MUMBAI: After causing a stir in the home loan market, the State Bank of India (SBI) has once again surprised competitors by slashing interest rates on loans for new cars. The country’s biggest bank has also reduced its lending rate against warehouse receipts for farmers. SBI will offer new car loans at a fixed rate of 10% for one year, 1.75 percentage points lower than the prevailing rate offered by market leader, HDFC Bank. After one year, rates will be linked to the bank’s existing prime lending rate (PLR). The borrower will be charged 75 basis points (bps) below PLR for a three-year loan of Rs 7.5 lakh and above. Loans below Rs 7.5 lakh will carry an interest rate of 50 bps below PLR. An HDFC Bank official said the bank is not considering a rate cut. Banking circles said the new scheme’s success would depend on how the SBI promotes it among auto dealers. The 10% offer is the lowest in the industry, with most commercial banks offering car loans in the 11.5-13% range. Up until now, SBI offered new car loans at 11.5-12.5%. The new auto loan rate announced on Friday will be applicable only for new cars. “If a borrower already has a car loan with another bank, and if she applies to the SBI, it will be deemed as a loan for the used car. Thus, she may not get the benefit of the new rate,” said an SBI official. The 10% auto loan scheme will be available only from February 23 to May 31, 2009 and will be applicable for all types for passenger cars. Last month, the bank decided to freeze interest rates on home loans at 8% for one year. The new home loan rate has generated a lot enquiries, but “incrementally, HDFC has not witnessed any major loss of business to SBI so far”, according to an Edelweiss Research report released on Friday. HDFC, the parent of HDFC Bank, is India’s biggest mortgage lender. “...with respect to existing customers, we believe the likelihood of switching from HDFC to the SBI is low, considering the prepayment penalty, tedious and time-consuming process,” said the report. SBI officials said they expect the new auto loan scheme to generate substantial incremental demand for passenger cars. As of now, SBI’s auto loan portfolio is close to Rs 9,000 crore against HDFC Bank’s outstandings of 13,000 crore. According to the Society of Indian Automobile Manufacturers, overall automobile production in January 2009 fell by 11.92% over the same month last year. They were, however, more than December 2008. However, January sales are generally more than December sales as customers wait for new models in January, which fetch a better value in the used car market, according to the SIAM website. The cumulative production data for April 2008-January 2009 shows growth of 2.32% over April 2007-January 2008. However, with lower prices and huge discounts, though January 2009 sales registered more than December 2008 sales, they were not enough to make the year-on-year growth positive. The car loan initiative was not the only measure SBI announced on Friday. India’s biggest bank also announced a reduction in lending rates against warehouse receipts. With the objective of increasing credit flow to rural areas and helping farmers avoid distress sales during the harvest season, the bank will disburse loans up to Rs 10 lakh against warehouse and cold storage receipts directly to farmers at a fixed rate of 8% against the floating rates of 10.5-14.25%. The 8% interest announced by the bank on Friday will come into force with immediate effect and be valid for 12 months in respect of loans sanctioned and disbursed across the country till May-end. After May, a farmer will not be able to avail of the package. The loans will be made available to farmers, irrespective of whether or not they were given crop loans for raising the produce. “It has been our experience that these kind of produce marketing loans have extremely low delinquency rates,” KJ Taori, general manager, SBI agri business unit, said. “We expect SBI’s warehouse receipt-based outstandings to increase from Rs 500-600 crore to Rs 2,000 crore by the end of May.” SBI lends against warehouse receipts issued by public and private sector warehouses that are recognised by the bank. Prices of agri products tend to decline during the harvest season. If a farmer deposits his produce with a warehouse, he could avail of a loan of up to 65-75% of the value of the produce against a warehouse receipt from the bank which holds the goods as collateral. The bank can sell the goods in the event the borrower defaults on repayment of loan or interest. Prices on an average tend to rise around 40% three months after the harvest season ends. This means that if a farmer borrows Rs 100 from the bank, under the current package, he will end up paying just Rs 2 to the lender after three months and get a 40% appreciation in price. He thus enjoys the twin benefit of getting his immediate credit needs met and securing a higher price for his product by selling during the lean season. Source:Economictimes |
Saturday, February 21, 2009
State Bank of India offers auto loans at 10% for one year
Thursday, February 19, 2009
TATA AIG unveils Ulip with returns based on highest NAV
NEW DELHI: Tata AIG Life Insurance Company Ltd on Wednesday announced the launch of Tata AIG Life InvestAssure Apex, a unit-linked insurance plan that enables the policyholder to enjoy returns based on the highest NAV declared over 100 months.
