Internship Report Nabil Bank Ltd.

Kathmandu University School of Management

Kathmandu College of Management

Internship Report

BANCASSURANCE- A STRATEGIC ALLIANCE, A CASE STUDY OF NABIL BANK

As part of the requirement for BBA Program

Internship Program Code: RIS 401

Internship Employer

NABIL BANK LTD. Lalitpur Branch

Work Supervisor: Mr. Ukesh Shrestha

(Officer)

Pulchowk, Lalitpur

Intern

Ajita Singh, KUSOM’S Redg No: A008080-07

June 19, 2011

To whom it may concern

Letter of recommendation

SIGNATURE PAGE

I certify that I have read this document thoroughly and in my opinion, it is satisfactory in

scope and quality as an internship report as per requirement for the undergraduate course

(BBA Program) held at Kathmandu College of Management, Kathmandu University,

2011.

Comments

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(Project Evaluator)

Copyright

All rights reserved.

No part of this report may be reproduced or transmitted, published or extracted in an form

or circumstances by any means now known to invented, electronic or mechanical

including photocopying, recording or by any information storage or retrieval system

without prior permission from the authors or by Kathmandu College of Management or

NABIL Bank Limited. However, this report may be used as reference by giving due

acknowledgment even without prior permission of the authorities.

Copyright@ April 2011, Kathmandu University, School of Management

DISCLAIMER

The object of this report was to acquaint us with actual working environment and involve

in practical decisions and actions rather than theoretical concerns. The views expressed in

the report are those of authors and not of Kathmandu University, School of Management

or Kathmandu College of Management.

The findings and other analysis included in the report are regarded as a pilot study and

merely indicative of Banking Industry. The author is confident that this report will be

taken as a guide for a comprehensive study on a future dates. The author is not

responsible or liable legally and morally against the results of decisions and actions taken

by the use of information contained in this report.

DECLARATION

I, the undersigned declared that this project entitled is a result of my own research carried

out in the year 2011. It has not been previously submitted to any other university for any

examination.

Signature

……………………..

Ajita Singh

BBA- A

2007-2011

KCM

ACKNOWLEDGEMENT

This project has been the outcome of continuous upshot of various people and

organization. Without their help and cooperation, this project would not have been

achievable.

First and foremost, my major indebtedness goes to Kathmandu College of Management

for giving us an opportunity to use our theoretical knowledge in the practical field in

course of my internship program. A sincere gratitude to Mr. Bishnu Raj Adhikari and

the KCM faculty members, who have been continuously, source of information behind

our effort in this project.

I would like to evince my sincere appreciation to Mr. Rajeshwor Lal Shrestha, Branch

Manager – Lalitpur, including Ms. Neelam Tuladhar Head - Branches and Distribution

Network, Mr. Suresh P. Tripathee Head - Personal Lending, Mr. Rajendra Bahadur

Malla- Head, Operation Risk, Mr. Satish Dawadi- Head, Banc assurance, Mr. Amit K.C.

and Mr. Ukesh Shrestha- Marketing.

We are thankful to Mr. Lakhpa Gelu Sherpa, my internship coordinator, for his

consistent support and encouragement. I would also like to substantiate my heartfelt

gratitude to Mr. Roshan Koirala, HR manager, for giving me the opportunity to do my

internship program in Nabil Bank Limited, Lalitpur Branch.

Finally I would like to express my gratitude to all the organization staffs for helping me

and sparing their valuable time.

Yours Sincerely,

Ajita Singh

EXECUTIVE SUMMARY

Nabil Bank Limited, the first foreign joint venture bank of Nepal, started operations in

July 1984. Nabil was incorporated with the objective of extending international standard

modern banking services to various sectors of the society. Nabil, as a pioneer in

introducing many innovative products and marketing concepts in the domestic banking

sector, represents a milestone in the banking history of Nepal as it started an era of

modern banking with customer satisfaction measured as a focal objective while doing

business.

Operations of the bank including day-to-day operations and risk management are

managed by highly qualified and experienced management team. Bank is fully equipped

with modern technology which includes ATMs, credit cards, state-of-art, world-

renowned software from Infosys Technologies System, Bangalore, India, Internet

banking system and Tele banking system.

The internship report is divided into four parts. The first part include introduction, second

part includes organization introduction and organizational strategies, and third part

includes conceptual framework, methodology, analysis of the project and the conclusion.

The last part is the reflection of internship.

During the internship program, intern got an opportunity to work at Lalitpur Branch and

was placed in different departments like Deposit Relationship Management (DRM-

Privilege banking), Cash, General Service Department, Accounts, Banc assurance,

Customer Service Department, Credit- risk analysis unit and Loan (personal lending unit-

PLU) and Marketing.

The study is emphasized on the “Banc assurance.” Banc assurance is the new emerging

service provided by the banking system of Nepal. Banc assurance service started in Sep

2011 in Nabil Bank Limited. Nabil Bank is among first few banks which started

providing this service in Nepal. So Nabil Bank has the advantage to compete in the

market and formulate strategies to operate banc assurance service unit effectively and

efficiently.

Nabil Bank acts as an agent between the insurance company and the customers. The bank

insures the loan granted by the bank itself. This reduces the risk of the loan failure, at the

same time; it satisfies the need of the customer as well. In terms of auto loan and housing

loan, it insures the risk of the damage of the house or the vehicle and requires the

customers to pay the premium amount to the bank.

Thus the research focuses on the implications of this newly emerged service “banc

assurance,” of the banking sector of Nepal.

It was a nine weeks internship that stimulated my critical and creative thinking. The

internship report allowed me obtaining insights into career opportunities through

interaction, observation and real work experience in the organization. It was a platform

for me to develop basic research making skills that helped me to undertake independent

analysis and appraisal of different situations. It no doubt had brought a positive change in

me.

Recommendation letter from employer

Recommendation letter from college supervisor

Signature page

Copy right

Disclaimer

Declaration

Acknowledgement

Executive summary

TABLE OF CONTENTS

PART I: INTRODUCTION

1. BACKGROUND……………………………………………………………….1

2. INTERNSHIP GOALS AND OBJECTIVES………………………………...2

3. ROLES/JOBS PERFORMED IN THE INTERNSHIP……………………..3

4. ROLES AND RESPONSIBILITIES OF INTERN’S SUPERVISOR……...5

PART II: INTRODUCITON OF NABIL BANK LIMITED

1. INTRODUCITON OF NABIL BANK………………………………………..8

a. Mission…………………………………………………………………………..9

b. Organizational strategies………………………………………………………...9

c. Major products of Nabil Bank…………………………………………………13

2. NABIL BANK’S GENERAL AND COMPETITIVE ENVIRONMENT...19

PART III: PRESENTATION OF MAJOR PROJECT UNDERTAKEN

PROJECT: BANCASSURANCE- A STRATEGIC ALLIANCE, A CASE

STUDY OF NABIL BANK

SECTION I: INTRODUCTION

1. Introduction of Nabil Bank’s Bancassurance Service…………………25

2. Objective of studying the Bancassurance service……………………...27

3. Scope and Limitation of Bancassurance………………………………..29

SECTION II: CONCEPTUAL FRAMEWORK

1. Review of literatures of Bancassurance………………………………...31

SECTION III: METHODOLOGY…………………………………………….33

SECTION IV: PRESENTATION AND ANAYSIS OF THE PROJECT

1. Analytical presentation of Bancassuracne service……………………..36

2. Major findings……………………………………………………………40

SECTION V: CONCLUSION

1. Specific conclusion……………………………………………………….44

2. Specific suggestions………………………………………………………46

PART IV: REFLECTION OF INTERNSHIP………………………………...49

1. REFERENCES…………………………………………………………..51

PART I: INTRODUCTION

1. BACKGROUND

As per four years course curriculum for Bachelors of Business Administration at

Kathmandu College of Management (KCM), Kathmandu University requires its students

to undergo an extensive internship program for a period of 8-10 weeks. During the course

of internship, student should work as an employee in the selected organization.

