Sales Executive student handbook (2)

Sales Executive (BFSI) VILT Student Handbook

Sales Executive (BFSI) VILT Index S. No. Chapter Page No. 02 1. BANKING AWARENESS 40 65 2. INSURANCE INDUSTRY 80 111 3. RETIREMENT PLANNING AND ESTATE PLANNING 123 141 4. ROLE OF MUTUAL FUND IN MODERN ECONOMY 203 235 5. WEALTH MANAGEMENT AND FINANCIAL PLANNING 247 252 6. ROLE OF BUSINESS FACILITATOR/CORRESPONDENCE 305 7. SALES ACCELERATION STRATERGY 8. INTERPERSONAL SKILLS 9. CORPORATE ETIQUETTES 10.INTERVIEW SKILLS 11.Computer Fundamentals 12. Glossary 1

Sales Executive (BFSI) VILT Chapter 1 BANKING AWARENESS  Role of Financial Inclusion Financial inclusion Financial inclusion is defined as the availability and equality of opportunities to access financial services. It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. Financial inclusion efforts typically target those who are unbanked and underbanked, and directs sustainable financial services to them. Financial inclusion is understood to go beyond merely opening a bank account. It is possible for banked individuals to be excluded from financial services. Having more inclusive financial systems has been linked to stronger and more sustainable economic growth and development and thus achieving financial inclusion has become a priority for many countries across the globe. In 2018 it was estimated that about 1.7 billion adults lacked a bank account. Among those who are unbanked a significant number were women and poor people in rural areas and often those who are excluded from financial institutions face discrimination and belong to vulnerable or marginalized populations. While it is recognized that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of nearby financial institutions, high costs to opening accounts, or documentation requirements. Demand side barriers refer to aspects of the individual seeking financial services and include poor financial literacy, lack of financial capability, or cultural or religious beliefs that impact their financial decisions. There is some skepticism from some experts about the effectiveness of financial inclusion initiatives. Research on microfinance initiatives indicates that wide availability of credit for micro- entrepreneurs can produce informal inter-mediation, an unintended form of entrepreneurship. History The term \"financial inclusion\" has gained importance since the early 2000s, a result of identifying financial exclusion and it is a direct correlation to poverty according to the World Bank. 2

Sales Executive (BFSI) VILT The United Nations defines the goals of financial inclusion as follows:  Access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance.  Sound and safe institutions governed by clear regulation and industry performance standards.  Financial and institutional sustainability, to ensure continuity and certainty of investment.  Competition to ensure choice and affordability for clients. Former United Nations Secretary-General Kofi Annan, on 29 December 2003, said: \"The stark reality is that poorest people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge is to address the constraints that exclude people from full participation in the financial sector. Together, we can build inclusive financial sectors that help people improve their lives.\" More recently, Alliance for Financial Inclusion (AFI) Executive Director Alfred Henig highlighted on 24 April 2013 progress in financial inclusion during the IMF-World Bank 2013 Spring Meetings: \"Financial inclusion is no longer a fringe subject. It is now recognized as an important part of the mainstream thinking on economic development based on country leadership.\" In partnership with the National Bank for Agriculture and Rural Development, the UN aims to increase financial inclusion of the poor by developing an appropriate financial product for them and increasing awareness on available financial services strengthening financial literacy, particularly among women. The UN's financial inclusion product is financed by the United Nations Development Programme. Initiatives by country Financial inclusion in the Philippines Four million unbanked Filipinos are seen to benefit from the nascent credit scoring industry, a development that is seen to serve the people that is classified at the bottom of the economy an easy access to credit once the service is available to the public. Marlo R. Cruz, president and chief executive officer of CIBI Information, Inc. (CIBI) as one of the accredited credit bureaus in the Philippines, highlighted that this is expected to unlock much economic potential in sectors of the economy that are crucial for inclusive growth. As per Cruz, \"Many people still do not realize that the value of having a credit opportunity is synonymous to generating financial power. Creditworthiness is the same as to owning a keycard that can be used in navigating to the society of better possibilities.\" The Bangko Sentral ng Pilipinas (BSP) reports on Financial Inclusion Initiatives and Financial Inclusion in the Philippines summarizes the country's accomplishments and significant milestones in financial inclusion. These reports show that 4 out of 10 Filipinos saved money in 2015 (up from 2 out of 10 in 2009). Among Filipino adults, 24.5% never saved and only 31.3% (up from 26.6%) 3

Sales Executive (BFSI) VILT have an account at a formal financial institution. The lack of enough money was cited as the main reason for not having a bank account. While there has been significant progress, much more must be done. As an emerging country with a sizeable number of people living in poverty, access to financial services is an important challenge. Based on a March 18, 2016 report from the Philippine Statistics Authority, the country's 2015 poverty incidence (the proportion of people below the poverty line versus the total population) is at 26.3% while the subsistence incidence (the proportion of Filipinos in extreme or subsistence poverty) is at 12.1%. This means that there are around 26 million Filipinos who are still living below the poverty line. Financial inclusion in India History The concept of financial inclusion, extending financial services to those who typically lack access, has been a goal for the Government of India since the 1950s. The nationalization of banks, which occurred from the mid-1950s to the late 1960s, culminating in 1969 with the nationalization of 14 commercial banks by Prime Minister Indira Gandhi, brought banking facilities to previously unreached areas of the country. The \"branching\" of banks into rural areas increased lending for agriculture and other unserved rural populations and Indira Gandhi spoke of it as a tactic to \"accelerate development\" and to address poverty and unemployment. The Lead Bank Scheme followed nationalization as a way to coordinate banks and credit institutions by districts to more comprehensively ensure that rural areas had their credit needs met. In 1975, the Government of India followed this with efforts to specifically reach rural areas by establishing Regional Rural Banks (RRBs) meant to exclusively meet demand in the rural economy and the number of RRBs has significantly increased over the years. By the early 2000's, the term 'financial inclusion' was being used in the Indian context. In 2004 the Khan Commission, created by the Reserve Bank of India (RBI), investigated the state of financial inclusion in India and laid out a series of recommendations. In response, RBI Governor Y. Venugopal Reddy, expressed concern regarding the exclusion of millions from the formal financial system and urged banks to better align their existing practices with the objective of financial inclusion in both his annual and midterm policy statements. The RBI has continued in its efforts in conjunction with the Government of India to develop banking products, craft new regulations, and advocate for financial inclusion. Since financial inclusion was established as a priority for the GOI and RBI, progress has been made. Mangalam, Puducherry became the first village in India where all households were provided 4

Sales Executive (BFSI) VILT banking facilities. States or union territories such as Puducherry, Himachal Pradesh and Kerala announced 100% financial inclusion in all their districts. The Indian Reserve Bank vision for 2020 is to open nearly 600 million new customers' accounts and service them through a variety of channels by leveraging on IT. However, illiteracy, low income savings, and lack of bank branches in rural areas remain a roadblock to financial inclusion in many states, and there is inadequate legal and financial structure. Financial sector strategies In India, RBI initiated several measures to achieve greater financial inclusion. These rely on efforts of the financial sector. No frills accounts (NFAs), now known as basic savings bank deposit accounts (BSBDAs) can be opened with zero or minimal balances, removing a cost barrier to banking. Banks are also meant to charge minimal overdraft fees on NFAs. The RBI continues to change and relax policies regarding these accounts in an effort to better serve bank customers. Know-your-customer (KYC) requirements for opening bank accounts were relaxed for small accounts in August 2005, eliminating a documentation barrier to banking. The new procedure only requires an introduction by an account holder who has been subjected to the full KYC screening. Additionally, banks were permitted to accept more easily produced forms of documentation for proof of identity and address. The business correspondents (BC) model was launched in January 2006, when the RBI permitted banks to engage intermediaries in the banking process. This model enables banks to service neglected areas by allowing intermediaries to facilitate transactions and deliver other banking services directly. Originally, a fairly limited number of entities, including NGO's and certain microfinance institutions were eligible to act as BCs, however in 2010 the list was expanded to include for-profit companies In 2018, operators of Common Service Centers(CSCs) who work with local governing gram panchayats also began working as BCs to further improve penetration of banking services. Expanding financial technology, or fintech, has been proposed as an effective strategy to achieve financial inclusion. While incorporation of technology does pose some risks, it is being used to deliver banking services to those in rural and remote areas who are typically unserved. Banks have been advised to make effective use of information and communications technology (ICT), to provide banking services to people directly through the BC model where the accounts can be operated by even illiterate customers by using biometrics, thus ensuring the security of transactions and enhancing confidence in the banking system. In 2018 the World Bank and International Monetary Fund (IMF) launched the Bali Fintech Agenda to provide a framework for domestic policy discussions around deepening access to financial services in a variety of different contexts. 5

Sales Executive (BFSI) VILT Unique credit cards are now offered by banks, the most popular being general purpose credit cards (GCCs), and Kisan credit cards. These unique cards offer credit to those in rural and semi-urban areas, farmers, and others with adjusted collateral and security requirements with the objective of providing hassle-free credit. Electronic benefit transfer (EBT) is being implemented by banks at the advice of the RBI with the goal of reducing dependence on cash, lowering transaction costs, and address corruption. Increasing the number of rural banks remains a priority for the RBI. In 2009, the RBI relaxed previous policies requiring authorization before opening new branches in the hopes that simplified authorization would increase branches in underserved areas. Beginning in 2011 the RBI required 25% of new branches opened in a given year be in unbanked rural areas centers to ensure a more even spread of banking facilities. The self-help group (SHG) linkage model has also been proposed to improve financial inclusion by linking community groups to the formal banking sector through government programs, credit cooperatives, NGOs, or other microfinance institutions. Group-based models in which members pool their savings have also been seen as tools for social and economic empowerment, particularly when women are leaders and participants. Government policy strategies The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is meant to provide supplemental employment at a guaranteed minimum wage and facilitate financial inclusion to empower women and rural laborers. While achieving financial inclusion is not its main goal, the program directly deposits wages into bank accounts as a way to limit corruption, speed delivery of benefits, and connect wage laborers to bank accounts. The Pradhan Mantri Jan Dhan Yojana policy scheme was announced by Prime Minister Narendra Modi in his 2014 Independence Day Speech and launched in August 2014 in an effort to provide \"universal access\" to banking through the creation of basic banking accounts that come with other basic financial services. Modi informed all Indian banks of the initiative and declared it a national priority. On the inauguration day of the scheme, 1.5 crore (15 million) bank accounts were opened and since then, more than 18 million bank accounts have been created. In 2016, the Government of India instituted a sweeping demonetization policy in an attempt to stop corruption and the flow of black money. This move forced people to deposit their money into banks or see its value evaporate, with the goal of integrating citizens into a cashless and taxable economy and banking system. While India has seen new bank accounts continue to open in the wake of this policy change, and an overall increase in use of digital payment systems and other financial services, the policy change caused an extreme disruption to the financial system and debate continues on its efficacy. 6