According to the company, this is achieved through a feature called the ‘Guaranteed Maturity Unit Price’ (GMUP), which captures the highest unit price of the Apex Return Lock-in Fund recorded on the one hundred (100) reset dates. This means that on predecided date in each calendar month, the NAV of the Apex Return Lock-in Fund will be recorded for 100 calendar months and the highest NAV among the 100 NAVs will be guaranteed to the investor if the policy remains in force till maturity.
This limited offer plan gives the customer the convenience of paying for three years for a 10-year plan and flexibility to review premium payable in 2nd and 3rd year subject to minimum premium. The plan also allows partial withdrawals after 3 years.
Speaking at the launch, Trevor Bull, managing director, Tata AIG Life Insurance Company, said, “Tata AIG Life InvestAssure Apex simply guarantees the upside for the customer. By locking in the highest declared NAV, the Apex Lock-in Fund provides the opportunity to lock your returns at the highest returns that the market provides over the 100 month period. This flexibility encourages participation and the guarantee will provide customers the confidence in this volatile market.”
Tata AIG Life InvestAssure Apex works with the following funds:
Apex Investment Fund – The investment objective for Apex Investment Fund is to provide capital protection with a high level of safety and liquidity through judicious investment in high quality short-term debt.
The Apex Return Lock-in Fund – The investment objective for Apex Return Lock-in Fund is to use the participation in an actively managed well diversified equity portfolio of large cap companies to generate capital appreciation and use high credit quality debt instruments to lock-in that capital appreciation.
The product also offers customers the option to choose the sum assured from a minimum of 5 times the annualized premium to a maximum of 60 times.
Source:economictimes
ICICI Pru will need two years to break even
Mumbai: Shikha Sharma, managing director of ICICI Prudential Life Insurance Co. Ltd, or ICICI Pru, admits that there is a slowdown in the insurance business, but adds that she is not surprised by it. According to her, the company’s business plan for the current year took into account “a definite slowdown in growth”.
Optimistic outlook: The insurance industry has plenty of scope to grow in the 15-20% range in the medium term, says Sharma.
“At that time, many of our competitors had thought that I had gone bananas. If the markets are stabilizing and most of the product innovation is done, it’s obvious that there will be a moderation in growth.”
Sharma isn’t willing to discuss media reports about her exit from the ICICI group and says, “There is nothing to talk about as of now.” “I have never planned my future. I just take things as they come.’’
In an interview with Mint, Sharma spoke on the impact of the global slowdown on the insurance industry in general and ICICI Pru in particular. Edited excerpts:
With the stock markets in a bear phase, is it right to say that unit-linked insurance products (Ulips) have lost their significance, thereby impacting the growth of private insurers?
The industry has seen a negative growth of 6% as of December, but one needs to understand that this is a long-term business. Since 2000, when the sector opened up, it has been growing at 30-40% every year and it’s not a small market. In a large market, this rate of growth is not sustainable.
‘Ulips are here to stay. There may be some correction, but there will not be a wholesale migration.’
When we were working on our business plan for the year, we had planned a definite slowdown in growth. At that time, many of our competitors had thought that I had gone bananas. If the markets are stabilizing and most of the product innovation is done, it’s obvious that there will be a moderation in growth. It is a mass market, but it’s still an underpenetrated market and so there is (an) opportunity.
Our medium-term outlook is that the industry has plenty of scope to grow in the range of 15-20%.
As far as Ulips are concerned, the customers have benefited from a booming equity market. Why will an educated customer choose an endowment product over a Ulip? This is because it offers the much-needed flexibility. If you look at it as a long-term investment option, Ulips will continue to score (over endowment products).
Ulips are here to stay. There may be some correction, but there will not be a wholesale migration.
The asset allocation pattern has changed. Last year, about 80% of new (funds) flow was going into equity. Now, 60% of the incremental (funds) flow is into equities. That’s what Ulips allow. However, the proportion of Ulips in our portfolio has not gone down. Private insurers’ market is a Ulip-dominated market and it will continue to be so.
We do not expect negative growth this year, but there could be single-digit growth and, as market begins to turn, the customers will come back. We have to manage cost and conserve capital and stay invested.
How has the group insurance business grown?
The group insurance business has been growing steadily at around 10-15% annually. It has become a much more competitive market. There is no easy margin matrix for the industry. In a competitive market, expenses have gone up as players are investing in branch expansion and spending on advertising. To that extent, the margins have been squeezed.
Have you lost market share in the group insurance business?
We have grown our group business. We would like to forego business if it comes at a price that we cannot afford. In the group market, that’s always the case. Whenever a new player enters, there’s (a) pricing war.
So, what are you doing to keep growing?