To build up a right track for challenging jobs and career, programs like internship is a

great exposure to real working conditions. Its offers a practical approach rather than

conventional theories and concepts. It provides an opportunity for students to carve a way

to achieve their future goals and aspirations.

The study is aimed to provide students with a variety of skills and ideas applied in a

corporate environment. It actually prepares them to face real organizational challenges

beforehand. Internship program requires students to offer their fresh, innovative ideas to

the selected organization, thereby working with an increased level of maturity and

professionalism.

To fulfill these criteria, I, Ajita singh, the author of this report choose to work with Nabil

Bank, a first joint venture bank in Nepal. I am very much interested to learn about a

service industry. I especially chose to learn about the emerging trend of banc assurance

services provided by the banks. Being a new service in Nepal, it is a topic not studied

before. I wanted to study about current service provided by Nabil, whether the customers

are satisfied or not. And what additional service would be valued by the customers, and

how can Nabil build an edge to capture the banc assurance service market.

2. INTERNSHIP GOALS AND OBJECTIVES

Since the field (Management) entails doing things through other “people”, I should be

good at the art of managing people. I should be good in networking with people, building

contacts and using my contacts as and when needed. This skill is surely going to help me

in my career too. As I did my internship in a bank, it was the best opportunity for me to

refine this skill.

Some of the main internship goals and objectives are mentioned below:

Acquire experience in a real life working environment in banking industry.

Problem solving skill through investigating problems and development of system/

strategy/ product in commercial banks.

Having the chance to try out own abilities without permanent commitment in a

commercial bank.

Increased level of maturity and understanding of the banking and financial

institution business culture.

Developing specific professional, personal skills in banking sector.

Getting an opportunity to work on a managerial and organizational project/

problem and improve or develop on the existing system of banks.

Enhancing skills and knowledge as well as career prospects in banking sector.

Developing personal relations in banking industry.

3. ROLES/JOBS PERFORMED IN THE INTERNSHIP

The roles and jobs performed in the department I served; Banc assurance, Customer

Service Department, Accounts and General Service Department, Privilege Department

and Personal Lending Unit are listed below.

Bancassurance

Banc assurance is the selling of insurance and banking products through the same

channel, most commonly through bank branches selling insurance. The sales synergies

available have been sufficient to be used to justify mergers and acquisitions. Banc assurer

is a bank offering a range of financial services to its customers, including insurance from

a subsidiary insurance company. Nabil started this service in September 2010.

Operational duties included filing of the insurance policies according to the date of

expiry, making follow up calls to convince customers to pay the premium amount,

convincing the customers to buy policies from the Nabil bank itself.

Customer Relations Department

Customers are valued entity; dealing with various requirements of different customers of

the bank was a new experience for me. Customer service desk addresses to all customer

queries. Customers can open new accounts, collect their new cheque books, and debit

cards from the desk.

Opening new accounts, delivering cheque books and Debit card and using Finacle to

solve customer queries were some of the operational duties.

Accounts department

Accounts department mainly keeps records of all incomes and expenditure incurred at the

branch and at the year end; it comes up with various performance reports. It also provides

Bank statements and Balance certificates on demand for customers. This particular

department also works as GSD- General Service Department. It manages all the materials

and equipments in the bank premises, in case of any failures.

Operational duties included statement printing, collection, issuance of Balance

certificates, salary transfer and listing:

Introduction to Personal Lending Unit:

Loan department includes personal lending unit, credit unit, recovery unit and cash unit. I

was placed in marketing unit, credit analysis unit and risk analysis unit.

It is committed to providing customers top notch services when it comes to financing

their personal needs. Operational duties included making follow up calls to borrowers of

the banks to pay installments on time, going through credit facility request files and going

for marketing.

Introduction to privilege department

Privilege banking offers one stop solution to all the banking needs of valued customers.

Customers and corporations who have huge amounts of deposits in the bank get this kind

of service. This is a value addition to normal services that the bank offers. The

philosophy behind having a privilege department is that high valued customers should get

extra service for the business they offer to the bank.

Activities included directing dealing with customers, cash counting and solving problems

through the software Finacle.

Strengths and weaknesses in carrying out projects

Strong foundation of academic theories and concepts helped me carry out research

assignment. Problem identification and translation of the problem into research objective

consequently became less difficult too. Punctuality and self discipline were traits; few

inherent in me and few learned from KCM. These traits helped me to portray a positive

image infront of my supervisors. My determination and perseverance to learn something

new help me. Lack of perfection when handling the software “finacle” seemed to be a

major weakness. Finacle is the software used in the bank to carry out all the operational

duties.

4. ROLES AND RESPONSIBILITIES OF INTERN’S SUPERVISOR

A) Relationship officer – Banc assurance Unit

To maintain good customer relations to get maximum business by selling insurance

policies

To provide necessary information to customers regarding their account

To provide high quality and personalized services to customers

To coordinate with operational staff to achieve specified target and overall objective of

bank

To assist operations

To provide prompt service to the external as well as internal customers efficiently

maintaining harmonious relationship with them.

To take appropriate charges for particular transactions

To do all other departmental tasks assigned as and when required in the department with

feeling of team work

To entertain the queries of customers regarding various products and information while

selling policies

B) Assistant – Accounts and General Service Department

Statement printing on demand for customers.

Report printing in the morning ( trial balance and expense and others )

Locker with proper visit record and maintenance

Salary entries of Nabil’s prime customer

Expense / vouchers entry and proper filing

Monitor and control expenses

GSD work

Variance report – monthly

Exhibits

Issuance of balance certificates

IDT reconciliation and follow ups

NSB interest and timely claim from NRB

Maintain and update staff leave record

Assets sent for repair with gate pass

Assets listing and numbering

Timely destruction of old records as per destruction policy

Reply to various queries raised

Lessons learned from Coworkers

Starting from the privilege department to customer service department to banc assurance;

each day at Nabil bank was a learning experience for me. Every new day began with new

aspirations and ended with new lessons.

We came across people with different quantum of experience and qualifications in

various departments that we served. Spending ample amount of time with those people

gave us a good exposure to work culture.

Following sections will describe our learning from coworkers in each department.

Banc assurance Department:

Ability to create and sustain a network of important clients.

The fact that it’s the smallest gestures that makes the most difference to the customers.

The art of bring tactful without appearing rude which we could observe in the way she

used to handle customer complaints.

Customer Service Department

Managing customer complaints plus regular queries even in the peak hours.

Keeping log of important tasks in order to avoid customer dissatisfaction.

The need to keep professional and personal life separate and appear in a “happy and

willing to serve” mood in front of customers.

The need to appear presentable i.e. in appropriate attire and friendly tone to customers.

Quick service to customers.

The fact that the front desk represents the overall bank in front of the customers.

Handling customer complaints is always a challenging task.

Personal Lending Unit

Learnt about different property documents like Land ownership certificates, blue prints,

four boundary disclosures and others.

As I started working with ROs, we learnt how to deal with clients, knowing their

requirements, their eligibility criteria followed by lending procedures and documentation.