Sales Executive (BFSI) VILT Measuring financial inclusion Readily available data outlining gaps in access and contextualizing the situation of financial inclusion is necessary for both service providers and policy makers looking to achieve financial inclusion. Several organizations conduct surveys to measure indicators of financial inclusion and collect both supply and demand side data. MIX is one platform that produces data driven reports to track progress towards financial inclusion across the globe. In 2013, Finance Minister of India, P. Chidambaram launched the CRISIL Inclusix, an index to measure the status of financial inclusion in India. CRISIL, India's leading credit rating and research company is collecting data from 666 districts in India and ranking on a scale from 0 to 100 based on four parameters of financial services. CRISIL publishes semi-frequent reports based on their findings with regional, state-wise, and district-wise assessments of financial inclusion. Some key conclusions from the 2018 report are:  The all-India CRISIL Inclusix score of 58.0 is above average as of April 2016, this is a significant improvement from 35.4 in 2009.  Deposit penetration is the key driver of financial inclusion–the number of deposit accounts (1646 million) is almost eight times the number of credit accounts (196 million).  The top three states are Kerala, Karnataka and Andhra Pradesh. Controversy Financial inclusion in India is often closely connected to the aggressive micro credit policies that were introduced without appropriate regulations, oversight, or consumer education policies. As a result, consumers quickly became over-indebted to the point of committing suicide and lending institutions saw repayment rates collapse after politicians in one of the country's largest states called on borrowers to stop paying back their loans. The crisis threatened the existence of the $4 billion Indian microcredit industry, has been compared to the subprime mortgage crisis in the United State. The crisis serves as a reminder of the necessity of appropriate regulatory and educational frameworks and it remains a challenge to separate microcredit from the large and complex field of financial inclusion. Tracking financial inclusion through budget analysis While financial inclusion is an important issue, it may also be interesting to assess whether such inclusion as earmarked in policies are actually reaching the common beneficiaries. Since the 1990s, there has been serious efforts both in the government agencies and in the civil society to monitor the fund flow process and to track the outcome of public expenditure through budget tracking. Organisations like International Budget Partnership (IBP) are undertaking global surveys in more than 100 countries to study the openness (transparency) in budget making process.There are various tools used by different civil society groups to track public expenditure. Such tools may 7

Sales Executive (BFSI) VILT include performance monitoring of public services, social audit and public accountability surveys. In India, the institutionalization of Right to information (RTI) has been a supporting tool for activists and citizen groups for budget tracking and advocacy for social inclusion. Financial inclusion and bank stability The theoretical and empirical evidences on the link between financial inclusion and bank stability are limited. Banking literature indicates several potential channels through which financial inclusion may influence bank stability. A recent study appeared in Journal Economic Behavior & Organization a robust positive association between financial inclusion and bank stability. The authors show that the positive association is more pronounced with those banks that have higher retail deposit funding share and lower marginal costs of providing banking services; and also with those that operate in countries with stronger institutional quality. Evidence on the effectiveness of financial inclusion interventions A systematic review of reviews by the Campbell Collaboration in 2019 assessed the available evidence on the effectiveness of financial inclusion programs to improve economic, social, behavioral and gender-related outcomes in low- and middle-income countries. They found that results from research have been mixed and programs to improve access to financial services often have small or inconsistent effects on income, health, and other social outcomes. The review showed that programs geared toward savings opportunities had small but more consistently positive effects, and fewer risks, than credit-oriented programs.  Principles of Banking 9 Basic Principles that Commercial Banks Follow Commercial banks follow certain principles to serve the maintain some principles which are very important for banks to remain in the competition in modem days. The bank which deals with money and money worth to earn prom is known as the commercial bank. 8

Sales Executive (BFSI) VILT Commercial banks must maintain some principles which are very important for banks to remain in the competition in modem days. 9 principles that commercial banks follow; 1. Liquidity. 2. Solvency. 3. Profitability. 4. Loan and Investment. 5. Savings. 6. Services. 7. Secrecy. 8. Efficiency. 9. Location. Some principles are discussed below; 1. Principle of Liquidity The principle of liquidity is very important for the commercial bank. Liquidity refers to the ability of an asset to convert into cash without loss within a short time. Paying the deposited money on demand of customers is called liquidity in the sense of banking. 2. Principle of Solvency Solvency means financial capability or sufficiency in the capital. To stay in these competitive market commercial banks must have sufficient capital. If the funds are not sufficient the bank cannot run his business. The main source of funds of the commercial bank is the deposited money by the depositors through the different types of accounts. Depositors keep cash in the bank, especially for safety. So commercial banks must ensure the safety of deposited funds. 3. Principle of Profitability The main objective of the commercial bank is to earn a profit. For earning profit commercial bank have to invest by providing short-term loans, before providing loan commercial banks have to compensate a certain amount of money as liquidity. 4. Principle of Loan and Investment The main source of profit of bank is granting loans to any individual or organization. Investment is a profitable and sound source of income. Commercial banks invest in the business and investment sectors. 5. Principle of Savings 9

Sales Executive (BFSI) VILT Commercial banks collect funds by creating savings facilities. Commercial banks try to collect savings from society surplus. The commercial bank invests these savings to generate profit. So, more savings, more investment, and more profit. 6. Principle of Services The commercial bank ensures the best services to their customers. The success of a bank depends on the services provided by the bank. The customer chooses those banks that provide improved services. 7. Principle of Secrecy Customers want to keep secrets about their valuable assets and money. So banks must have to keep secrets about their customer’s accounts. If a commercial bank does not maintain secrecy the customer will be dissatisfied. 8. Principle of Efficiency The commercial bank should operate their business efficiently. So that they can succeed at the objective. In this competitive market, there is no alternative way without efficiency in management. So commercial bank must train their employees to increase the efficiency in management. 9. Principle of Location Commercial banks must have to locate their branches in the commercial area where many customers are available. The location must be safe for the customers and an easy communication system must exist. Other principles;  The principle of goodwill.  The principle of the economy.  The principle of technology.  The principle of publicity. These are the basic principles of the commercial bank. The commercial bank must follow these principles.  Various Types of Customers and Ancillary Services What are ancillary services in banking? Ancillary services are other services that banks offer to common men along with the necessary banking services. These ancillary services form a very minuscule of the services offered by the banks. 10

Sales Executive (BFSI) VILT Types of Ancillary Services Let’s chat about the most significant of the numerous ancillary services that are needed for the reliable delivery of electricity. Ancillary services may be line-item charges or embedded within a total energy charge depending on the utility zone or product plan selected by the retail customer. Regulation Service is an ancillary service provided by resources that can respond quickly to the instantaneous change in electrical demand, often represented as a regulation signal. These resources, which are typically some type of electricity generator, demand response, or sources storing and then releasing electricity, may offer this service based on constructed formulas. Some of the items impacting a resource’s revenues when providing this type of service are whether it has the ability to respond quickly or slowly to a regulation signal and how well the resource can follow the regulation signal. A resource that can follow the regulation signal better than other resources will receive more revenue for this service. Synchronized Reserve Service is an ancillary service designed to ensure that there is enough “headroom” or unutilized energy on resources to increase output to ensure abrupt changes in electrical supply or demand can be met. A demand response resource, or aggregate of demand response resources, may provide this service by rapidly reducing electricity usage. A prime example of why this service is needed is for the sudden loss of generation or a loss of transmission capability. If a generator stops producing electricity due to a sudden operational issue, other resources must respond quickly to provide the “missing” power. For the most part, this market product clears at zero cost due to adequate supply or “headroom” on the system. When there is high demand for electricity, the price associated with this service could increase as the grid operator has to pay resources to be in an operating position to provide this service. 11

Sales Executive (BFSI) VILT Day-Ahead Scheduling Reserve (DASR) is cleared a day prior (day-ahead) to the actual need of the ancillary service and is utilized to ensure a sufficient quantity of resources, including demand response, are in the operational position of being available to provide 30-minute reserve service in the real-time market. There are numerous non-market-based ancillary services; however, we will only discuss two potentially expensive services. The Federal Energy Regulatory Commission, (FERC), has oversight of the wholesale electricity markets and approves these service-related compensation mechanisms. Black Start Service is an ancillary service that is paid to certain generating resources that can begin providing electricity to the grid without first utilizing outside power from the grid to initially start power generating stations. Black start is necessary if there are large black outs on the power system. The power output from these resources is utilized to start other power stations, provide electricity to nuclear stations, and provide critical-needs services. The compensation for resources providing this service is an annual FERC-approved, cost-of-service rate. As new black start resources begin operation, or as existing black start resources retire, significant changes to this charge can occur. Voltage Control and Reactive Service is a FERC-approved rate that provides basic compensation for a generator to provide incremental voltage or to absorb voltage on the transmission system. This type of service is local in nature. In other words, you may have portions of the electrical grid with both normal and abnormal conditions depending on the configuration of generators, loads, and the transmission system. These charges can grow beyond FERC-approved charges if the grid operator must turn on or off a generator or substantially modify the output of a generating resource to provide this service thus inhibiting the resource’s ability to participate within the economic energy dispatch of the grid. To conclude, ancillary services consists of a wide variety of provisions. We touched upon the most expensive and significant of these services to help give you a better understanding of what is included in these cost components and the necessity of these services to insure safe and reliable power is available to you. AEP Energy is here to help you fully understand these charges, as well as pursue opportunities to increase your revenues. Some of the ancillary services provided by the banks are: a) Funds transfer service: Useful for sending and receiving money from all over the world. b) Forex service: You can buy the foreign exchange for any purpose of expenditures like travel, buying merchandise, etc. and sell the same to the bank when you earn or receive from abroad. c) Custodial Service: You can keep your valuables like jewels, documents, etc. Under this service, this is commonly known as Locker facility (Safe Deposit Vaults). 12

Sales Executive (BFSI) VILT d) Gold sale: only a few selected branches of banks or banks are allowed to provide this. e) e Banking: also known as Net banking or Internet banking is the latest and most convenient facility of the banks. You can get id and password to operate your account online: for transfer of funds to another account in the same bank or another bank. You can keep the surplus funds in fixed deposit by using this facility. 8.1 Remittance of funds Some default funds transfer limits are given to customers based on the type of account. In case you wish to raise the limits per day), you may give a written request to your branch.  Beneficiary Maintenance: You can maintain a “Beneficiary” for whom you normally wish to transfer funds. You have to give a “Payee ID” for each of the beneficiary and should attach a valid Account for each of the beneficiary maintained by you.  Funds Transfer between your Accounts (Real-time): You can transfer funds to the extent of “Net available balance” (from one of your accounts – viz. Source Account) or up to the ‘Per day limit’ fixed by the Bank for you, whichever is less, to any one of your other accounts.  Third Party Funds Transfer (Real-time): You can transfer funds to the extent of “Net available balance” (from one of your accounts viz. Source account) or up to the “Per day limit” fixed by the Bank for you, whichever is less, to any one of the Beneficiary Accounts maintained by you. All the Beneficiary Accounts maintained by you will be available in the pick list and you can select any one of the accounts.  NEFT online Transfer: You can transfer funds to the extent of “Net available balance” (from one of your accounts viz. Source account) or upto the “Per day limit” fixed by the Bank for you, whichever is less, to an account with another Bank. The funds will be transferred using the NEFT facility provided by RBI and will be processed in the next available settlement cycle depending on the time of request. The beneficiary gets the credit on the same day or the next day depending on the time of settlement. Term Deposit Options:  Term Deposit Details: You can view the details of the selected Term Deposit account such as principal, contracted interest rate, maturity value, tenure, maturity date, lien (if any) etc. Loan Options:  Loan Account Details: You can view the details of the loan account selected and print these details using “print” option. You can also go to “Account Summary”, ‘Early and Final Settlement” and “Loan Repayment” options from here.  Loan Account Activity: You can view the details of transactions for the selected account for any specified period. The details of transactions can be directly printed using ‘print’ option or can be downloaded and saved as a file using “download” option. Standing Instruction (SI) Options: 13

