. The decline was largely on account of 29%

decline in business of Life Insurance Corporation of

India to Rs 14,360 crore compared to Rs 20,206 crore

last year.

The year-to-date figures show that the private life

insurance industry is growing at a healthy pace and

that it is the LIC which is dragging down growth.

However, an analysis of monthly figures shows that

there are signs of an incipient slowdown. Typically,

the life insurance industry witnesses seasonal growth.

The usual trend is for the industry to write 10%

business in the first quarter, 20% in the second, 30%

in the third and 40% in the fourth quarter. Also there

is a progressive increase in premium income as the

fiscal moves on. This year, however, some

companies have actually shown a decline in August.

Most industry officials feel that there is a slowdown

on account of the turmoil in the global markets.

Insurers feel that policyholders may delay their

decisions on channelling funds into the equity market

through unit-linked insurance schemes until the crisis

in the US market comes to an end. The flattening of

the growth is also a sign that companies are seeing

the law of diminishing returns come into play while

expanding their agency force.

According to Shikha Sharma, managing director,

ICICI Prudential Life Insurance: “The month on

month growth has come off a bit. People still want

to save money for retirement but they are waiting

for the volatility in the stock markets to come to an

end.” She added that the growth potential for the

industry continues to be there the industry may have

to wait for a couple of months of stability in the equity

markets. Vikram Mehmi, president and CEO of the

fastest growing life company says that there is

definitely a slowdown in overall industry growth. He

points out that there is a liquidity issue among big

buyers of insurance as well as they are now

postponing their decisions. However, retail sales

continue to remain powerful.

US Roy, managing director, SBI Life Insurance

which has moved to the number two slot feels that it

is not correct to term the lower growth rate as a

slowdown. He points out that despite the crash in

the stock market life companies has managed to post

a growth over last year where premiums were driven

by record growth in the stock markets.

According to Kamesh Goyal, CEO, Bajaj Allianz Life

Insurance, the life industry would need to change its

business model for the current environment. He points

out that Bajaj Allianz has managed to record good

month on month sequential growth in the last quarter.

However, the company has managed to record a

very small growth over the corresponding period last

year.

Insurers see big biz in political risk cover for

big cos

4 Sep, 2008

KOLKATA: Trust insurers to home in on

opportunities under the most testing circumstances.

With the Tatas on a pullout mode in Singur amid

mounting political heat, general insurers like ICICI

Lombard, United India Insurance and National

Insurance see a huge opportunity for customised

political risk covers for big business houses setting

up greenfield ventures in challenging locations.

Interestingly, such political risk covers would have

to be tailor-made for specific situations that may vary

17

News Bulletin October 2008

from one project to another. For other covers (read

non-political covers), insurers already have an off-

the-shelf project insurance that shields against

insurable perils like fires, riots, floods, damage to

equipment or project delays.

Political risk insurance can be opted by businesses

of any size against political risk, when the risk of

revolution or other political conditions results in a loss.

It is available for various shades of political risks,

including political violence, insurrection, civil unrest,

terrorism or war. As with any insurance, the precise

scope of coverage is governed by the terms of the

insurance policy. But one cannot get a venture

covered against government decisions that hurt

projects.

Simply put, a political risk cover will shield projects

scrapped due to political turmoil. A case in point, could

be the troubled Tata Nano venture in Singur. Such a

cover is not yet offered by all insurers in India but

could soon be a reality with demand from potential

investors. “We can always explore the option of

offering tailor-made political risk covers for specific

situations. But one needs to understand the risks and

offer proper protection that would be backed by

adequate reinsurance,” United India Insurance

chairman and managing director G Srinivasan told

ET.

ICICI Lombard reinsurance head Rajive

Kumaraswami said: “Shields from these kinds of risks

can be offered through tailor-made products with

heavy support from reinsurers after checking the

legality of offering such covers.”

ICICI Lombard, however, receives three to four

queries on an average per month for political risk

cover from companies setting up projects overseas

and has serviced five to six clients in the last two to

three years. “We have enough scope of offering

covers against these kind of risks with our reinsurance

partners. Although a risky cover, with high chances

of claims, we will start offering it if we find enough

demand,” added National Insurance Company

chairman and managing director V Ramasaamy.