It becomes very important to understand psychology of various clients and analyzing

their ability to pay back the loan.

Importance of oral and communication skills.

Writing skills were equally important to prepare Credit Financial Reports (CFR) and

sanction letters for loan disbursement.

PART II: Introduction of Nabil bank

Nabil Bank Limited, the first foreign joint venture bank of Nepal, started operations in

July 1984. Nabil was incorporated with the objective of extending international standard

modern banking services to various sectors of the society. Pursuing its objective, Nabil

provides a full range of commercial banking services through its 47 points of

representation across the kingdom and over 170 reputed correspondent banks across the

globe.

Nabil, as a pioneer in introducing many innovative products and marketing concepts in

the domestic banking sector, represents a milestone in the banking history of Nepal as it

started an era of modern banking with customer satisfaction measured as a focal objective

while doing business.

Operations of the bank including day-to-day operations and risk management are

managed by highly qualified and experienced management team. Bank is fully equipped

with modern technology which includes ATMs, credit cards, state-of-art, world-

renowned software from Infosys Technologies System, Bangalore, India, Internet

banking system and Tele banking system.

Nabil bank is surging ahead faster to build on the foundation they created to be the bank

of 1st choice. Looking forward, they aspire to transform themselves in to the "1st Choice

Provider of complete financial solutions" of all their stakeholders- customers,

shareholders, regulators, communities and staff. The bank continues to deliver the highest

levels of customer service and satisfaction, resulting in unprecedented business volumes

and incomes.

Nabil Team remains committed to live by their values in everything they do, which is

termed as C.R.I.S.P. They aim to be;

C- Customer focused, R- Result Oriented, I- Innovative, S- Synergistic, P- Professional

A. Mission

“Mission is to provide quality and innovative service according to the needs of the

customers.”

Vision: “To become the Bank of First choice for customer, employees and investors”

Objectives:

To provide high quality services to its customers

To provide efficient and innovative services to customers

To generate adequate resources for expansion and growth

To ensure optimum development of their human resources

To earn recognition as professional from the society

To promote the national economy, society and individual

To provide innovative new technology to enhance and facilitate transactions along with

convenience and customer satisfaction

To invest capital in new areas in a productive manner

To generate employment opportunity and facilitate career development plans for

employees

B. Organizational strategies

Nabil Invest renders its institutional and retail clients wide range of services some of

which are delivered currently while others will be delivered in due course with required

exploration & innovation and due approval received from the Regulators as and when

required, detailed as under:

1. Management of Public Offers/Further Public Offers

Nabil Invest renders both its institutional and retail client services of managing public

offer of shares/debentures/bonds/right issuance of securities to existing

shareholders/further public offer of securities etc to its clientele and has team of

professional expertise to render quality services at competitive rates.    

2. Underwriting

Nabil invest on selective basis post independent appraisal of proposals reviewed through

its professional team is rendering underwriting related services to its clientele as SEBON

has made it mandatory for all institutions going public to underwrite at least fifty percent

of the securities on offer prior public issue. 

3. Portfolio Management

The Clients can delegate all their investment management related decisions to a pool of

corporate finance experts of Nabil Invest who in turn will use the vast pool of industry

specific data collected and analyzed by its research unit for making investments for

clients portfolio which focuses primarily on safety of principal investment along with

maximization of returns to Clients. Nabil Invest will arrange to render services to a wider

clientele as per their risk appetite and design their portfolios accordingly. The investors

can utilize their time/energy saved in the process to focus on other more critical facets of

life. 

4. Registrar to Securities (RTS)     

Nabil Invest renders Registrar to Securities (RTS) related services to the valued

shareholders of its institutional client and in the process keep on improving quality &

timely delivery of services, the major hitch in this nature of services by competing

institutions. 

5. Trusteeship Services

Institutions going for the public issuance of Bonds/Debentures can reach Nabil Invest

requesting them to act as Trustee of the investors at large and for investors under private

placement basis who apply for the securities on offer. Nabil Invest will render

Trusteeship services with due diligence to track and facilitate the investors with true and

timely information as required by the provisions of Trusteeship Agreement entered with

the Company issuing the securities.

 6. Advisory Services

 The Clients can make use of professional expert's advice given by Nabil Invest to make

informed investment decisions so that they have true picture of the industry and certain

scrip in particular.

Further, Nabil Invest will also assist its Clients through its independent reports prepared

on feasibility of certain Mergers & Acquisitions which will include the SWOT Analysis,

valuation of equity of both firms, the conversion ratio, conclusions & recommendation

etc.

In addition, Nabil will also assist its corporate clients in capital restructuring of their

institutions which allows them to meet their additional capital requirements for expansion

and also have a proper debt-equity ratio to maximize returns with reduction in cost of

capital.   

7. Project Counseling

The Clients can take the services of Nabil Invest to evaluate the feasibility of new

projects in the offering, to identify the growth prospects of existing maturing firms for

expansion or to have an independent view regarding feasibility of some existing/would be

projects.

The professional advice given by Nabil Invest will assist the Clients to have a clear sense

of direction for their future course of actions. 

8. Loan Syndication

Nabil Invest will use its existing relationship with other Banks/Financial Institutions to

acquire required financial support for the financial closure of certain projects which it

identifies as feasible and recommends for investment. The financial closure will be

reached with either one institution or a syndicate of Banks/Financial Institutions

depending on the size of projects and the requirement to diversify the risks to various

portfolios from the part of member Banks/Financial Institutions.

9. Valuation

Nabil Invest will make use of one or a combination of few standard valuation techniques

applicable internationally to value the status of certain scrip as of certain specific date.

This will assist the firm to identify their actual market worth and further assist them

during the time of making specific strategic decisions like going for Mergers &

Acquisitions, selling significant portion of company's scrip to some strategic partners

through issuance of fresh equity or through divestment of existing stake etc.  

10. Venture Capital/Private Equity

The research unit of Nabil Invest will keep on exploring and identifying various industry

specific information like the growth prospects of certain firms both listed and unlisted,

the current stage of life cycle of specific companies etc. Nabil Invest will thus assist these

firms in obtaining the required source of finance from the market either through venture

capital for growth oriented companies listed on bourse or through private equity for

unlisted companies reaching certain maturity stage. Further, Nabil Invest will also be able

to diversify its portfolio through investment in these institutions as per its

requirements.     

11. Assets Management Company (AMC)

Once SEBON issues Rules relating to operation of Mutual Fund with the provision that

allows existing Merchant Bankers being promoted by the same Sponsor perform the role

of AMC, Nabil Invest with due approval obtained from SEBON on various schemes, will

launch its services in accordance to cater the masses. The professional team of Nabil

Invest will diversify the portfolio investment and maximize returns to the unit holders of

various schemes by increasing the Net Assets Value (NAV) on its investments.  

 12. Other Services

Besides the services identified, Nabil Invest will always keep on exploring innovative

products and services that matches regional and global standards and target to launch the

same in customization with the local market with due approval taken from the

Regulators, if & when required.

C. Major products of Nabil Bank

Working Capital Loan

Overdraft and Short term loans are used to finance day-to-day business activities.

Basically, this loan will help to build up inventory and receivables to a desired level,

against which the loan will be disbursed.

Fixed Capital Loan

This loan helps to finance projects or acquire fixed assets. Generally, this is a long term

loan for acquiring or purchasing machinery, equipment, land and building. The tenure of

repayment is cash flow based.