Sales Executive (BFSI) VILT  Initiate Standing Instructions: You can create a Standing Instruction. The Standing Instructions are of 3 types viz., Account to Account, Credit to Loan Account and Banker’s Cheque (BC) Request. Wherever the BC request is selected, you have to fill up beneficiary details also. The Bank will prepare the BC and mail it to you. For all the 3 types, the Standing Instructions will be executed on the Day Begin of the execution day. In case of insufficient balance, no further trials will be made till the next execution date.  View SI: You can view the details of the Standing Instructions you had given either directly at the branch or through Internet Banking. (For removing Standing instructions, you have to give a request through your branch.) 8.2 Safe custody and safe deposit The facility of Safe Deposit Lockers is an ancillary service offered by the Bank. The Bank's branches offering this facility will indicate/display this information. Secrecy and Confidentiality: The Bank will ensure utmost secrecy of the Safe Deposit Lockers hired by the customer and will not divulge any information about hiring of lockers, mode of operation etc. to anyone, except when the disclosure is required to be made with the clear consent of the hirer(s) or in compliance of the orders of a competent authority having statutory powers. Bank’s lockers will be available to any person, having contractual capacity i.e. capacity to enter into a contract. Thus locker can be hired by an individual singly and / or two or more individuals jointly as well as firms, limited Companies, Societies, Associations, Clubs etc. Allotment of locker Allotment of lockers shall be based on the duly (properly) filled in application of the prospective hirers on the printed format provided by the bank. Lockers will be allotted by the branches on first come first served basis. Providing a copy of the agreement: Branches will give a copy of the agreement to the locker-hirer at the time of allotment of the locker, if preferred by the customer. Recovery of rent from hirer(s) Safe Deposit Locker rent will be payable in advance and in the event of locker rent remaining unpaid, when due, the Bank will have the right to refuse access to the locker hirer(s). Locker rent will be recovered on annual basis. The lease period of one year will start from the date of hiring the locker and will continue till the preceding day of the corresponding date in the subsequent year. Operations of Safe Deposit Vaults/Lockers: 14

Sales Executive (BFSI) VILT Branches will exercise due care and necessary precaution for the protection of the lockers provided to the customer. The Hirer/s can operate the Safe Deposit Locker only on the Bank’s working days and during the business hours of the Bank. Before operating the locker, the hirer/s should sign the attendance register which shall be kept at the bank. Death of the hirer:  Notice of knowledge of the death of a hirer or a surviving hirer will be recorded in the Locker Register with date and source of information under the initials of an officer.  As a further precaution, a slip reading 'hirer deceased' will be pasted on the locker.  Thereafter access to the locker should be allowed on production of legal representation.  Where authority has been given to the survivor or survivors to operate the locker in writing specifically at the time of lease of the locker, in the case of joint account, the question of legal representation does not arise unless the survivor also dies. Surrender of Locker:  Locker can be surrendered by the hirer/s at any time during the contract period through a written application and handing over of keys to the Bank Officials.  Bank can also request for surrender of locker with due notice. The major aspects governing the locker services are:  The Bank will hire locker only to properly introduced persons.  Lockers are rented out for a minimum period of one year. Annual rent is payable in advance.  Loss of key should be immediately informed to the branch.  Withstanding instruction, the rent may be paid from the deposit account of the hirer. 8.3 Merchant Banking Merchant banking is called commercial services bank in UK. It is a bank that provides financial services mainly for companies and large-scale investors. Merchant banking implies investment management. Companies raise capital by issuing securities in the market. Merchant bankers act as intermediaries between the issuers of capital and the investors who purchase these securities. Merchant banking is the financial intermediation that matches the entities that need capital and those that have capital for investment. Services of merchant bankers 15

Sales Executive (BFSI) VILT The services provided by merchant bankers include management of mutual funds, public issues, trusts, securities and international funds. It involves dealing with the corporate clients and advising them on various issues like- mergers, acquisitions, public issues, etc. Merchant Banking is a combination of Banking and consultancy services. Merchant banking Banking services + Consultancy services It helps businessmen to start It provides consultancy to its clients for financial, a business and helps to raise finance marketing, managerial and legal matters in short, merchant banking provides a wide range of services for starting until running a business. It acts as Financial Engineer for a business. Functions of Merchant Banking Merchant banking primarily involves financial advice and services for large corporations and wealthy individuals. The important functions of merchant banking are depicted below. 1. Raising Finance for Clients: Merchant Banking helps its clients to raise finance through issue of shares, debentures, bank loans, etc. It helps its clients to raise finance from the domestic and international market. This finance is used for starting a new business or project or for modernization or expansion of the business. 2. Project Management: Merchant bankers help their clients in the many ways. For e.g. advising about location of a project, preparing a project report, conducting feasibility studies, making a plan for financing the project, finding out sources of finance, advising about concessions and incentives from the government. 3. Advice on Expansion and Modernization: Merchant bankers give advice for expansion and modernization of the business units. They give expert advice on mergers and acquisition, takeovers, diversification of business, foreign collaborations and joint-ventures, technology up-gradation, etc. 4. Special Assistance to Small Companies and Entrepreneurs: Merchant banks advise small companies about business opportunities, government policies, incentives and concessions available. It also helps them to take advantage of these opportunities, concessions, etc. 5. Services to Public Sector Units: Merchant banks offer many services to public sector units and public utilities. They help in arranging long-term finance from term lending institutions, marketing of securities. 6. Revival of Sick Industrial Units: Merchant banks help to revive (cure) sick industrial units. 7. Portfolio Management: A merchant bank manages the portfolios (investments) of its clients. This makes investments safe, liquid and profitable for the client. It offers expert guidance to its clients for taking investment decisions. 8. Money Market Operation: Merchant bankers deal with and underwrite short-term money market instruments, such as: 16

Sales Executive (BFSI) VILT i. Government Bonds. ii. Commercial paper issued by large corporate firms. iii. Treasury bills issued by the Government  Different Categories of Loan What is a Loan? If you have never received a loan to purchase something, you are certainly in the minority! Loans can be a great thing, but they can also get you into trouble. One of the keys to being financially successful is understanding when loans are a good solution for your situation. Loans are never a good idea if you can't afford to pay them back in the required time frame. Let's explore what a loan is and find out some of the common ways to borrow money. A loan is when you receive money from a friend, bank or financial institution in exchange for future repayment of the principal, plus interest. The principal is the amount you borrowed, and the interest is the amount charged for receiving the loan. Since lenders are taking a risk that you may not repay the loan, they have to offset that risk by charging a fee - known as interest. Loans typically are secured or unsecured. A secured loan involves pledging an asset (such as a car, boat or house) as collateral for the loan. If the borrower defaults, or doesn't pay back the loan, the lender takes possession of the asset. An unsecured loan option is preferred, but not as common. If the borrower doesn't pay back the unsecured loan, the lender doesn't have the right to take anything in return. Types of Loans Personal loans - You can get these loans at almost any bank. The good news is that you can usually spend the money however you like. You might go on vacation, buy a jet ski or get a new television. Personal loans are often unsecured and fairly easy to get if you have average credit history. The downside is that they are usually for small amounts, typically not going over $5,000, and the interest rates are higher than secured loans. Cash advances - If you are in a pinch and need money quickly, cash advances from your credit card company or other payday loan institutions are an option. These loans are easy to get, but can have extremely high interest rates. They usually are only for small amounts: typically, $1,000 or less. These loans should really only be considered when there are no other alternative ways to get money. Student loans - These are great ways to help finance a college education. The most common loans are Stafford loans and Perkins loans. The interest rates are very reasonable, and you usually don't have to pay the loans back while you are a full-time college student. The downside is that these 17

Sales Executive (BFSI) VILT loans can add up to well over $100,000 in the course of four, six or eight years, leaving new graduates with huge debts as they embark on their new careers. Mortgage loans - This is most likely the biggest loan you will ever get! If you are looking to purchase your first home or some form of real estate, this is likely the best option. These loans are secured by the house or property you are buying. That means if you don't make your payments in a timely manner, the bank or lender can take your house or property back! Mortgages help people get into homes that would otherwise take years to save for. They are often structured in 10-, 15- or 30-year terms, and the interest you pay is tax-deductible and fairly low compared to other loans. Home-equity loans and lines of credit - Homeowners can borrow against equity they have in their house with these types of loans. The equity or loan amount would be the difference between the appraised value of your home and the amount you still owe on your mortgage. These loans are good for home additions, home improvements or debt consolidation. The interest rate is often tax deductible and also fairly low compared to other loans. Small business loans - Your local banks usually offer these loans to people looking to start a business. They do require a little more work than normal and often require a business plan to show the validity of what you are doing. These are often secured loans, so you will have to pledge some personal assets as collateral in case the business fails. Advantages of Loans Business growth and expansion - Loans are a great way for a business to expand and grow quicker than it otherwise could. Access to additional money helps businesses hire more employees, buy inventory and invest in needed machinery. 7 types of personal loans Personal loans can be used for a variety of expenses, and they can go by various names. Though many of them work similarly, lenders may give them specific, purpose-driven titles and offer varying terms depending on each purpose. For example, Light Stream currently offers wedding loans with APRs (annual percentage rates) starting 5.95%* APR, while APRs for home improvement loans start at 4.99%. Here are some of the most popular types of personal loans and what you need to know about each. Common types of personal loans Loan type Purpose Credit builder loan A secured loan that helps you to build a healthy credit history 18