One has to get the momentum back. First, we have reoriented the sales team and distribution. Second, we have always had a capital guarantee product and (we have now) launched a return guaranteed, fund-based product. In past 18 months, we have started selling health insurance products. Besides, we are also covering the rural market.
Health policies now account for 20% of our incremental policies. Here, the ticket size is smaller, but there is risk and so margins are high.
Many financial services businesses are slowly moving to rural geographies. What does this mean for ICICI Prudential?
When we started our rural business, it was to meet the obligatory requirement (that all private insurers had to meet). We were working with cooperative banks and microfinance institutions. About 50% of India’s population is still in rural areas, but the challenge is to reach out to those markets in a cost effective way.
We have 1,000 micro offices and each of them has only one employee, with technology playing an important role. We offer the same products suites in rural pockets that we offer elsewhere. We are selling many education insurance products. Rural policies account for about 8% of our total business.
The rate at which you have been adding branches has slowed.
We have had a massive branch expansion in the last two years. Last year alone, we opened 1,500 branches. We may not need to add branches for the next six-eight months.
What’s your outlook for the insurance sector? Isn’t it likely to be hit hard by the downturn?
I don’t share your pessimism. There has been a big correction and we are in the middle of the cycle. Six months down the line, we should have a good government in place and, following the implementation of the fiscal packages, things should look up.
India has some inherent strengths, which can enable a revival. We have a huge opportunity to build the infrastructure at low cost as the commodity prices have come down. There are a lot of positives in the economy.
Are you concerned about your investments in the equity market?
We deploy our funds, depending on the asset classes that our consumer have invested in. We had an exposure to Satyam (Computer Services Ltd), which we sold in the market.
We have always followed a conservative investment hypothesis and all our funds outperform the benchmark (indices). We do not invest in speculative stocks. (The) Satyam (scam) could not be anticipated by anyone, but we were able to absorb the shock because of our diversified portfolio.
ICICI Pru has been appointed as one of the pension fund managers under the new pension scheme for the unorganized sector. What’s your plan in the business?
We see huge potential in the pension space. There will be increased clarity on regulations once we move along.
When do you see ICICI Pru breaking even?
It will take another two years.
What’s your views on increasing the ceiling on foreign direct investment in the insurance sector?
Opening up of the insurance sector will attract foreign flows, which will be good for the economy. Insurance is a capital-intensive business. I am sure that the sector will be able to attract capital even now, though the valuations may be different in depressed markets.
Source:Livemint
Graphics by Sandeep Bhatnagar / Mint
Star Union Dai-Ichi Life plans pension and child benefit products
Star Union Dai-Ichi Life Insurance Company Limited, a joint venture life insurance company promoted by Bank of India, Union Bank of India and Dai-Ichi Mutual Life Insurance Company, Japan, plans to introduce pension and child benefit products soon.
It has filed the proposal for these products with the Insurance Regulatory and Development Authority (IRDA) and the approval is awaited. Both the pension and child benefit products are proposed to be unit linked plans (ULIPs). The company also plans to launch a traditional endowment plan combined with whole life cover for the policy holder.
“We have filed for these products with the IRDA and hope to get the approval in about 3 weeks time”, K Sahay, chief executive officer (CEO), Star Union Dai-Ichi Life Insurance said.
The company which started its operation in the country from 9 February this year, hopes to get Rs 45 to 50 crore new business premium during the current fiscal. Star Union Dai-Ichi Life Insurance has appointed 300 Bank Assurance Executives (BAE) who will assist the marketing teams of the partner banks in the growth of business.
It will leverage the existing 5600 branches of the Bank of India (BoI) and the Union Bank of India spread across the country and will recruit 300 BAE in next 6 months.
As part of it expansion, Star Union Dai-Ichi Life Insurance plans to set up 20 regional offices in different states including 4 metros. While the first two regional offices will come up at Mumbai and Chennai within a month, the Kolkata and Delhi regional office is expected to be functional within two months from now. All the regional offices will be functional by the end of 2009-10, Sahay added.
The company, being a technology driven company, will leverage technology to the maximum. It has already started the back office operations. It will focus on core insurance term insurance and group insurance for higher growth and this will be backed by a robust customer service. Once the company attains stability of operation, it may rope in other banks including the co-operatives as channel partners for selling the insurance products of the company.
Asked whether the company plans to infuse additional capital in the near future for expansion plans, he said, the existing authorised capital base of the company is Rs 250 crore which is sufficient for taking care of business for next two years. Star Union Dai-Ichi Life Insurance will focus on cutting cost and hopes to get return from the 4th year of operation. It expects to achieve breakeven in about 5 to 6 years.
On the distribution network, Sahay said, the company will move with bancassurance model for the first year of operation and may consider adopting the agency model after the first year.
Source:business-standard
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