Jai Balaji Industries MD Aditya Jajodia, on the need

for political risk cover for upcoming industrial projects,

said: “So far, no project in the country has been

covered against political risks. But perhaps, after

Singur, such a cover is something that will make

investors feel safer. More since land-related protests,

unreasonable or reasonable, are taking place in other

states too.” Interestingly, not all industry top notches

feel the need for such covers as yet.

When contacted by ET, Eveready Industries India

executive vice-chairman & managing director

Deepak Khaitan said: “I would rather not invest in a

state where we may need to go for a political risk

cover. Besides, the loss of time and effort that goes

with implementing a project, going through the political

unrest and subsequently, relocating it cannot get

repaid.” SREI Infrastructure chairman & managing

director Hemant Kanoria also tends to agree with

Mr Khaitan. “Because of one Singur, I don’t think all

industries coming to West Bengal will get affected

and one should start thinking in terms of taking a

political risk insurance cover.”

LIC may get to retain stake in blue chips over 10%

28 Aug, 2008

NEW DELHI: In a move that will enable Life

Insurance Corporation (LIC) to retain its stake in

blue chips like ITC, Ranbaxy, L&T, ACC, Reliance

In fra and Cipla, the insurance regulator may tweak

recently-announced investment norms for insurance

companies.

The Union finance ministry is examining the matter

in consultation with Insurance Regulatory and

Development Authority (IRDA). The ministry is

considering the possibility of revising the IRDA

(investment) regulations so that LIC does not need

to dilute its current stake in several blue chips.

However, the life insurance major will have to limit

future investments up to the prescribed limit of 10%.

“We are examining the matter and are likely to do

something soon to settle the issue,” said a finance

ministry official, adding it’s up to IRDA to take the

final call in this regard. IRDA may either revise the

norms or issue a clarification to let LIC maintain its

stake in these companies.

Last week, IRDA had issued the new investment

norms for insurance companies. Under these norms,

no insurance company can invest more than 10% of

its total fund size, or 10% of the outstanding shares

of the investee company - whichever is less - in any

company. However, LIC, the country’s largest

insurer, has invested more than the prescribed limit

18

News Bulletin October 2008

in many companies, including L&T, Reliance Infra,

MTNL and Ranbaxy.

Companies in which LIC has investments over 10%

include ITC, L&T, M&M, ACC, HPCL, Cipla and

Reliance Infrastructure. In some cases, it has

invested over 20% with special permission from

IRDA. For instance, LIC holds about 26.32% in

Corporation Bank.

Under the new investment norms, the regulator had

given more freedom to private insurers in terms of

investment, while aligning LIC’s privilege also with

the industry, allowing the public sector life insurer

to invest only 10% of its portfolio in a single company

against 30% earlier.

Liquidity main problem, will act swiftly: FM

As the stock market crashed under the pressure of

global meltdown and the RBI cut the CRR by one

per cent, Finance Minister P Chidambaram on Friday

promised to address liquidity and other concerns of

the economy.

He also announced the decision to constitute a group

consisting of top bankers headed by Finance

Secretary Arun Ramnathan, who is also Secretary

(Financial Services) to make a quick assessment

of the requirements of the liquidity and advise the

government accordingly.

“Credit is the lifeline of trade, commerce and

business and, hence, it is important that credit

continues to flow to all sectors of the economy. In

consultation with RBI and other regulatory

authorities, government will address the liquidity and

other concerns about the economy,” Chidambaram

said in a statement.

“It is also important to maintain our confidence in

the Indian economy. As the Cabinet noted on

Wednesday, the fundamentals of our economy are

strong and there are many indicators which affirm

the sound fundamentals,” he said in the statement,

released by the Finance Secretary.

Chidambaram, who is believed to have rescheduled

his trip to Washington for attending the meetings of

IMF-World Bank and G-20 leaders on the global

crisis, stepped in after the BSE Sensex crashed by

about 1100 points this morning.

Prompt action by RBI and Chidambarm’s statementhelped a substantial recovery but the selling

pressured emerged to leave the market volatile.