Sales Executive (BFSI) VILT Debt consolidation Combine multiple debts together, ideally with a lower interest rate loan Holiday loan Can help cover the cost of gifts and other holiday expenses Home improvement Used to pay for home improvement projects and repairs loan Medical loan Can cover the cost for medical treatment or living costs while you’re recuperating from an illness or procedure Vacation loan Allows you to cover the cost for a vacation Wedding loan Helps you pay for your big day and related expenses 1. CREDIT BUILDER LOAN A credit builder loan is intended to help you do just that — build your credit. Whether you’re trying to establish a credit history or repair one that has been less-than-stellar, a credit builder loan gives you the opportunity to show lenders that you are a responsible borrower by making timely payments on the loan. Once approved, the amount of the loan is placed in a savings account, which is held by the bank and is not at your disposal. You make monthly payments on that amount, and once you’ve paid it all back, then you receive the funds along with interest or dividends in some cases. As long as you make all your payments on time and in full, you’ll likely get a boost to your credit score. Most credit builder loans are small — from $300 to $1,000 — and range from six to 24 months. They’re typically much easier to get than other personal loans as there’s little risk to the financial institution in granting you one. Note, however, that in some cases you’ll be charged an administration fee for such loans. 2. DEBT CONSOLIDATION LOAN Debt consolidation loans allow you to roll multiple debts into one with a new interest rate and repayment term. The key perks to a debt consolidation can include:  Repaying your debt with a lower interest rate  Shortening or extending the amount of time you’re in debt  Getting a fixed interest rate when you may have had a variable rate  Reducing the number of debt payments, you make each month In most cases, when you’re approved for a debt consolidation loan, the lender will deposit funds into your bank account. You’ll then use that money to pay off your old debts (though in some 19

Sales Executive (BFSI) VILT cases, the lender will pay off your creditors directly). Depending on the lender, you could borrow from $2,000 to $35,000 or more. Depending on your credit and the type of debt you’re carrying, debt consolidation loans can help you repay your debt at a lower rate. When comparing your loan options, pay attention to loan APRs, or annual percentage rates. This rate represents the interest rate plus fees, and is a more accurate representation of your cost of borrowing. The lowest rates are offered to borrowers with excellent credit and finances. These borrowers may also consider a balance transfer credit card as a potentially more affordable way to consolidate or refinance credit card debt. If you have bad credit, however, a debt consolidation loan may not be a viable way to save money over repayment, unless you have debt with exceptionally high rates like payday loans. 3. HOLIDAY LOAN Holidays are typically joyful times, but they can also be expensive. There are gifts to buy, festivities to attend and a host of other holiday happenings that can add up and create stress. Sixty-one percent of Americans reported they were dreading the December holidays because of the associated costs, according to a 2019 Lending Tree survey. For gifts alone, a typical consumer expected to spend $602.65, and that number jumped to $850.38 if they had children under 18. On top of that, there’s often the cost of travel, parties, decorations and more that people rack up in the name of happy holidays. To help ease some of that stress and cover holidays costs, some consumers turn to holiday loans. Ideally, you should save up for these expenses ahead of time, but when that’s not possible or you don’t want to dip into savings, holiday loans could bridge the gap. As with any loan, though, you want to make sure you don’t borrow more than you can repay. Unfortunately, far too many people do — one in five survey respondents were still paying off debt from the 2018 holiday season. 4. HOME IMPROVEMENT LOAN For most people, your home is your largest asset, so you want to keep it in good working order and as updated as possible to protect your return on investment. Home improvements and repairs can be pricey though, which is why some homeowners seek out home improvement loans. Take a new roof, for example. While prices vary widely based on the size of your home, type of roof and where you live, the national average rings in at $6,626, according to HomeAdvisor, a marketplace for home improvement and maintenance services — but not everyone has that kind of cash sitting around. 20

Sales Executive (BFSI) VILT Your typical home improvement loan is unsecured and, as long as you have good credit, can be easy to get. However, if you’re more comfortable with a secured loan, or want to minimize interest charges, a home equity loan could be a more affordable option. 5. MEDICAL LOAN Medical expenses can quickly add up, and if you’re unable to pay, you may consider a medical loan to cover them or to take care of living expenses while you recover. A word of caution about medical loans, however: In many cases, medical providers will provide payment plans with more attractive terms than medical loans, such as no-interest plans. They also may be willing to negotiate when it comes to price. In any case, it’s a good idea to do some investigating before you take out a medical loan to make sure it’s the best option possible (plus, you should also note that you may also have to pay an origination fee for a medical loan). 6. VACATION LOAN A vacation loan, otherwise known as a personal loan may be just what you need to help you escape the daily grind and get away, while putting off paying for it until another day. But while the memories you make may be priceless, repaying a vacation with interest can be pricey, depending on your loan terms. In general, it’s wiser to save ahead for vacation costs. You might choose a vacation loan, however, if you’d prefer to hold onto savings for emergency costs or if you’re attending a special event like a wedding on short notice. 7. WEDDING LOAN The national average wedding cost is $33,900, according to a 2019 report by wedding planning website The Knot. For couples who are unable to pay for wedding costs out of pocket, a wedding loan can be one financing option. Similarly, you can also find honeymoon loans. One downside to a wedding loan, however, is the fact that personal loans are for fixed amounts. If you borrow too little, for example, you’ll have to take out another loan or charge a credit card to cover additional costs. For that reason, a personal line of credit or credit card could be a more practical financing option, as you can borrow on a rolling basis.  Credit Appraisal and Lending Decision What is Credit Appraisal? Credit Appraisal is the process by which a lender appraises the technical feasibility, economic viability and bankability including creditworthiness of the prospective borrower. Credit appraisal 21

Sales Executive (BFSI) VILT process of a customer lies in assessing if that customer is liable to repay the loan amount in the stipulated time, or not. Here bank has their own methodology to determine if a borrower is creditworthy or not. It is determined in terms of the norms and standards set by the banks. Being a very crucial step in the sanctioning of a loan, the borrower needs to be very careful in planning his financing modes. However, the borrower alone doesn’t have to do all the hard work. The banks need to be cautious, lest they end up increasing their risk exposure. All banks employ their own unique objective, subjective, financial and non-financial techniques to evaluate the creditworthiness of their customers. What is credit appraisal? The word ‘credit appraisal’ garners a lot of meaning when you talk of personal loans. It looks a complicated word, but it is assessing a particular loan application in a thorough manner, to check or gauge your loan repayment ability. The lender or the bank does credit appraisal to check if you can repay the loan. Credit appraisal assesses two major factors. Ability and willingness to repay the loan. The bank checks:  Your past credit history. The bank goes through credit information report (CIR) and the credit score. CIBIL gives you and other borrowers a score between 300 to 900. A CIBIL score of 700 and above is good and gets loans easily sanctioned.  The bank checks if you are salaried or a businessman. It then goes through the various conditions/criteria which you need to meet, based on the respective category.  Understand a customer through physical interactions (body language) and gauge his intentions and understand the business model.  Assess the financials of customers. This is both the past and present. Banks go through financials of the business and spending pattern of individuals also gauging source of income.  The bank does the job of a policeman. It takes a close look at facial expressions of the customer at the time of questioning. All details, financials might look up to the mark. But, if there is strain in your voice while talking to the banker, he suspects something is amiss.  Banks check conflict of interest before lending. Loans must never be given out of pity as the customer might not be able to repay the loans. Credit Appraisal Process: Banks check:  Your Total Income  Age  Repayment capability  Work experience and job stability  Loan EMIs paid and currently being paid  Nature of employment (Type of job you are in).  Amount you spend each month. 22

Sales Executive (BFSI) VILT  Future liabilities  Taxes you are paying  Assets you/business owns  Capital structure of the business, (Debt or Equity). Lenders check the fixed obligation to income ratio (FOIR): This gives banks an idea on how much debt you have and how regular you are with repayments. FOIR gives the fixed obligations a bank has to meet each month. Banks frown on customers having loan EMIs of 50% or more vis- à-vis monthly income. Banks assume that you require at least 50% of income for living expenses. If more than 50% of monthly salary goes in loan EMIs, you could struggle with repayments. Let’s Calculate Loan Eligibility Based on FOIR: You have an income of Rs 60,000 a month. (Take home salary). You have availed a car loan where you pay Rs 9,500 a month in EMIs. You also have a personal loan where you pay Rs 6,500 a month. Banks believe that if loan EMIs are within 50% of monthly income, you can safely repay loans. Take home salary = Rs 60,000. Car loan = Rs 9,500 Personal loan = Rs 6,500 Total loan EMIs = Rs 16,000. Banks are happy to give you a loan as long as loan EMIs are within Rs 14,000. (This is 50% of Rs 60,000 – Rs 16,000). FOIR = Sum total of loan EMIs / Monthly Income. FOIR = 16,000 / 60,000 = 27%. Installment to Income Ratio: This is loan EMIs to income you earn Loan to Cost Ratio: This helps to gauge how much of a loan you must be given. A bank will sanction a personal loan based on requirement. Banks would sanction a home loan based on 80- 90% of the cost of the property. Banks would sanction 70-80% of the cost of the car. Credit Appraisal Process in Bank Projects: Identification of the customer: Banks check identity proof like PAN and Passport, Employment proof like appointment letter/experience letter or office address proof. CIBIL score of 700 and above. Investment proof required for collateral like LIC Policy, Mutual Funds, Shares, FD or PPF. The bank wants to know who you are, where you live, how much you earn and your reputation in society. Banks want to know the ability and willingness to repay the loan. 23

Sales Executive (BFSI) VILT Banks Want to Understand Your Business: Banks want to understand the business model, before sanctioning credit. They enquire on the nature of business, the industry you operate and peers in the business, and do research on the performance of the business and the sector. Banks Check Credit Requirements: Banks need an accurate estimate of funds you need to run the business. If they sanction too high a loan amount, the businessman will use the money for other purposes. Too low an amount means money would not be sufficient to run the business. Banks Slot You in the Right Scheme: Banks slot you in a scheme based on the line of business. This could be a unique scheme for traders, professionals, car dealers, travel agents and so on. Banks check eligibility, collateral, margins, rate of interest, before slotting you in a scheme. Loan Application: You have to fill the loan application in the prescribed format. The bank collects crucial information on you through loan application. KYC:  Identity proof  Address proof  Business proof  PAN CIBIL: Banks go through the credit information report (CIR) and the CIBIL score. There are two types of credit reports.  Personal  Commercial Banks check for settlements, defaults, dues and written off amounts. RBI Defaulters List: The defaulter list can be got from the CIBIL website. Borrowers, proprietors, promoters, partners, guarantors must not be on the list. CERSAI: Banks check the CERSAI website to find out if property is mortgaged to another lender. Components of Credit Appraisal Process While assessing a customer, the bank needs to know the following information: Incomes of applicants and co-applicants, age of applicants, educational qualifications, profession, experience, additional sources of income, past loan record, family history, employer/business, security of tenure, tax history, assets of applicants and their financing pattern, recurring liabilities, other present and future liabilities and investments (if any). Out of these, the incomes of applicants are 24

Sales Executive (BFSI) VILT the most important criteria to understand and calculate the credit worthiness of the applicants. As stated earlier, the actual norms decided by banks differ greatly. Each has certain norms within which the customer needs to fit in to be eligible for a loan. Based on these parameters, the maximum amount of loan that the bank can sanction and the customer is eligible for is worked out. The broad tools to determine eligibility remain the same for all banks. We can tabulate all the conditions under three parameters. Besides the above said process, profile of the customer is studied properly. Their CIBIL (Credit Information Bureau (India) Limited) score is checked. Parameter components & How bank asses your creditworthiness through it. Credit Analysis in Banks Credit Appraisal Eligibility: Three Methods to Achieve  Installment to income ratio  Fixed obligation to income ratio  Loan to cost ratio Installment to Income Ratio 25