Import Loan

For financing international and local trade transactions through letter of credit, Nabil

provides finance to import goods in the form of trust receipt or time loan, bank's

acceptance etc. Nabil facilitates import using extensive banking network around the

globe.

Bills discounting facility Under Suppliers Credit

Nabil offers discounting facilities to suppliers against the import bills.

Export Loan

Nabil has different products to finance on funding requirement for completion of various

stages of export processes such as pre-shipment loan, post-export loan (post-shipment

loan), negotiation / documentary bill purchase etc. Such credit facility can be availed in

foreign currency as well as local currency.

Hire Purchase

Nabil can finance the purchase of vehicles, exclusively used for commercial purpose.

Project Finance

For any feasible project, Nabil is committed to take it up for funding from fixed capital to

working capital loan - right from the establishment stage which may include financial

services like letter of credit and guarantee.

Consortium / Syndication Loan

With Nabil bank’s expertise in diverse field of business, it is capable of arranging

consortium finance / loan syndications for large projects.

Mortgage Loan

Nabil bank allows one to step into the bank for loans to be used for any purpose by

mortgaging your land and building.

Within the scope of above-mentioned products, Nabil can also tailor their products and

facilities in commensurate to one’s business needs. Nabil bank’s staffs have acquired in-

depth insight of business complexities and can render valuable advice that will help to

enhance the success prospect of one’s business because Nabil want their business to grow

together with their customers.

Personal lending

Personal lending unit located at Lalitpur Branch, is committed to provide with top-notch

services when it comes to personal financial needs. Whether one needs to buy one’s

dream house or the fast car, need to mortgage one’s house for money for any reason or

need funds for household items, Nabil bank is always helpful. Nabil bank’s services

include:

Housing finance, Auto finance, Nabil property, Personal finance, Education loan

Clean Bills

Nabil bank’s national processing center is geared up to process cheques, drafts or

traveler's checks and credit proceeds into customers accounts at the soonest possible, no

matter where they have been drawn - on any bank in Nepal or anywhere else in the world

with the established use of our correspondent banking relationship.

The Privilege Banking Unit

The privilege baking unit is committed to serve through their sophisticated and state-of-

the-art products and services. All the branches are connected to each other through V-

SAT and radio links and no matter where customers open their deposit accounts, they can

have full access to their accounts from any of the branches spread all over Nepal - either

for statements or deposits or withdrawals of cash. For those who are Internet-savvy, they

can have access over their accounts from the comfort of their homes or office through the

Internet using Nabil Net, our Internet banking system. For investment or safety,

customers can choose their accounts from an array of deposit schemes Nabil offer. Nabil

bank’s range of card products, wide network of ATMs and extended banking counters

including 365 days banking from Kantipath Branch all complement to exclusive banking

experience with Nabil. Nabil offers different privileges in the forms of personalized

banking and discounts for high-value accounts.

SWIFT Transfer

Through the SWIFT transfer mechanism, one can transfer their fund to virtually

anywhere in the world. Likewise one can receive the fund for their account with Nabil

from virtually any bank in the world. SWIFT stands for Society for Worldwide Interbank

Financial Telecommunication System, which is a reliable communication network

speeding up fund transfer and other financial messages. One does not need to have an

account with Nabil Bank for fund transfers through SWIFT.

E-Banking

In keeping with the commitment to be the "Bank of 1st Choice" Nabil Bank is constantly

moving towards enhancing customer services by providing enhanced products and

services. Along the same line, Nabil is pleased to provide with Nabil Net, their Internet

banking system (online banking), Nabil Tele, their telephone banking system.

Types of accounts

Current Account, Call Deposit, Time Deposit, Normal Savings Deposit, Nabil Lok

Bachat, Nabil Bachat, Nabil Student Saving, Nabil Bal Bachat, Nabil Jestha Bachat,

Nabil Jestha Muddhati, Retirement Fund, Provident Fund, Nabil Nari Bachat, Nabil

Muddati

Bancassurance

In line with the international trend, Nabil Bank has set up Bancassurance unit for selling

life and non life insurance policies to its customers through various distribution channels.

‘Nabil Bank' has obtained required permit from Insurance Board. Nabil Bancassurance

has made an arrangement with various insurance companies to provide insurance policies

instantly to bank’s customers from any branch/unit, once insurance request is made and

premium are paid there on. Being a corporate agent, Nabil Bancassurance plays a bridge

role between the customers and the insurance companies.

Advantage of Nabil Bancassurance:

Availing the insurance service in addition to other banking services (one stop  financial

solution)

More trust and stability of dealing with a Bank in operation for over 2 and ½ decades.

Convenience in premium payments

Convenience in receiving policies

Assistance in expeditious claim settlement

Import LC

Documentary Credit (DC), popularly known as letter of credit is the safest and

convenient means of paying for exports among all other existing methods of payment. It

is widely used to effect payments in domestic and international trade. A written

undertaking is issued by a bank (usually referred to as the issuing bank) on the

instructions of the buyer of goods to the seller. The payment is made under conditions

stated in the undertaking. Payments are always up to a stated limit and against stipulated

documents. As per the definition of International Chamber of Commerce (ICC)

"documentary credit is any arrangement however named or described whereby a bank,

(the issuing bank) acting at the request and in accordance with the instructions of a

customer (the applicant), is to make payment to or to the order of a third party (the

beneficiary) or is to pay, accept or negotiate bill of exchange (drafts) drawn by the

beneficiary, or authorize such payments to be made or such drafts to be paid, accepted or

negotiated by a other bank against stipulated documents in compliance with stipulated

terms and conditions."

Nabil team at Trade Operations - Import is dedicated for a quality customer service with

a swift and reliable output. Nabil understands their customers' requirement and are also

equally concerned for the risks to which their customers are exposed while doing their

import transactions. Therefore Nabil team will not only process customer requests but

will also provide customers with important information useful for their business.

Card products

Nabil Bank is the pioneer of Card Industry in Nepal. Nabil is the principal member of

Visa and MasterCard International since early 1990s. Nabil started issuing credit cards

since 1993. Today, Nabil prides on being the service provider with widest range of card

services ranging from issuance of local currency Visa credit cards, Visa debit cards, Visa

prepaid cards, MasterCard credit cards in local currency and US Dollars, US Dollar

Prepaid cards.

Nabil also accepts Visa and MasterCard cards issued all around the globe through our

extensive network of ATMs and Merchant locations in Nepal. In order to provide

superior services to the merchants, Nabil has exclusive arrangement with American

Express here in Nepal for accepting American Express card through our POS Terminals.

Nabil also renders online payment services for payments of various services offered by

international organizations through their websites.

Nabil Installment

Nabil Installment is a unique service of Nabil Bank for its Local currency Visa and

MasterCard credit cardholders. It provides cardholders the flexibility to purchase an array

of products and repay in Equated Monthly Installment (EMI) with or without interest.

Visa Debit

The features of Visa Debit card are as follow:

1. Valid in Nepal and India

2. Can be used for purchases of merchandise / services or cash withdrawal

3. Round the clock service

4. Prompt service / No queue

5. Accepted in over 100,000 POS terminal merchants

6. Accepted in over 5,000 ATMs

7. No interest, late fee or penalty/ No hassle of limit

8. Secured transactions due to electronic environment

9. Highly economical to obtain and use

10. Added facility of balance inquiry and PIN change

11. No service charge on use at Nabil ATMs and all POS terminals

2. NABIL BANK’S GENERAL AND COMPETITIVE ENVIRONMENT

SWOT Analysis

SWOT is an acronym used to describe particular Strengths, Weaknesses, Opportunities,

and Threats that are strategic factors for a specific company.