“I have requested the group to begin workimmediately, also visit Mumbai and submit an interim

report within a week,” the Minister said.

Reacting to the measures, bankers said that thoughliquidity would remain a problem, interest rate maycome down.

Depositors in “Banking Scare”

14-10-2008

Despite assurances, fear is mounting amongdepositors here of the safety of their deposits in

certain private banks. This has led to heavywithdrawals. The pressure was more on the ATMsas the banks had Dasara holidays followed by

Sunday.

The scare is more among the small depositors. Theywere withdrawing their money in a hurry, creating

cash shortages at some of the ATMs. However, theyneed to look for alternative investment sources asthey cannot keep the cash in their homes safely forlong.

Some depositors who were the early ones towithdraw their money have invested their moneyelsewhere, like in reputed mutual funds and other

investments they consider safe.

The assurance by Finance Minister Chidambaramand Reserve Bank of India Governor D Subbaraothat their money was safe in the banks is having

some soothing effect and is winning the confidenceof depositors in the nationalised banks. Somedepositors have moved their funds from the private

banks to the PSU banks.

Following the downturn of the economy in the USand the collapse of certain major operators in the

US financial market, depositors were scared thatthis could reflect on the Indian banks as well.

About a week ago rumours spread over the healthof the a large private sector bank and some other

private banks. E-mails went passing around askingfriends and relatives to withdraw their money keptin some of the private banks. The pressure thus

began to increase on the local branches of the private

banks.

19

News Bulletin October 2008

“Should I transfer all my money in my bank acco-

unt because of the fear here that all banks are losing

hea-vily due to the falling mar-kets,” such e-mails

are being sent by worried depositors of a few banks

in the private sector.

Messages also went round even among NRI friends

and relatives. They were suggested to ensure the

safety of their money, if any, in private banks in India.

This added further credence to the rumours that all

was not well in some of the private banks, resulting

in immediate withdrawals by their relatives in India.

Calls from worried NRIs to their parents or other

close relatives to know of the health of the banks

where they have kept money is continuing. The NRIs

are calling up their relatives to know if they have to

withdraw their deposits.

Meanwhile, a private sector bank has initiated

damage control by sending letters and SMS

messages to its depositors to ignore the rumours as

the bank was well capitalised. A somewhat relieved

depositor told Business Standard today he had

received a letter of assurance from a bank.

According to a depositor who had withdrawn his

money from the bank, they are allowed only one

withdrawal and they are being charged heavily for

the withdrawals.

Whether the efforts of a bank management to soothe

the nerves of its depositors over the safety of their

money would help retain their confidence is to be

seen only on Monday when the banks reopen after

the Dasara holidays.

ULIP LAUNCH, ADDITIONAL AGENTS

HELP LIC GAIN GROUND IN SEPT

MUMBAI: The launch of a new unit-linked

insurance plan (ULIP) - Market Plus - in late July is

said to have improved Life Insurance Corporation’s

(LIC ) growth in September. LIC had lost out on

market share and topline growth as it tried to move

away from ULIPs.

“We believe that we have neutralised some of the

decline recorded in earlier months in September as

we have managed to grow,” said LIC chairman TS

Vijayan. LIC’s September growth story is in contrast

to the feedback of the private sector where there

are indications that growth has taken a hit in

September. Official figures for new business growth

during September is expected to be released by the

insurance regulator later this month.

Another reason for the growth in business is the

number of new agents recruited by the corporation

under the chief life insurance advisor scheme — a

programme where senior agents recruit new agents.

The corporation is understood to have recruited over

30,000 agents during the current fiscal year. These

agents have brought in close to Rs 100 crore in less

than two months. LIC is planning to increase the

number of direct agents to one lakh by December

2008 and generate a premium of Rs 800 crore from

direct agents.

Officials say that LIC expects to eliminate the decline

by the end of December. However, this will be a

major challenge and will depend to a large extent on

the movement of the stock market. Bulk of the

premium continues to pour into ULIPs. Many

investors, who have put money in ULIPs in the

second half of 2007-08, have seen an erosion of their

capital due to a 35% crash since January 2008.