Sales Executive (BFSI) VILT This ratio is generally expressed as a percentage. This percentage denotes the portion of the customer's monthly installment on the home loan taken. Usually, banks use 33.33 percent to 40 percent ratio. This is because it is having been observed that under normal circumstances, a person can pay an installment up to 33.33 to 40 per cent of his salary towards a loan. Example: If we consider the installment to income ratio equal to 33.33 per cent, and assume the gross income to be Rs 30,000 per month, then as per the ratio, the applicant is eligible for a loan with the maximum installment of Rs 10,000 per month. Fixed obligation to income ratio This ratio signifies the importance of the regularity in the repayment of previous loans. In this calculation, the bank considers the installments of all other loans already availed of by the customer and still due, including the home loan applied for. In other words, this ratio includes all the fixed obligations that the borrower is supposed to pay regularly on a monthly basis to any bank. Statutory deductions from salary like provident fund, professional tax and deductions for investment like insurance premium, recurring deposit etc. are exempt from these fixed obligations.] Example: Assume that monthly income of an applicant is Rs 30,000 and the applicant has a car loan installment of Rs 4,000 per month, a TV loan installment of Rs 1,000 per month. In addition to this his proposed housing loan installment is Rs 10,000 per month. Numerically, the ratio is equal to Rs. 15,000 or 50 percent (i.e. 50 percent of the monthly income). If the bank has decided on the standard of 40 per cent of ratio as the criteria, then the maximum total installments the person can pay, as per the standard, would be Rs 12,000 per month. As he is already paying Rs 5,000 for the car and TV, he only has Rs 7,000 left out. Hence, the customer would be given only that loan for which the EMI would be equal to Rs 7,000, keeping in mind the repayment capacity of the applicant. Loan to Cost Ratio This ratio is used by banks to calculate the loan amount that an applicant is eligible to pay on the basis of the total cost of the property. This ratio sets the upper limit or the maximum loan amount that a person is eligible for, irrespective of the loan eligibility under any other criteria. The maximum amount of loan the borrower is eligible to pay is pegged as equal to the cost or value of the property. Even if the banks’ calculations of eligibility, according to the above mentioned two criterions, turns out to be higher, the loan amount can't exceed the cost or value of the property. This ratio is set equal to between 70 to 90 per cent of the registered value of the property. Hence, while deciding on the maximum amount of loan a customer can be given, the banks use these three parameters. These parameters help in computing loan eligibility, which is crucial in calculating the creditworthiness of a customer. It also acts as a guide to determine the loan amount. Economic Viability 26

Sales Executive (BFSI) VILT  Recovery of Bank Loans THE LOAN RECOVERY PROCEDURES –A COMPLETE GUIDE We come across a situation when we all borrow a loan to finance some major events of our life. Be it an auto loan for buying a car, a personal loan for paying a medical emergency, a home loan pay buy a house or a loan against property for business growth. Borrowing through a loan helps us to ease the current financial crisis by putting liquid cash in hand. The loan is repaid along with interest as EMI’s. There may certain circumstances that can lead to non-payment of EMI’s on time and this inability to repay can create differences between the borrower and the Banks/ NBFC’s. These defaults of the customers let the lenders take strict actions starting from follow-up calls to sending sales and credit officers to sending recovery/collection officers to recover the unpaid balance amount from the customer. The Bank’s /NBFC’s services and rules guide their monetary policies. A lot of research is done to improvise and effective measures are taken while designing the lending as well as recovery policies. Recommendations are also taken for further improvements and this completely described procedure for lending and recoveries of the funds works as a manual to the related employees. Defaults in lending cause bad accounts and affect their future cash flow and create misbalance in their profitability. 27

Sales Executive (BFSI) VILT The amortization schedule is specified in the sanction letter and also discussed between the lender and the customer. The calculation of the interest and the principal, EMI’s and the modes of repayment are clearly explained to the customer. The bank expects the customer to stick to the agreed terms and conditions and discuss it with the bank in case of any difficulty in the repayment of the loan. GENERAL GUIDELINES OF THE BAD DEBT RECOVERY The term recovery refers to the collection of over dues and is recovered on an installment basis depending on the nature of the business. The policies for the recovery and collection do not allow following any method that hurts the dignity and respect of the customer. The fair practices are followed to collect the dues or repossession of the security and promote customer’s confidence and the long-lasting relationship with the Bank/ NBFC. The repossession of the security aims to recover the dues in case of any defaults instead of any financial distress for the customer. The repossession only happens after many attempts and discussions with the customer to resolve the default situations. It’s an exception that the customer’s financed asset is repossessed by the bank. This only happens if the customer violates any of the terms and conditions of the loan agreement. Authorized representatives of the lenders follow the following set of rules for the collection process: 1. Only the authorized people from the organization can follow up and has to provide the identity at first. The authority letter has to be shown by the Bank/ NBFC’s representative in the security’s repossession or the collection of dues. 2. The Bank/ NBFC respects the privacy of the borrower. While contacting the borrower on the phone or in-person for the recovery of the balance due, the bank does not intrude on the privacy of the borrower. 3. The Bank/ NBFC ensures that the communication either verbal or written will be in a simple business language and the interaction is done with civic manners. 4. The timings are specified to 0700 to 1900 hours to contact the borrower unless the special circumstances require the lender to contact the customer at a different time. 5. Borrower’s request to call at a different time is honored. If the customer wishes he can be contacted at a different place of his choice other than his/ her residence or the business place. 6. The efforts made for recoveries are always documented along with the gist of interactions with the borrower. 7. The assistance is given to resolve the disputes in a mutually acceptable and orderly manner. 8. Any inappropriate or other calamitous occasions are avoided for making calls / the collection of dues. The other processes followed by Banks and NBFC for collection of dues is as under: - REMINDER NOTICE/DUNNING LETTERS 28

Sales Executive (BFSI) VILT During the initial days, the bank’s representatives follow up through telephonic reminder calls or by visiting the customer’s residence or business premises. The financial institution has given written notices to the borrower informing them about the due EMI and requesting the borrower to clear the dues. Without giving any written notice, the Bank/ NBFC does not initiate any legal or any other recovery measure including the repossession of the security. If the borrower is intentionally avoiding calls from the bank/ NBFC, then the bank is free to move ahead with the repossession in case of secured loans and legal proceedings of recoveries in case of Unsecured loans. REPOSSESSION OF THE MORTGAGED PROPERTY In case of secured loans repossession of property is done to recover the dues of the lender and not to hurt the borrower’s dignity in any form. The recovery process involves the repossession, valuation of the asset and realization of the outstanding amount by way of sale of the asset. The repossession is done only after the final notice is sent to the borrower and the process is done by keeping all legal formalities in mind. The Bank/ NBFC will ensure the safety and security of the property possessed by the Bank/ NBFC. VALUATION AND SALE OF PROPERTY Valuation of the property is done by all legal means and in a transparent manner. In case of a secured loan like Loan Against Property, Home Loan or mortgage, the value approved by the valuer of the company is conveyed to the borrower before proceeding further for the sale. Even if the sale is being done by the borrower then the sale bid should be higher to cover the due balance amount of the loan. The Bank/ NBFC holds the right to recover any due amount even after the sale of the property. Any excess amount is returned to the borrower after clearing all the expenses. BORROWER’S OPPORTUNITY TO TAKE BACK THE SECURITY As discussed above that the repossession of the secured asset is done only for the purpose to recover the due amount from the borrower and not with a deprived intension. As per the agreement, the Bank/ NBFC will willingly handover the possession to the borrower before finalizing any sale transaction of the property. With the genuine reason for the inability to repay the installments within the scheduled time frame, the lender may consider to handover the property within 7 days after receiving the installments. This is only done if the lender is convinced with the arrangements and the borrower ensures to repay the remaining amount in equal installments in the future. PREVENTIVE MEASURES THE BORROWER CAN REQUEST TO AVOID COLLECTIONS AND RECOVERIES Intentionally no one delays payment or the EMI’s for a few months on a regular basis. There are circumstances of losing a job, high fees for further education or any other emergency that eat up all your savings. But, whatever the reasons may be, you can always opt for any of the following options: 29

Sales Executive (BFSI) VILT PAYMENT HOLIDAY The borrower can always ask the Bank/ NBFC to provide him for an EMI holiday for a few months. The inability to make regular payments can be due to a job change or a temporary loss of business or employment. Though the penalties are charged for the delayed payments the lender does consider the genuine reasons for the delays. REDUCTION IN EMI If you are struggling with the EMI burden and want a considerable reduction in monthly outflow, the borrower instead of defaulting on a loan can anytime request the lender to increase the loan tenor. This will definitely reduce the EMI burden but you might end up paying a higher amount of interest. Once your financial health stabilizes you can again increase the EMI and end your loan on an early date. RESTRUCTURE OF LOAN Relaxation in terms and conditions can always be requested if the borrower is unable to maintain them. This can help the borrower to avail of reduced charges, lower interest rates, increased loan tenor, etc. this will not only relax the borrower but also he will be able to maintain the regularity in the repayments. ONE TIME SETTLEMENT OF LOAN This option arises when the borrower is unable to pay the loan to an extent where the interest charges are higher than the principal amount. The Bank/ NBFC declares the loan as a nonperforming asset (NPA) and the borrower as bankrupt. When the borrower is not in the condition to pay the loan amount, he is allowed to settle the loan account by paying a one-time payment. The only disadvantage of this option is that – it is reflected in your credit report affecting your credit score and doubting your credibility in the future. CONCLUSION An opportunity is given to all the borrowers if they are facing any problem in repaying the EMI’s on time. They can approach the Bank/ NBFC and ask to restructure the loan to enable the smooth repayment process. The lending involves a lot of risks and if not handle with care can turn out to be an activity of loss for the Bank/ NBFC. Before lending, they have to be more cautious. Just a single missed opportunity and it can bring huge losses for the Bank/ NBFC. The RBI guideline states that the Bank/ NBFC has to give a reasonable amount of time to pay the due amount. In case of any demise like death, serious ill-health or accident the Bank/ NBFC gives a justified holiday to the customers and his family. The Bank/ NBFC should always have a clear picture of your financial health. They should be aware when you can resume the payments of your loan. Do not avoid the follow-up messages or 30