SWOT analysis is an effective way to conduct environmental scanning. It helps to

identify the strategic factors- those external and internal elements that will determine the

future of a corporation.

Strengths of Nabil

Nabil Bank is a pioneer in introducing modern banking and numerous innovative

products in Nepal.

It is ranked among top financial institutions in Nepal in terms of its market share in

handling Nepal's trade.

Major strength of Nabil Bank is that it is the first Joint Venture Bank; therefore has

gained years of experience in banking industry and has gained paramount trust in public.

Dedicated and experienced manpower

Wide range of network across the kingdom. It has the largest branch network amongst

any joint venture bank in Nepal.

Wide array of products and services offered.

State of the art technology “Finacle”

The bank has maintained very good relationships with its customers. Renowned

organizations like JiCA, Youth Vision, DFID, DED, Nepal Telecom, Spice Nepal and

many others are regular clients of the branch.

Weaknesses of Nabil

Less marketing activities and promotion of services offered by the bank.

Delay in decision making

High employee turnover.

The bank enjoys the status of largest international bank currently operating in Nepal. So,

bank staffs gain international exposure at Nabil and once they have gained, they leave

Nabil and join other domestic banks and financial institutions for higher job designations

or higher pays.

It increases recruitment and training costs.

Stringent control mechanism.

Nabil has rigid lending policies compared to other banks. Loan applicants have to fulfill

strict rules of documentation, which increases lead time for final disbursement of loans.

Due to this, customers may have negative perception regarding overall functioning of the

bank.

Opportunities for Nabil

Investment opportunities in Hydropower projects, Floriculture, electrical and electronic

industries, computer and software development.

Use of proper IT base and Branch Network

Increasing banking knowledge amongst people gives an opportunity to provide better

banking services to customers.

New Products can be introduced.

Capturing new emerging banking technologies like internet banking, SMS banking and

others.

Opportunity to acquire more deposits with the establishment of more branches in the

valley.

Opportunity to maintain better USD debit card acceptance and ATM visa electron

services with minimal downtime in comparison to other Banks.

Threats for Nabil

Highly competitive industry

Growing financial institutions which provide similar service as of banks to customers.

Political instability of the nation

Unstable socio-economic condition in the country

Due to WTO regime, international banks can open their branches in our country hence

making the competition more intense.

Branch Manager's less authority in comparison to responsibility causes delay in decision

making.

Bringing in new technologies to compete in ever-changing dynamic world.

SWOT analysis, as we have discussed, will surely help Nabil to capture the market

opportunities while capitalizing on its strengths and to improve upon its weaknesses

while avoiding the threats.

Role of Nabil in context of current Nepalese economy

Generating employment opportunities

Various schemes of deposits favorable to public

Advancing loans- overdraft, direct loans, discounting bills of exchange.

Credit creation

Savings / Deposit Mobilization

Providing bank guarantees, issuing letter of credit.

Remittance

Tax contribution

Facilitates international trade- imports and exports.

In long term, it facilitates Infrastructure development through project financing.

In short term, it offers Retail banking services to consumers.

Purchase of Government Bonds

INDUSTRY ANALYSIS

Despite the above bitter fact banks are a necessity in every economy. Especially in a

developing economy like ours where investment and more investment is the need of the

hour, bank is a resource for development.

Banking industry has stood as the most vulnerable yet the most profitable sector in

Nepalese economy. Commercial banks have gained paramount trust in public. They deal

with trade, commerce, industry and agriculture that that seek regular financial help for

growth and development. They have remarkable contribution in financial intermediation,

capital creation, fund transfer, boosting of trade and employment generation.

The banking sector is prospering with much lesser difficulty in spite of increasing

economic downturn and political instability in the nation. The clear picture is reflected in

Nepal stock exchange; where 90% of stock traded is that of financial sector of which

majority shares are held by commercial banks.

With more number of commercial banks catering to the same market, it has given rise to

the intense competition. With increasing number of finance companies, development

banks and cooperatives; commercial banks had no option but to increase their banking

services, thereby maintaining competitive edge over others.

Banks are now focusing more on consumer finance, hire-purchase loans, personal loans,

short-term loans which were initially provided only by finance companies. Banking

industry has grown highly competitive.

The competitive scenario of commercial banks can be classified in terms of Market

leader, market challengers and market follower.

In terms of market competitiveness, market leaders in banking sector are Standard

Chartered Bank, Himalayan Bank, NABIL Bank, Nepal Investment Bank.

The market standing and leadership is evaluated in terms of innovation and introduction

of new services or system in the market. For example: Kumari Bank has stood as the

market leader in terms of online internet banking. Competitiveness of the industry can be

expressed in terms of Porter’s five force model.

PORTER'S APPROACH to Six Forces model

The intensity of competitiveness is determined by following competitive forces:

Threat of New Entrants

Rivalry among existing firms

Threat of substitute products or services

Bargaining power of buyers

Bargaining power of suppliers

Relative power of other stakeholders.

Threat of New Entrants

Banking industry is the most regulated sector in an economy. Under the supervision and

regulation of Central Bank, every commercial bank needs to follow rules and regulations

regarding commencement of a new bank, capital requirements, and reserve requirements.

NRB has made major changes in its directives, which includes increase in capital

adequacy requirement, strict measures for loan classification and provisioning, revision in

single borrower limit and industry concentration limits.

As the banks have to follow a high international standard, it is difficult for a new bank to

enter the market and compete with existing major players.

Joint venture banks also create a significant barrier to entry due to its huge capital,

experience and access to resources.

Rivalry among existing firms

The level of competition amongst commercial banks is very high. The banking services

offered by many of them are almost similar. Introduction to banc assurance services,

various deposit schemes, interest rate benefits and aggressive marketing strategy adopted

by the banks has made the industry more competitive.

They have introduced services such as 365 days banking, 8 to 8 hours banking, ATM,

Debit and Credit card facilities, etc. Emerging concept of e-banking has further increased

the level of competition.

Threat of substitute products or services

The threat of substitutes exists in form of private lenders, development banks, finance

companies and cooperatives in the market. Public trust in banks is immensely higher than

in other institutions.

The industry is highly competitive and therefore some innovative services provided to

customers may substitute banking services. Threat of substitutes is of medium impact.

Bargaining power of buyers

The depositors and borrowers are the prime customers for any bank. Banks are in need of

large pool of deposits which give their clients a moderate amount of power.

Bargaining power of buyers is high because of large number of competitors in the

market, hence providing many options and services to customers. With increasing

competition, banks are offering better and quality services to their customers.

Bargaining power of suppliers

It is difficult to identify actual suppliers in case of banks. Suppliers may be identified in

terms of stationary supplies, computer hardware suppliers, software suppliers, credit card

suppliers (e.g. VISA) etc.

As there are many alternative suppliers in the market, the bargaining power of suppliers

is seen weak. However, the bargaining power of Credit Card Company remains higher in

terms of Nepalese market.

Relative power of other stakeholders

Stakeholders of banking industry play a major role in shaping up the banking policies and

operations. Major stakeholders include NRB, shareholders, BOD and employees of the

bank. NRB is the regulator of commercial banks. The relative power of NRB is high; all

commercial banks operate in accordance to directives of NRB. Shareholders are the

major stakeholders who have special interests on annual reports and performance of their

banks.