Although there are income schemes, these do not

generate as much interest as equity schemes because

of a number of competing fixed income options

available.

LIC’s new business premium for the first five months

of the current fiscal year has dipped 29% to Rs

14,360 crore from Rs 20,206 crore in the same period

of the previous year. However, the corporation’s

performance has improved recently with its

marketshare growing from 49% in April to around

54.28% in August 2008. Even in terms of number of

policies there is a decline from 1.4 crore policies

last year to one crore policies this year.

Insiders have attributed three reasons for the decline

- a long-standing dispute with development officers,

the stock market crash and the corporation’s decision

to move from ULIPs.

IRDA TO REVIEW INSURANCE COS’

FINANCIAL HEALTH

HYDERABAD/MUMBAI : The liquidity crunch

could force insurance regulator IRDA to review

domestic insurers’ business plans and assess whether

20

News Bulletin October 2008

companies can infuse extra funds during this financialyear. Money has become scarce due to the globalfinancial meltdown The ripples are being felt backhome, with banks reeling under a liquidity crunch.Insurers need capital to grow and promoters haveto bring in extra capital till the venture breaks even.Banks have been promoters behind some of theinsurance ventures in the country. The Indian banksare well-capitalised, according to the bankingregulator, but they have been indirectly impacted bythe global crisis.

Domestic insurers are relatively insulated from thecrisis, as they have no any overseas exposure. IRDAis still likely to review their ability to infuse extracapital to push growth. “The domestic insuranceindustry is well-capitalised. But we need to examinethe impact of recent developments in financialmarkets on the functioning of domestic insuranceventures. This would mean assessing their businessprojections and future capital requirements,” said RKannan, member, IRDA.

It is important to distinguish between solvencymargins and capital requirements, based on businessprojections. Solvency margins refer to the excessassets maintained by an insurer in the interest ofpolicyholders. The difference between actual capitaland solvency capital is the amount available forwriting the new business.

The solvency margins are comfortable for alldomestic insurers. Last month, IRDA clarified thatTata Life and Tata AIG General Insurance hadcomfortable solvency margins. This was to allay thefears of policyholders after the US insurer AIG raninto trouble.

“The solvency margins for all domestic insurers isaround 200% compared with the prescribed normof 150%. The extra 50% can be used to write newbusiness. If an insurer’s business projection crossesthis threshold, the company has to bring in extracapital to maintain the solvency,” said Mr Kannan.If an insurance company is unable to garner extracapital, it may have to go slow on writing newbusiness.When business growth takes a hit, thebreak-even point of a company will be pushed evenfurther.

A CEO of a life insurance company fears that abusiness slowdown could reduce the capitalrequirements of insurance companies. The slidingmarkets called for a change in product strategy.

However, companies that made huge investments inanticipation of new business, could face a problem,he said. The volatility in equity markets has impactedthe sale of unit-linked insurance products (Ulips).The risk, in this case, is entirely borne by the investor.There are 42 insurance ventures in the country,including 21 life, 20 non-life and one reinsurer. Totalassets under management (AUM) are said to exceedRs 8-lakh crore.

LIC, only institution strong in liquidity

The length of the queue for refinance from RBI willdetermine whether India’s liquidity crisis is comingto an end. Bankers say if the deMand for refinancecontinues to be in the range of Rs 40,000-50,000 croreduring the course of the week, the central bank mayhave to announce further easing.

The actual position in respect of liquidity in the marketwill be known only around Tuesday. This is becausethe outflow on account of RBI’s intervention in theforex market on Friday will not be known on Monday,which is a government holiday in the US, beingColumbus day.

RBI is reported to have sold intervened massivelyby selling dollars worth $2.5 billion, which draggedthe rupee back from a low of 49.30 to 48.6. Theintervention could result in outflows of over Rs 12,000crore, thus reducing the quantum of rupees availablefor lending.

Life Insurance Corporation is turning out to be theonly institution, with an adequate surplus in liquidity.The corporation has been making the best of thesituation by lending short-term funds to banks at highinterest rates. The corporation is also providingsupport to corporates by investing in corporate debt.