Sales Executive (BFSI) VILT calls from the Bank/ NBFC and instead take it as a priority. Pulling your hands from unnecessary expenses can add a sum of amount to your savings and help to repay your debts on time. It’s not only a moral obligation but also a legal responsibility to pay off your loan dues completely and that too on time as agreed between the lender and the borrower. A few easy ways can sort the situation temporarily but still, it is important to ensure that you pay all your dues and your creditworthiness is not harmed in any way.  Analyzing The Civil Report What is the Difference Between CIBIL Score and CIBIL Report? Terms like credit score, CIBIL score and credit report can be very confusing for loan applicants. Check out this post to know what these terms are and how are they different from one another. Banks now lay a major emphasis on the credit history of a loan applicant. They prefer lending money to borrowers with a decent credit history in order to minimize the risk of default. Banks use the ‘credit score’ of an applicant in order to decide whether or not he/she is a responsible borrower. You will come across many different terms on the internet such as CIBIL score, credit report, etc. How are these terms different from one another? Let us have a detailed look at these terms to understand the differences. Difference between CIBIL Score and Credit Score To understand the difference between the CIBIL score and credit score, it is important to first understand what these terms mean. What is Credit Score? Your credit score in India is a 3-digit summary that defines your credit history. A credit bureau takes your credit history into consideration and uses its own algorithm to calculate a 3-digit score, generally in the range of 300 to 900. The higher the credit score is, the more responsible you have been with credit in the past. Most lenders in India prefer giving loans to borrowers with a credit score of 700 or above. What is CIBIL Score? The full form of CIBIL is Credit Information Bureau (India) Limited. CIBIL is one of the four major credit bureaus in India. The other three bureaus are Equifax, CRIF Highmark and Experian. All four credit bureaus are licensed by the Reserve Bank of India (RBI). The credit score calculated by CIBIL is known as the CIBIL score. So, the only difference between CIBIL and credit score is that credit score can be provided by any of the 4 credit bureaus in India. But only CIBIL provides CIBIL score. A credit score from any of the 4 credit bureaus is equally valid. However, most banks usually prefer CIBIL score. Difference between CIBIL Score and CIBIL Report 31

Sales Executive (BFSI) VILT Now that you know what the CIBIL score is, it should not be difficult to understand the CIBIL report. Your CIBIL report is the report created by CIBIL with details of your CIBIL score and debt accounts along with their payments. It contains details such as the loans that you might have taken in the past, Credit Card dues, etc. and how you repaid them. With the help of all this information, CIBIL calculates your CIBIL score. Apart from the debt related information, it also has your personal details such as your name, address, Permanent Account Number (PAN), contact details, etc. Moreover, everytime you apply for a new loan or Credit Card, the lender informs CIBIL about the same and all such applications are also recorded in your CIBIL report. Just like CIBIL, the other three credit bureaus also offer their respective credit reports. Credit Score and Loans in India Before applying for a new loan, it is important for every borrower in India to first do CIBIL score check from the official CIBIL website if they have already taken loans or used Credit Cards in the past. Check the credit score requirements of the borrower and only apply for the loan if you meet the requirements. If at all your credit report is not up to the mark, try to improve your score first before applying for a new loan to get your loan application approved.  Recent Trends Recent Trends in Banking INTRODUCTION Indian economic environment is witnessing path breaking reform measures. The financial sector, of which the banking industry is the largest player, has also been undergoing a metamorphic change. Today the banking industry is stronger and capable of withstanding the pressures of competition. While internationally accepted prudential norms have been adopted, with higher disclosures and transparency, Indian banking industry is gradually moving towards adopting the best practices in accounting, corporate governance and risk management. Interest rates have been deregulated, while the rig our of directed lending is being progressively reduced. Today, we are having a fairly well developed banking system with different classes of banks – public sector banks, foreign banks, private sector banks – both old and new generation, regional rural banks and co-operative banks with the Reserve Bank of India as the fountain Head of the system. In the banking field, there has been an unprecedented growth and diversification of banking industry has been so stupendous that it has no parallel in the annals of banking anywhere in the world. 32

Sales Executive (BFSI) VILT During the last 41 years since 1969, tremendous changes have taken place in the banking industry. The banks have shed their traditional functions and have been innovating, improving and coming out with new types of the services to cater to the emerging needs of their customers. Massive branch expansion in the rural and underdeveloped areas, mobilization of savings and diversification of credit facilities to the either to neglected areas like small scale industrial sector, agricultural and other preferred areas like export sector etc. have resulted in the widening and deepening of the financial infrastructure and transferred the fundamental character of class banking into mass banking. There has been considerable innovation and diversification in the business of major commercial banks. Some of them have engaged in the areas of consumer credit, credit cards, merchant banking, leasing, mutual funds etc. A few banks have already set up subsidiaries for merchant banking, leasing and mutual funds and many more are in the process of doing so. Some banks have commenced factoring business. THE INDIAN BANKING SECTOR The history of Indian banking can be divided into three main phases. Phase I (1786- 1969) - Initial phase of banking in India when many small banks were set up Phase II (1969- 1991) - Nationalization, regularization and growth Phase III (1991 onwards) - Liberalization and its aftermath With the reforms in Phase III the Indian banking sector, as it stands today, is mature in supply, product range and reach, with banks having clean, strong and transparent balance sheets. The major growth drivers are increase in retail credit demand, proliferation of ATMs and debit-cards, decreasing NPAs due to Securitization, improved macroeconomic conditions, diversification, interest rate spreads, and regulatory and policy changes (e.g. amendments to the Banking Regulation Act). Certain trends like growing competition, product innovation and branding, focus on strengthening risk management systems, emphasis on technology have emerged in the recent past. In addition, the impact of the Basel II norms is going to be expensive for Indian banks, with the need for additional capital requirement and costly database creation and maintenance processes. Larger banks would have a relative advantage with the incorporation of the norms. PERSPECTIVES ON INDIAN BANKING In 2009-10 there was a slowdown in the balance sheet growth of scheduled commercial banks (SCBs) with some slippages in their asset quality and profitability. Bank credit posted a lower growth of 16.6 per cent in 2009-10 on a year-on-year basis but showed signs of recovery from October 2009 with the beginning of economic turnaround. Gross nonperforming assets (NPAs) as a ratio to gross advances for SCBs, as a whole, increased from 2.25 per cent in 2008 - 33

Sales Executive (BFSI) VILT 09 to 2.39 percent in 2009 – 10. Notwithstanding some knock-on effects of the global financial crisis, Indian banks withstood the shock and remained stable and sound in the post-crisis period. Indian banks now compare favorably with banks in the region on metrics such as growth, profitability and loan delinquency ratios. In general, banks have had a track record of innovation, growth and value creation. However, this process of banking development needs to be taken forward to serve the larger need of financial inclusion through expansion of banking services, given their low penetration as compared to other markets. During 2010-11, banks were able to improve their profitability and asset quality. Stress test showed that banking sector remained reasonably resilient to liquidity and interest rate shocks. Yet, there were emerging concerns about banking sector stability related to disproportionate growth in credit to sectors such as real estate, infrastructure, NBFCs and retail segment, persistent asset- liability mismatches, higher provisioning requirement and reliance on short-term borrowings to fund asset growth GLOBAL BANKING DEVELOPMENTS The year 2010-11 was a difficult period for the global banking system, with challenges arising from the global financial system as well as the emerging fiscal and economic growth scenarios across countries. Global banks exhibited some improvements in capital adequacy but were beleaguered by weak credit growth, high leverage and poor asset quality. In contrast, in major emerging economies, credit growth remained at relatively high levels, which was regarded as a cause of concern given the increasing inflationary pressures and capital inflows in these economies. In the advanced economies, credit availability remained particularly constrained for small and medium enterprises and the usage of banking services also stood at a low, signaling financial exclusion of the population in the post-crisis period. On the positive side, both advanced and emerging economies, individually, and multi-laterally, moved forward towards effective systemic risk management involving initiatives for improving the macro-prudential regulatory framework and reforms related to systemically important financial institutions. POLICY ENVIRONMENT Banking sector policy during 2010-11 remained consistent with the broader objectives of macroeconomic policy of sustaining economic growth and controlling inflation. The Reserve Bank introduced important policy measures of deregulation of savings bank deposit rate and introduction of Credit Default Swap (CDS) for corporate bonds. It initiated the policy discussions with regard to providing new bank licenses, designing the road-ahead for the presence of foreign banks and holding company structure for banks. The process of migration to the advanced approaches under the Basel II regulatory framework continued during 2010-11, while also facilitating the movement towards the Basel III framework Financial Inclusion continued to occupy centre stage in banking 34

Sales Executive (BFSI) VILT sector policy with the rolling out of Board-Approved Financial Inclusion Plans by banks during 2010-11 for a time horizon of next three years. RECENT TRENDS IN BANKING 1) Electronic Payment Services – E Cheque Now-a-days we are hearing about e-governance, e-mail, e-commerce, e-tail etc. In the same manner, a new technology is being developed in US for introduction of e-cheque, which will eventually replace the conventional paper cheque. India, as harbinger to the introduction of e- cheque, the Negotiable Instruments Act has already been amended to include; Truncated cheque and E-cheque instruments. 2) Real Time Gross Settlement (RTGS) Real Time Gross Settlement system, introduced in India since March 2004, is a system through which electronics instructions can be given by banks to transfer funds from their account to the account of another bank. The RTGS system is maintained and operated by the RBI and provides a means of efficient and faster funds transfer among banks facilitating their financial operations. As the name suggests, funds transfer between banks takes place on a ‘Real Time' basis. Therefore, money can reach the beneficiary instantaneously and the beneficiary's bank has the responsibility to credit the beneficiary's account within two hours. 3) Electronic Funds Transfer (EFT) Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make payment to another person/company etc. can approach his bank and make cash payment or give instructions/authorization to transfer funds directly from his own account to the bank account of the receiver/beneficiary. Complete details such as the receiver's name, bank account number, account type (savings or current account), bank name, city, branch name etc. should be furnished to the bank at the time of requesting for such transfers so that the amount reaches the beneficiaries' account correctly and faster. RBI is the service provider of EFT. 4) Electronic Clearing Service (ECS) Electronic Clearing Service is a retail payment system that can be used to make bulk payments/receipts of a similar nature especially where each individual payment is of a repetitive nature and of relatively smaller amount. This facility is meant for companies and government departments to make/receive large volumes of payments rather than for funds transfers by individuals. 5) Automatic Teller Machine (ATM) Automatic Teller Machine is the most popular devise in India, which enables the customers to withdraw their money 24 hours a day 7 days a week. It is a devise that allows customer who has an ATM card to perform routine banking transactions without interacting with a human teller. In 35

Sales Executive (BFSI) VILT addition to cash withdrawal, ATMs can be used for payment of utility bills, funds transfer between accounts, deposit of cheques and cash into accounts, balance enquiry etc. 6) Point of Sale Terminal Point of Sale Terminal is a computer terminal that is linked online to the computerized customer information files in a bank and magnetically encoded plastic transaction card that identifies the customer to the computer. During a transaction, the customer's account is debited and the retailer's account is credited by the computer for the amount of purchase. 7) Tele Banking Tele Banking facilitates the customer to do entire non-cash related banking on telephone. Under this devise Automatic Voice Recorder is used for simpler queries and transactions. For complicated queries and transactions, manned phone terminals are used. 8) Electronic Data Interchange (EDI) Electronic Data Interchange is the electronic exchange of business documents like purchase order, invoices, shipping notices, receiving advices etc. in a standard, computer processed, universally accepted format between trading partners. EDI can also be used to transmit financial information and payments in electronic form. IMPLICATIONS The banks were quickly responded to the changes in the industry; especially the new generation banks. The continuance of the trend has re-defined and re-engineered the banking operations as whole with more customization through leveraging technology. As technology makes banking convenient, customers can access banking services and do banking transactions any time and from any ware. The importance of physical branches is going down. CHALLENGES FACED BY BANKS The major challenges faced by banks today are as to how to cope with competitive forces and strengthen their balance sheet. Today, banks are groaning with burden of NPA’s. It is rightly felt that these contaminated debts, if not recovered, will eat into the very vitals of the banks. Another major anxiety before the banking industry is the high transaction cost of carrying Non-Performing Assets in their books. The resolution of the NPA problem requires greater accountability on the part of the corporate, greater disclosure in the case of defaults, an efficient credit information sharing system and an appropriate legal framework pertaining to the banking system so that court procedures can be streamlined and actual recoveries made within an acceptable time frame. The banking industry cannot afford to sustain itself with such high levels of NPA’s thus, “lend, but lent for a purpose and with a purpose ought to be the slogan for salvation.” 36