PART III: PRESENTATION OF MAJOR PROJECT UNDERTAKEN

PROJECT: BANCASSURANCE- A STRATEGIC ALLIANCE; A CASE STUDY

OF NABIL BANK

SECTION I: INTRODUCTION

1. Nabil Bank’s Bancassurance Service

Bancassurance today has evolved into a very powerful tool in the hands of insurers,

bankers and wealth management institutions. Insurers see it as a tool to increase

penetration and market share and bankers use it to augment their fee income and to

smoothen the volatility of interest income. For wealth management entities, it works as a

wrapper to the core investment product and makes it more attractive. Bancassurance shall

continue to evolve over period of time.

Bancassurance is the selling of insurance and banking products through the same

channel, most commonly through bank branches selling insurance. The sales synergies

available have been sufficient to be used to justify mergers and acquisitions. Bancassurer

is a bank offering a range of financial services to its customers, including insurance from

a subsidiary insurance company.

Some of the sales synergies come through the extensive customer base that banks have.

Some come from opportunities to sell insurance together with some banking products.

For example, banks generally insist on life insurance for mortgage borrowers. Although

borrowers are not obliged to buy insurance from the lender, many do (despite it often

being very over-priced) as it is an easy option.

Credit cards and personal loans create opportunities for banks to sell protection insurance

(another high margin business) and the knowledge a bank has of its customers' finances

creates opportunities to sell other products.

Bancassurance has become significant. Banks are now a major distribution channels for

insurers and insurance sales a significant source of profits for banks. The latter partly

being because banks can often sell insurance at better prices (i.e., higher premiums) than

many other channels, and they have low costs as they use the infrastructure (branches and

systems) that they use for banking.

The Bank Insurance Model ('BIM'), also known as 'Bancassurance', is the term used to

describe the partnership or relationship between a bank and an insurance company

whereby the insurance company uses the bank sales channel in order to sell insurance

products. BIM allows the insurance company to maintain smaller direct sales teams as

their products are sold through the bank to bank customers by bank staff.

Bank staff and tellers, rather than an insurance salesperson, become the point of

sale/point of contact for the customer. Bank staff are advised and supported by the

insurance company through product information, marketing campaigns and sales training.

Both the bank and insurance company share the commission. Insurance policies are

processed and administered by the insurance company.

The concept combines private banking and investment management services with the

sophisticated use of life assurance as a financial planning structure to achieve fiscal

advantages and security for wealthy investors and their families.

The sale of insurance and other similar products through a bank is the bancassurance.

This can help the consumer in some situations; for example, when a bank requires life

insurance for those receiving a mortgage loan, the consumer could purchase the insurance

directly from the bank. Some critics feel that bancassurance gives the bank too much

control. Banc assurance is not legal in all countries.

Current Scenario

Insurance industry follows closely the fortune of the financial sector and is directly

impacted by the movements at the macro-economic level. Economic growth spurs

insurance activities and a recession creates manifold problems for the insurance industry.

Recession is an outcome of slowdown in economy and is evidenced by successive

periods of negative growth in production.

Right partnership

Goal congruence leads to selection of right partner. Selecting a right partner is of

paramount importance for the success Bancassurance. Banks bring the brand or

distribution network and insurance companies stitch the products based on their market

knowledge and risk-taking abilities. The combined synergy leads to customer satisfaction

and each partner is able to achieve its stated goals.

Selection of a right partner is also the most difficult part in the entire process of making

Bancassurance work. From a bank’s perspective, the size of the insurance company or the

commission structure it offers to the bank should not be the sole criteria. Rather

creativity, product innovation, customer support, IT systems and long term commitment

should be the guiding principle in the selection of a partner. Similarly, insurance

companies should demand long term commitment and sharing of revenue based on

underwriting profits from the bank.

2. Objective of studying the Bancassurance service

All Bancassurance models rest on three pillars: Bank, Customers and Insurance

Company. Each of them has their own goals and objectives. Banks may be

interested in maximizing their fee income while insurance companies may be

looking at volume expansion so as to reach the critical mass. The customers

would obviously look at convenience and cost reduction. Similarly at other times,

banks may look at product diversification but the insurance company may look at

customer acquisition. Therefore, unless there is goal congruence amongst all the

partners in Bancassurance, it can’t succeed. So we need the study the relationship

of banks, customers and insurance companies.

We need to study the recent trend in bancassurance. Important shift in

Bancassurance has been the focus on non-life insurance products like insuring

property and vehicle. Banks like Nabil, already in Bancassurance have slowly

been moving to general insurance products.

Sales of insurance product are beneficial because it adds to the portfolio of retail

products already offered by the Bank. It helps in bundling and packaging the

existing core banking products like adding deposit life insurance on a pure term

deposit product. It is a risk management device, since the fee increase earned on

the sale of insurance can be used to offset the loss on account of bad loans. It

helps increase customer loyalty since they have more reason than just the banking

to continue their relationship with the bank.

Integration of various distribution channels is important to study. It seems very

difficult for a single distribution channel to successfully reach the bancassurer's

goals and specific target markets. Many bancassurers are using multiple

distribution channels. This way they avoid becoming locked into one channel and

they can offer services to a greater number of target markets. Multiple distribution

channels provide another valuable feature. They enable the enterprise to offer

customers multiple options for access. However, conflicts may arise among the

various channels and also within channels under a multi-channel system. To avoid

this it is necessary to ensure the following:

- colleagues within a channel are motivated to cooperate

- there is communication of the importance of every link in the distribution

process

- cultural differences are communicated and respected

- the goals of every partner in the distribution process can be fulfilled by the

process

- the specific role and performance expectations of each channel member are

clearly stated, understood and accepted

- communication between channels is encouraged channel leadership is strong

and committed to success.

3. Scope and Limitation of Bancassurance

Best Practices in Bancassurance

Bancassurance is unwinding itself. From being just another offering from a bank’s

product basket, it has become an important bookmark in a banks’ strategy document.

Extreme competitive pressure on interest income worldwide has led banks to redraw their

strategies and demand more from Bancassurance. The result is visible in increased

number of tie ups, mergers or cross-shareholding between banks and insurance

companies.

The move towards Bancassurance however has been a roller coaster ride; sometimes slow

and sketchy and in some cases spectacular.

Culture

An effective bancassurance strategy acknowledges the fundamental cultural conflict

between the bank and the insurance company by aligning the bank's interests with those

of the insurance company. Without the bank's total commitment to the insurance strategy,

any bancassurance program is doomed to fail. One of the more effective ways to achieve

this commitment is for the bank to have an equity interest in the insurance company.

With a stake in the financial results of the insurance operation, the bank has a powerful

incentive to support the insurance strategy.

Technology

Bancassurers should plan a technological infrastructure that will exploit customer

information found in the bank's database to uncover sales opportunities and produce

transactional simplicity for insurance customers.

The information banks have about their customers' buying habits, economic status and

money management practices constitutes a valuable asset often unrecognized even by

large, sophisticated banking institutions. Using technology to order information about the

economic behavior of customer segments can provide valuable insights about insurance-

selling opportunities. For instance, customers buying a home through a bank mortgage

can be approached for a variety of insurance products. With a traditional insurer,

behavioral information about policyholders is usually unavailable, but even when known,

can only be employed by agents (who have an economic interest in thwarting a direct

relationship between the company and the client).

Bancassurers should use technology to simplify the insurance purchase as much as

possible, thereby making the purchase an easier, more pleasant experience and further

differentiating themselves in the process. Buying insurance in the traditional way means

dealing with agents and the complications of the underwriting process, which

bancassurance can eliminate. Branch customers are usually in a hurry and don't want to

wait, so banks will serve them best by simplification. With point-of-sale technology,

customers should be able to buy policies in a short time and leave the bank with coverage

in hand. Particularly with an intangible such as an insurance policy, the buying

experience itself is a key part of the purchase. Bancassurers should make the experience

as positive as possible, and technology can contribute greatly to this effort.