Although sale of new policies has slowed down forLIC, its monthly inflows are very high at over Rs10,000 crore. Besides LIC, a few large corporates,(Reliance Industries is frequently mentioned in thiscontext), are being approached by banks for short-term fixed deposits.

On Monday, money markets are expected to bebetter placed in terms of liquidity with Rs 60,000 crorecoming in on account of the lower cash reserve ratiorequirement. This is expected to soften the call rateto below Friday’s close of 16%. However, if the rupeecontinues to be under pressure on Monday, RBI may

be forced to intervene again.

21

News Bulletin October 2008

CIRCULAR FILE

Ref. CO/CRM/690/23 September 8, 2008

RE : Revival of policies / payment of unpaid premium under

ECS monthly mode at the cash counter.

It has been decided to allow payment of premium / or revival of such lapsed policies which are under ECS

Monthly mode by accepting the arrears of premium with interest at the cash counter, along with requirements

of continued good health, if required.

After such premium payment or revival of the policy, further premiums should be paid and continued thro’

ECS only.

Ref : CO/CRM/694/23 16th Sept. 2008

Re: Collection of premium through agents

It has now been decided to extend this facility of collection of renewal premium by the agents authorized by

competent authority under any inforce policy, irrespective or whether they pertain to the particular agent or

not. At present, this facility though extended for ULIP policies, the premium cannot be accepted online due

to technical reasons. Once the technical issues related to ULIP are resolved the said agents can accept the

premium for ULIP as well.

Secondly, the collection of renewal premium can now be done by cheque as well as by cash.

Ref.: CO / CRM / PS / 695 / 23 September 20, 2008

Re : Deduction of DAB premium from surrender value under Nav Prabhat Plan (T. 137)

It has been decided that there is no need to deduct. DAB premium at the time of settlement of Guaranteed

Surrender Value / Special Surrender Value under Nav Prabhat Plan (T.137). This provision shall be applicable

to all plans under which accident benefit premium is in-built. (e.g.T.No.91, 149, 111, 123 to 126, 150 &

182).

Ref : CO / CRM / 697 / 23 26/9/2008

Re : Role of Standing Committee for HI policies - Divisional Offices

It has been decided that the matter regarding admission and rejection / repudiation in the above referred

cases should be put through the regular process of the Standing Committee for claims as is being done for

all the conventional policies and Manager (HI) shall be an invitee member of the standing committee while

deciding those cases.

22

News Bulletin October 2008

Ref : CO / CRM / 698 / 23 3/10/2008

Re : SB Claim Settlement under SSS Policies

• Three or less premiums due immediately preceding months prior to the SB due date and not received

/ adjusted till the date of SB payment are not to be recovered from the SB claim amount.

• (ie. Booking liability and making payment with up to three terminal dues)

• Under all these SB payments FUP will be updated to the SB-due date and the arrears of premiums

will be shown as gaps in the gap-master, with a special flag to indicate SB.

Ref : CO / CRM / 700 / 23 October 3, 2008

RE : ASSIGNMENT UNDER LIC’S MARKET PLUS – 1 PLAN – 191

1. The assignment is allowed during the deferment period only.

2. The policy conditions No. 15 (suicide) and No. 17 (Assignment and nomination of the policy document

needs to be modified as under)

Ref : CO / CRM / 699 /23 October 3, 2008

RE : CHANGE IN MODE OF PAYMENT OF EXTENDED

PERMANENT DISABILITY BENEFIT (EPDB)

It has been decided to allow change in mode of EPDB payment from monthly to other mode of payments

in case of specific request received from the claimant. The factors to be used for conversion of monthly

payment of Rs. 1/- payable in arrears under EPDB will be as follows

Mode of payment Factor

Quarterly 3.0125

Half-yearly 6.0628

Yearly 12.2789

Ref : CO/CRM/PS/692/23 September 15, 2008

Re:Concessions and Relaxations to Policyholders affected by bomb blast in New Delhi on

13.09.2008

The serial bomb blasts in New Delhi on 13.09.2008 have caused considerable loss of lives. It is therefore

decided to provide concessions and relaxations in the area of Delhi Claim and Accident Claim Settlement

to mitigate the hardships faced by the claimants:

(For details, please refer original circular)