Sales Executive (BFSI) VILT The Indian banks are subject to tremendous pressures to perform as otherwise their very survival would be at stake. Information technology (IT) plays an important role in the banking sector as it would not only ensure smooth passage of interrelated transactions over the electric medium but will also facilitate complex financial product innovation and product development. The application of IT and e-banking is becoming the order of the day with the banking system heading towards virtual banking. As an extreme case of e-banking World Wide Banking (WWB) on the pattern of World Wide Web (WWW) can be visualized. That means all banks would be interlinked and individual bank identity, as far as the customer is concerned, does not exist. There is no need to have large number of physical bank branches, extension counters. There is no need of person-to-person physical interaction or dealings. Customers would be able to do all their banking operations sitting in their offices or homes and operating through internet. This would be the case of banking reaching the customers. Banking landscape is changing very fast. Many new players with different muscle powers will enter the market. The Reserve Bank in its bid to move towards the best international banking practices will further sharpen the prudential norms and strengthen its supervisor mechanism. There will be more transparency and disclosures. In the days to come, banks are expected to play a very useful role in the economic development and the emerging market will provide ample business opportunities to harness. Human Resources Management is assuming to be of greater importance. As banking in India will become more and more knowledge supported, human capital will emerge as the finest assets of the banking system. Ultimately banking is people and not just figures. India's banking sector has made rapid strides in reforming and aligning itself to the new competitive business environment. Indian banking industry is the midst of an IT revolution. Technological infrastructure has become an indispensable part of the reforms process in the banking system, with the gradual development of sophisticated instruments and innovations in market practices. IT IN BANKING Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory and competitive reasons has led to increasing importance of total banking automation in the Indian Banking Industry. Information Technology has basically been used under two different avenues in Banking. One is Communication and Connectivity and other is Business Process Reengineering. Information technology enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets. 37

Sales Executive (BFSI) VILT The bank which used the right technology to supply timely information will see productivity increase and thereby gain a competitive edge. To compete in an economy which is opening up, it is imperative for the Indian Banks to observe the latest technology and modify it to suit their environment. Not only banks need greatly enhanced use of technology to the customer friendly, efficient and competitive existing services and business, they also need technology for providing newer products and newer forms of services in an increasingly dynamic and globalize environment. Information technology offers a chance for banks to build new systems that address a wide range of customer needs including many that may not be imaginable today.  It is becoming increasingly imperative for banks to assess and ascertain the benefits of technology implementation. The fruits of technology will certainly taste a lot sweeter when the returns can be measured in absolute terms but it needs precautions and the safety nets.  It has not been a smooth sailing for banks keen to jump onto the IT bandwagon. There have been impediments in the path like the obduracy once shown by trade unions who felt that IT could turn out to be a threat to secure employment. Further, the expansion of banks into remote nooks and corners of the country, where logistics continues to be a handicap, proved to be another stumbling stock. Another challenge the banks have had to face concerns the inability of banks to retain the trained and talented personnel, especially those with a good knowledge of IT.  The increasing use of technology in banks has also brought up ‘security' concerns. To avoid any pitfalls or mishaps on this account, banks ought to have in place a well-documented security policy including network security and internal security. The passing of the Information Technology Act has come as a boon to the banking sector, and banks should now ensure to abide strictly by its covenants. An effort should also be made to cover e-business in the country's consumer laws.  Some are investing in it to drive the business growth, while others are having no option but to invest, to stay in business. The choice of right channel, justification of IT investment on ROI, e-governance, customer relationship management, security concerns, technological obsolescence, mergers and acquisitions, penetration of IT in rural areas, and outsourcing of IT operations are the major challenges and issues in the use of IT in banking operations. The main challenge, however, remains to motivate the customers to increasingly make use of IT while transacting with banks. For small banks, heavy investment requirement is the compressing need in addition to their capital requirements. The coming years will see even more investment in banking technology, but reaping ROI will call for more strategic thinking.  The banks may have to reorient their resources in the form of reorganized branch networks, reduced manpower, dramatic reduction in establishment cost, honing the skills of the staff, and innovative ways of attracting talented managerial pool. The Government of India and the Reserve Bank of India (RBI) on their part would strengthen the existing norms in terms of governing and directing the functioning of these banks. Banks needs to strengthen their audit function. They would be evaluated based on their performance in the market place. It is in this 38

Sales Executive (BFSI) VILT context that we have invited the chief executive officers of Indian banks to respond to the issues mentioned earlier FUTURE OUTLOOK Everyone today is convinced that the technology is going to hold the key to future of banking. The achievements in the banking today would not have make possible without IT revolution. Therefore, the key point is while changing to the current environment the banks has to understand properly the trigger for change and accordingly find out the suitable departure point for the change. Although, the adoption of technology in banks continues at a rapid pace, the concentration is perceptibly more in the metros and urban areas. The benefit of Information Technology is yet to percolate sufficiently to the common man living in his rural hamlet. More and more programs and software in regional languages could be introduced to attract more and more people from the rural segments also. Standards based messaging systems should be increasingly deployed in order to address cross platform transactions. The surplus manpower generated by the use of IT should be used for marketing new schemes and banks should form a ‘brains trust' comprising domain experts and technology specialists. 39

Sales Executive (BFSI) VILT Chapter 2 INSURANCE INDUSTRY  Concept of Insurance Insurance: Concept, Significance and Principles |Insurance Concept of the Term Insurance: The term insurance may be defined as follows: A contract of insurance is a contract under which the insurer (i.e. insurance company) in consideration of a sum of money paid by the insured (called the premium) agrees. (i) To make good the loss suffered by the insured against a specific risk (for which the insurance is effected), such as fire or, (ii) To pay a pre-fixed amount to the insured or his/her beneficiaries on the happening of specified event e.g. death of the insured. Salient Features of Insurance: Salient features of the concept of insurance are: (a) Life insurance: It is different from all other types of insurances (i.e. general insurance), in that it is a sort of investment. Under a contract of life insurance, there is a guarantee on the part of the insurance company to pay a fixed amount to the assured (if he is alive) or to his beneficiaries; because death against which insurance is affected is sure to take place – sooner or later, i.e. in case of life insurance risk is certain. All other insurances are contracts of indemnity i.e. the insurance company agrees to make good the loss to the insurance, only when risk (for which insurance is affected) takes place i.e. in other types of insurances, the risk is uncertain. No claim on the insurance company arises, if the risk does not take place. The latter part (i.e. ii) of the definition given above points out to life insurance; while the former part (i.e. i) points out to other types of insurances. Point of comment: In view of this distinction between the nature of risk in life insurance and other types of insurances, life insurance is technically called life assurance (and not insurance). However, practically the distinction between the terms, insurance and assurance is not observed now-a-days, in that even the Life Insurance Corporation (LIC) uses the term insurance and not assurance – as part of its name. (b) Some Terms in Context of the Term Insurance: (i) Insurer: 40

Sales Executive (BFSI) VILT One who undertakes the responsibility of risks i.e. the insurance company. (ii) Insured: One for whose benefit the insurance is affected i.e. one whose risk is undertaken by the insurance company. (iii) Premium: It is the consideration (i.e. the price) payable by the insured to the insurer, for the responsibility of risk undertaken by the insurer. (iv) Policy: Policy is the document containing terms and conditions of the contract of insurance. (v) Sum assured: It is the amount for which insurance policy is taken. Basic Philosophy of Insurance: The basic philosophy of insurance is that it is device for spreading a risk among a number of persons, who are exposed to that risk. For example, let us say that there are 1000 houses in a locality. The owners of all these houses decided to get their houses insured against fire. All the 1000 persons will pay premium to the insurance company, in consideration of the insurance company agreeing to compensate for loss caused by fire. Thus there will be a pool of funds with the insurance company built from premiums paid by all policy-holders. Out of this fund, the insurance company will compensate for loss due to fire caused to those unfortunate ones whose houses are exposed to the risk of fire. It will be a rarity that all houses of the locality are exposed to the risk of fire. Thus insurance is a social device of sharing risks. According to Sir William Beveridge, therefore, “The collective bearing of risk is insurance.” Significance of Insurance: We can highlight the significance of insurance, in terms of the following advantages offered by it: (i) Concentration on Business Issues: Insurance help businessmen to concentrate their attention on business issues, as their risks are undertaken by the insurance company. Insurance gives them peace of mind. Thus due to insurance, business efficiency increases. (ii) Better Utilization of Capital: Businessmen, in the absence of insurance, will maintain funds for meeting future contingencies. Insurance does away with this need to maintain contingency funds by them. Thus businessmen can better utilize their funds for business purposes. (iii) Promotion of Foreign Trade: 41

Sales Executive (BFSI) VILT There are many risks in foreign trade much more than involved in home trade. Insurance of risks involved in foreign trade gives a boost to it volume, which is a healthy feature of economic development. (iv) Feeling of Security to Dependents: Life insurance provides a feeling of economic security to the dependents of the insured, on whose life insurance is affected. (v) Social Welfare: Life insurance also provides for policies in respect of education of children, marriage of children etc. Such special policies provide a sense of security to the poor who take these policies. Thus life insurance is a device for ensuring social welfare. (vi) Speeding Up the Process of Economic Development: Insurance companies mobilize the savings of community through collection of premiums, and invest these savings in productive channels. This process speeds up economic development. Huge funds at the disposal of LIC (Life Insurance Corporation) available for investment purposes support the above-mentioned point of advantage of insurance. (vii) Generation of Employment Opportunities: Insurance companies provide a lot of employment in the economy. This is due to the ever growing business done by insurance companies. Concepts of Double Insurance: It is quite possible for a person to take more than one insurance policy to cover the same risk. This is known as double insurance. 42