SECTION II: CONCEPTUAL FRAMEWORK

1. Review of literatures of Bancassurance

Economics of Bancassurance

Bancassurance has long been looked upon by the banks as an additional source of fee

income. It is however seen more in the role of a ‘savior’ at the times of falling interest

rates and intense competition from the peers rather than as a strategic initiative based

upon sound economic rationale.

Banks make interest income from the difference between the lending and borrowing rates

charged to customers. These rates are largely dependent upon the ‘bank rate’ and ‘repo

rate’ controlled by the respective central banks. Current market conditions however, have

put a strain on the interest income as cost of borrowing funds have risen substantially and

lending (particularly term lending) has become too competitive to provide worthwhile

interest income. Increased cost of funds can only be offset by smart deployment of those

funds into various asset classes and with intense competition in the asset market place;

it’s no mean job for banks. Bancassurance steps in here to compensate for the loss of

interest income and helps to stabilize the profits. (Manoj Kumar, ACII (UK), CPCU

(USA), Bankers Middle East in July 2007 (Issue 85))

Innovation and Challenges

The challenge of Bancassurance lies in innovation. Both partners, whether banks or

insurance companies must be creative in thinking. Banks need to think differently and

analyze (probably anticipate) customers’ requirements and put a demand on the partner

insurance company to reciprocate. The insurance company on its part must be able to

manufacture products in tandem with bank’s requirements.

Other challenges facing Bancassurance today are complexity of regulation, lack of long

term vision and commitment from top management, too much emphasis on fee income

and sometimes mis-selling by banks. Banks would do well to factor these before they

embark on a Bancassurance journey.

The success of Bancassurance also lies in integrating it within the bank’s structure so as

to harness its full potential. Each division within the bank whether corporate or retail, has

to accept the new neighbourhood called Bancassurance and should be willing to share the

leads and customer relationships. There are challenges ranging from assimilation process

within the bank to the ownership of the customer; from profit sharing between multiple

divisions within banks to bringing in the sales culture. (Manoj Kumar, ACII (UK), CPCU (USA),

Bankers Middle East in July 2007 (Issue 85))

Bad Bank Concept in Insurance Industry

The direct impact of current financial crisis was unlikely, had insurers not been involved

in the structured financial products which otherwise have been the domain of specialized

financial institutions. Global economy continues to nosedive despite relentless efforts by

governments and regulators to put the economy back on rails.

Insurance industry though affected by the global recession and despite having issues with

its asset base, does not appear to be toying with the idea of segregating its toxic assets on

the lines of good bank / bad bank concept.

The insurance industry is a barometer of overall economic conditions prevailing in the

marketplace and its fate is generally interlinked with other financial institutions. There is

a definite decline in volumes, investment income and overall profitability but it is due to

the overall economic downturn rather than any systemic failure. Considering the state of

global economy, the insurance industry appears to have done remarkably well compared

to their peers in the banking industry and have shown a greater resilience and character

and proven that they are better risk managers than banks. (Manoj Kumar, ACII (UK),

CPCU (USA), Bankers Middle East in July 2007 (Issue 85))

SECTION III: METHODOLOGY

Study approach

In the first stage of our study, a basic thing in the banking industry and a brief

introduction about Nabil Bank Ltd. has been done. After this, the real study and analysis

part are carried out based on the insurance companies prevailing in the market and the

share that Nabil enjoys. Some of the listed insurance companies are

- United insurance company,

- Alico,

- Everest insurance company,

- Siddhartha insurance company

- Sagarmatha insurance company

- Premier insurance company

- Himalayan general insurance company

- Nepal insurance company

- National insurance corporation

The formal plan for carrying out the research is called research methodology. This

research is carried out by following the steps and procedures prescribed in Marketing

Research Text Book (Malhotra and Dash).

1. Research Design Formulation

This research was conducted as exploratory research to analyze about the various

insurance services provided by banks being an agent between the customer and the

insurance company.

2. Nature of the data:

The data collected are categorized into two parts:

i). Primary Data

Unstructured Interviews with the banks employees

ii). Secondary Data

Published articles and Journals

Information from website of the banks

3. Secondary Data Analysis

Website of Nabil Bank and other banks helped us to gain a brief insight about our project.

Following information are obtained regarding

Insurance Schemes

Interest rates

Loans/ Advances

ATM Facilities

4. Methods of collecting data

Unstructured interviews with the banks employees

We asked several questions regarding our queries to the employees that helped in

completing the project with detail analysis. We asked them questions face-to-face and

communicated via email.

5. Data preparation and Analysis

Unstructured interview helped us to analyze the various shortcomings and strengths of

the different banks. It provided us insight about the existing scenario of competitive

attributes of various banks.

Some Case Studies

ING, the Dutch giant announced disinvestment of its insurance operations to repay the

USD 14.9 Billion bailout by the government. The decision was actually thrust upon them

by the regulators rather than the sell-off being part of a proactive business initiative to

come out of troubled waters. The insurance business was profitable and constituted

almost 50% of the balance sheet of the group. Had ING not have the insurance business

under their belt, they could well have been following Lehman Brothers' path.

Allianz / Dresdner Bank group similarly did not abandon Bancassurance, it just changed

the business model and moved from insurance risk taking model to distribution model.

Allianz sold off Dresdner Bank to Commerzbank in order to acquire a majority stake in

the new bank and to gain greater market access to distribute its products through a much

larger distribution network. By taking this route, Allianz actually perpetuated

Bancassurance rather than moving away as any onlooker would think. Bancassurance

being a business concept allows for flexibility and creativity and Allianz used it to further

their advantage.

SECTION IV: PRESENTATION AND ANALYSIS OF BANCASSURANCE

Consumers Banking Industry Insurance

Household BANCASSURANCE Companies

Bancassurance: A SWOT Analysis

Bancassurance in its simplest form is the distribution of insurance products through a

bank's distribution channels. Demographic profile of the country decides the kind of

products Bancassurance shall be dealing in with, economic situation will determine the

trend in terms of turnover, market share, etc., whereas legislative climate will decide the

periphery within which the Bancassurance has to operate.

The motives behind Bancassurance also vary. For banks it is a means of product

diversification and a source of additional fee income. Insurance companies see

Bancassurance as a tool for increasing their market penetration and premium turnover.

The customer sees Bancassurance as a bonanza in terms of reduced price, high quality

product and delivery at doorsteps. Actually, everybody is a winner here.

Strengths

Banks enjoy several advantages compared to insurance companies that make them ideal

vehicles to carry the message of insurance to the masses, across a wide cross section of

society, and in the process increase their business and improve their bottomline. By

marketing a whole range of insurance products in the life and non life sectors, Banks, not

only spread awareness of these products and facilities among the people, but also make a

handsome amount of money by extending this service.

It is felt that Banks have a more personal relationship with the public and a better

understanding of their financial needs. Hence people are more responsive to their

Banker's advice.

Bank personnel are familiar and comfortable with financial language and terminology,

and so can easily learn the subject of insurance, in order to sell these products. Further

they are good at number crunching and making a sales pitch that gives them a distinct

advantage.

Banking and Insurance products can often be combined to offer a better product mix to

the consumer, in order to leverage the benefits of both the products and services.