Sales Executive (BFSI) VILT In the case depicted above, Mr. A, the insured the has taken three insurance policies for the same subject matter of risk, with three insurance companies -I, II & III. The implications of double insurance are: (a) In Case of Life Insurance: In case of life insurance, the insured or his dependents can claim the full amount of policy from each insurance company. This is so because life insurance is a sort of investment; and a person can take any number of insurance policies on his life and claim full amount under each policy. (b) In Case of Other Types of Insurances: ADVERTISEMENTS: In case of fire or marine insurance, the insured cannot recover more than the amount of actual loss from al insurance companies, taken together; because he is not allowed to make any profit out of the transaction of insurance. Suppose Mr. A insures his house against fire from three insurance companies-I, II & III for Rs.50, 000, 1, 00,000 and 1, 50,000 respectively. His house is destroyed by fire entailing a loss of Rs.60, 000. He can claim in all Rs.60, 000the actual amount of loss in the ratio of 1:2:3 i.e. Rs. 10,000, Rs.20, 000 and Rs.30, 000 from insurance companies I, II and III respectively. If he claims the full amount of loss i.e. Rs.60, 000 from Insurance Co. II then insurance company II can claim proportionate contribution from Insurance Co. I and III i.e. Rs. 10,000 from Co. I and Rs. 30,000 from Co. III. Re-insurance: When an insurance company finds that the risk it has undertaken is too heavy for it; it may get itself insured with some other insurance company. This is called re-insurance. 43

Sales Executive (BFSI) VILT In this case, there are two contracts of insurance: (i) One between the insured and the insurance company called the contact of insurance. (ii) The other between the insurance co. and the re-insurance company called the contact of re- insurance. The implications of re-insurance are: (1) The insured has no relationship with the re-insurance company. He can claim loss only for the insurance company, with whom he has entered into a contract of insurance. (2) The insurance company can claim loss (paid by it to the insured) from the re-insurance company. General (or Fundamental) Principles of Insurance: The fundamental principles of insurance are the following: (i) Principle of Utmost Good Faith: A contract of insurance is based on the principle of utmost good faith to be observed by both the parties – the insured and the insurance company – towards each other. If one party conceals any material information from the other party, which may influence the other party’s decision to enter into the contact of insurance; the other party can avoid the contract. The principle of utmost good faith is equally applicable to both the parties. However, the onus (i.e. burden) of making a full and fair disclosure of all material facts usually rests primarily upon the insured; because the insured is supposed to have an intimate knowledge of the subject-matter of insurance. The duty of disclosing material facts is not a continuing obligation i .e. the insured is under no obligation to disclosure any material fact which comes to his knowledge after the conclusion of the contract of insurance. (ii) The Principle of Indemnity: Except life insurance, all other contracts of insurance are contacts of indemnity; which means that in the event of the loss caused to the subject matter of insurance, the insured can recovery only the actual amount of loss-subject to a maximum of sum assured. 44

Sales Executive (BFSI) VILT Suppose A insured his house against fire with an insurance company for Rs. 1, 00,000. The loss caused to the house due to fire is Rs. 80, 000 only. A can recovery only Rs.80, 000 from the insurance company. The objectives of the principle of indemnity are: (1) To put the insured in the same position in which he would have been; had there been no loss. (2) Not to allow the insured to make any profit, out of the transaction of insurance. In case of life insurance, however, it is not possible to estimate the loss caused due to the death of the insured; as life is invaluable. Hence, the full amount of insurance policy can be claimed from the insurance company. (iii) Principle of Insurable Interest: The principle of insurable interest is the foundation of a contract of insurance. In the absence of insurable interest, the contract of insurance is a mere gamble and not enforceable in a court of law. Insurable interest may be defined as follows: A person is said to have insurable interest in the subject matter of insurance; when with respect to the subject matter he is so situated that he will benefit from its existence and lose from its destruction. Insurable interest must exist in life, fire and marine insurances, as per the following rules: (1) In case of life insurance; insurable interest must exist at the time of making the contract. (2) In case of fire insurance; insurable interest must exist both at the time of making the contract and also at the time of loss. (3) In case of marine insurance; insurable interest must exist, at the time of loss. (iv) Principle of Contribution: The principle of contribution applies in cases of double-insurance. In case of double insurance, each insurer will contribute to the total payment in proportion to the amount assured by each. In case, one insurer has paid the full amount of loss; he can claim proportionate contribution from other insurers. Suppose, a insures his house against fire with two insurance companies, X and Y, for Rs.40, 000 and Rs.80, 000 respectively. If the houses catch fire and the actual loss amount to Rs.48, 000, then X will pay Rs. 16,000 to A And Y will pay Rs.32, 000 to a i.e. the loss of Rs.48, 000 is divided between X and Y in the ratio of 40, 000: 80,000 or 1:2. If X pays the whole loss of Rs.48, 000 to A; it can recover Rs.32, 000 from Y. And if Y pays Rs.48, 000 to A; it can recover Rs. 16,000 from X. 45

Sales Executive (BFSI) VILT The principle of contribution does not apply to life insurance; where each insurer will pay the full amount of policy to the insured; because life insurance is a sort of investment and life insurance contract is not a contract of indemnity. (v) Principle of Subrogation: According to the principle of subrogation, after the insurance company has compensated for the loss caused to the insured; the insurance company steps into the shoes of the insured i.e. the insurance company acquires all the rights of the insured, in respect of the damaged property. Suppose A insures his house for Rs.2, 00,000 against fire. The house is fully damaged by fire and the insurance company pays Rs.2, 00,000 to A. Later on, the damaged house is sold for Rs.25, 000. The insurance company is entitled to receive this sum of Rs.25, 000. Suppose further, it is found that someone tried to put the house on fire. The insurance company can take action against that person also; because the insurance company acquires all the rights and remedies available to the insured i.e. Mr. A. Implications of the principle of subrogation are: (1) The insurance company gets the rights of the insured, only after compensating for the loss caused to the insured. (2) This principle does not apply to life insurance. (vi) Principle of Cause Proxima (i.e. the Proximate Cause): According to this principle, we find out which is the proximate cause or the nearest cause of loss to the insured property. If the nearest cause of loss is a factor which is insured against; then only the insurance company is liable to compensate for the loss, otherwise not. This principle is significant in cases when the loss is caused by a series of events. Suppose X has taken a marine insurance policy against loss or damage to goods caused by sea water. During the voyage rats made a hole in the bottom of the ship, through which sea water seeped into the ship and caused damaged to the goods. Here, the insurance company is liable to compensate for loss caused to goods; because the proximate cause of loss is sea-water against which insurance is affected. Making of a hole in the bottom of the ship by rats is only the remote cause of loss. (vii) Principle of Mitigation of Loss: (Mitigation means making something less harmful). According to the principle of mitigation of loss, it is the duty of the insured to take all possible steps to minimize the loss caused to the property 46

Sales Executive (BFSI) VILT covered by the insurance policy. He should behave as a prudent person and must not become careless after taking the insurance policy. Suppose a house is insured against fire and a fire breaks out. The owner must immediately inform the Fire Brigade department and do each and every thing to extinguish fire; as if the house were not insured. That is, he must make all efforts to minimize the loss caused by fire. Types of Insurance: (1) Life Insurance: (i) Definition of life insurance: Life insurance may be defined as follows: Life insurance is a contract under which the insurance company – in consideration of a premium paid in lump sum or periodical installments undertakes to pay a pre-fixed sum of money on the death of the insured or on his attaining a certain age, whichever is earlier. (ii) Certain important concepts vis-a-vis life insurance: (a) Insurable interest: A person can insure a life, in which he has insurable interest. Insurable interest exists in the following cases: 1. A person has an unlimited insurable interest in his own life. 2. A husband has insurable interest in the life of his wife; and a wife has insurable interest in the life of her husband. 3. A father has insurable interest in the life of his son or daughter, on whom he is dependent. 4. A son has insurable interest in the life of his parents who support him. 5. A creditor has insurable interest in the life of the debtor, to the extent of the debt. There are many more cases of insurable interest, in case of life insurance, other than those stated above. Insurable interest must exist, at the time of making a contract of life insurance: (b) Proof of age: In case of life insurance, proof of age is required; because rate of premium depends on age at entry. Proof of age may be given in the form of a school certificate, horoscope, birth certificate from the municipal authority or other legitimate sources. 47

Sales Executive (BFSI) VILT (c) Nomination: The insured can nominate anyone who will get the amount of policy, in the event of the death of the assured. (d) Surrender value: Surrender value is the amount which the insurance company would pay to the policy-holder; if he wants to discontinue the policy before the date of its maturity. (e) Loan on policy: In case, a certain number of premiums has been paid on a life policy; the policy holder may obtain a loan against the policy from the insurance company. The policy holder may pay back the loan within a certain period, or else the loan and interest on it will be adjusted against the payment due on the maturity of the policy. (2) Fire Insurance: (i) Definition of fire insurance: Fire insurance might be defined as follows: Fire insurance is a contract, under which the insurance company, in consideration of a premium payable by the insured, agrees to indemnify the assured for the loss or damage to the property insured against fire, during a specified period of time and up to an agreed amount. Points of comment: (1) In fire insurance, the insurable interest must exist at both the time of contract and the time of loss. (2) Fire insurance is a contract of indemnity, and the insured cannot claim more than the amount of actual loss subject to a maximum of the sum assured. Further, the insurance company may compensate in the form of money or in form of replacement or repairs to the property damaged by fire. (3) Loss by fire also includes the following losses: (i) Goods spoiled by water used to extinguish fire (ii) Pulling down of adjacent buildings by Fire Brigade to prevent the progress of flames (iii) Breakage of goods in the process of removal from the building where a fire is raging e.g. damage caused by throwing furniture out of the window. (iv) Wages paid to workers employed for extinguishing fire. (ii) Average clause in fire insurance policy: To take care of the cases of under insurance, there is usually an average clause in a fire policy. According to this clause, in case of loss the insured will himself bear a part of loss. In fact, for the difference between the actual value of the subject matter and the sum assured; the insured has to 48

Sales Executive (BFSI) VILT be his own insurer. Suppose a house worth Rs. 1, 00,000 is insured only for Rs.60, 000 and the insurance policy contains the average clause. Now, if the loss to the property due to fire is Rs.40, 000 then the insurance company will pay only Rs.24.000 as per the following formula: (3) Marine Insurance: (i) Definition of marine insurance: Marine insurance may be defined as under: A contract of marine insurance is a contact under which the insurance company undertakes to indemnify the insured against losses which are incidental to the marine adventure. The risks, in marine insurance, which are insured against are known as perils of the sea, such as: 1. Storm 2. Collision of one ship against another or against rocks 3. Burning and sinking of the ship 4. Spoilage of cargo by sea-water 5. Jettison i.e. throwing of goods into sea to save the ship from sinking 6. Capture or seizure of the ship 7. Actions of the master or crew of the ship etc. (ii) Types of marine insurance: There are four types of marine insurance, as described below: 1. Hull insurance (or insurance of the ship): It covers the insurance of the vessel and its equipment’s like furniture and fittings, machinery, tools, engine etc. 2. Cargo insurance: It includes insurance of the cargo or goods contained in the ship and the personal belongings of the crew and the passengers. 3. Freight insurance: The shipping company charges some freight for carrying the cargo. Very often there is an agreement between the shipping company and the owners of goods that freight will be paid only when goods reach the destination safely. If the ship is lost on the way or the cargo is stolen or 49