The provision of insurance products through the banking channel enables the insurance

companies to depend less upon the agents to sell their products. It costs the insurance

companies a lot to select, train, motivate, and remunerate the insurance agents to push

their products.

It is mutually beneficial for the Banks and the Insurance companies, when Banks cross-

sell insurance products, as both of them can leverage each others' products and services.

Banks get an additional source of income from commissions and fees from their

insurance business. Especially the excessive competition for interest based products has

affected the bottom line of the Banks who are trying to build up alternative sources of

income, through provision of non banking products and services.

Banks cater to both categories of customers- the classes and the masses. Insurers can take

advantage of this by pushing relevant products through these distribution channels.

Simple products for the masses, and more sophisticated ones for the classes.

Weaknesses

Bancassurance is not rosy all the way for both Bankers as well as insurers. There are

several issues that both of them are concerned about.

One of the most important issues and indeed the fear of Bankers are losing business to the

Insurers, in relation to similar products. For instance, a basic banking product like a fixed

deposit may be placed at a disadvantage compared to a money market related insurance

product that offers both growth as well as insurance cover.

Insurers have their own perceptions of Bankers as their marketers and feel that often

Bankers do not do enough to push their products.

Banks feel that insurers gain more from Bancassurance, as they do not incur expenditure

on infrastructure, manpower, etc., whereas, the returns accruing to Banks from this

business are not worth the trouble taken by them.

When Banks are trying to cut costs by providing more and more services offsite, it is felt

that servicing insurance clients onsite (by Banks), may not be practicable, as it only adds

to their costs.

Banks also stand the risk of facing the wrath of the customers for poor follow up service,

like claim settlement, etc., on part of the insurers.

Bankers may not appreciate certain finer points of insurance products they sell, and

consequently face administrative and legal hassles from the customers.

Opportunities

According to a recent sigma study, bancassurance is on the rise, particularly in emerging

markets. Worldwide, insurers have been successfully leveraging bancassurance to gain a

foothold in markets with low insurance penetration and a limited variety of distribution

channels.

Bancassurance, the provision of insurance services by banks, is an established and

growing channel for insurance distribution, though its penetration varies across different

markets. The research shows that social and cultural factors, as well as regulatory

considerations and product complexity, play a significant role in determining how

successful bancassurance is in a particular market.

The outlook for bancassurance remains positive. While development in individual

markets will continue to depend heavily on each country’s regulatory and business

environment, bancassurers could profit from the tendency of governments to privatize

health care and pension liabilities. In emerging markets, new entrants have successfully

employed bancassurance to compete with incumbent companies. Given the current

relatively low bancassurance penetration in emerging markets, bancassurance will likely

see further significant development in the coming years.

Though bancassurance has traditionally targeted the mass market, bancassurers have

begun to finely segment the market, which has resulted in tailor-made products for each

segment. The quest for additional growth and the desire to market to specific client

segments has in turn led some bancassurers to shift away from using a standardised,

single channel sales approach to adopting a multiple channel distribution strategy. Some

bancassurers are also beginning to focus exclusively on distribution.

In some markets, face-to-face contact is preferred, which tends to favour bancassurance

development. Nevertheless, banks are starting to embrace direct marketing and Internet

banking as tools to distribute insurance products. New and emerging channels are

becoming increasingly competitive, due to the tangible cost benefits embedded in product

pricing or through the appeal of convenience and innovation. Nevertheless, bancassurers

have shown a willingness to expand their product range to include products beyond those

related to bank products.

Threats

The shift away from manufacturing to pure distribution requires banks to better align the

incentives of different suppliers with their own.

Increasing sales of non-life products, to the extent those risks are retained by the banks,

require sophisticated products and risk management.

The sale of non-life products should be weighed against the higher cost of servicing those

policies.

Banks will have to be prepared for possible disruptions to client relations arising from

more frequent non-life insurance claims.

Economic downturn has made organizations unsure of themselves and financial

institutions in particular are forced to redraw their strategies. 'Back to basics' slogan is in

vogue and extra baggage is being shed. There is no evidence to suggest however that

objectives and rationale for banks entering into insurance business have undergone any

change.

Bancassurance platform provides width to the banks in terms of the offerings it can make

to its customers and tie them for a longer period. Bancassurance also provides a hedge

between banking and insurance business as deficit at one place may be offset by the

earnings at the other place.

A typical Bancassurance life cycle starts with the distribution model where banks just sell

or distribute insurance products for a fee rather than participate in the risk. Such product

offering comes from unrelated insurance companies and hence banks are insulated from

the vagaries of the risk taking business and are assured of steady fee income. This is in

contrast to the risk taking model where banks participate in the risk and reap benefits

accordingly.

Under the current economic confusion also called as 'recession', when even the basic

banking is under stress, clearly directors and senior managers are playing it safe by

reverting back to distribution model.

Major findings

A deeper look actually points to the success of Bancassurance as most of these

disinvestments and de-mergers have actually helped banks to reinvent themselves under

such testing times. Some of the key objectives for banks entering into insurance business

have been 'spread of risk' and 'smoothening of profits'. Banks who divested their

insurance portfolio achieved 'smoothening of profits' with the sales proceeds while banks

who continue to be in the insurance business are meeting the objective of 'spread of risk'.

Impact of Recession on Insurance Industry

Insurance companies traditionally have thrived more on investment income than core

underwriting business. Competitive pricing and below par risk rating have been protected

by shrewd investment decisions. Current global recession and consequent economic crisis

has put a lid on this maneuverability. Falling prices in real estate sector and nose-diving

stock markets have already depleted shareholders’ equity and moved the investment

portfolio of insurance companies in red zone.

There are several issues that need to be debated. Where does insurance industry stand

today amidst current crisis? What the future beholds for the insurance industry? Can it

sustain itself on underwriting results alone? How deep the investment losses would

impact the balance sheet and consequential stability of the companies? There are no

straight answers, yet indicators and pointers provide an overview of the situation.

Cause-Effect on Insurance Industry

New construction and infrastructure projects have dried up and ongoing projects have

been stalled due to inadequate cash injection in the market. Banks are not releasing

installments to firms even on limits which were agreed prior to this crisis. This has

impacted the engineering class of business in the insurance sector. Inquiries for CAR

(Contractors’ All Risks), EAR (Erection All Risks), Machinery Breakdown and

Equipment Insurance have almost dried up in the last few months. Construction,

infrastructure projects by governments and energy projects by private as well as

governments have either been shelved or being delayed and insurance industry will have

to live without large premiums from the project insurance for some time.

Continued recession shall have impact on property class of business too. Cost-cutting in

the corporate sector may lead to reduced expenditure on insurance. Falling market prices

of property shall further bring down the premium volume on property insurance.

Business Interruption or Loss of Profit premiums also shall go down due to reduced profit

forecasts for most corporate.

Life insurance sector is likely to see even bigger erosion in volumes and profits.

Employee benefit schemes, Workmen’s Compensation, Medical Insurance, Group Life

and Personal Accident Insurance, etc. are likely to take maximum hit. With the

investment portfolio almost gone, most unit-linked policies, Pension Funds and other

investment backed insurance products shall show negative NAV (Net Asset Value) and

consumer confidence shall further nosedive. Policy holders are already requesting

cancellation of their policies in order to preserve cash in this moment of crisis. All this

doesn’t bode well for the insurance sector.

Retail insurance sector has similar problems. Low consumer confidence and stringent

lending norms for retail customers by banks have led to reduced demand for products and

services. Automobile companies are struggling to keep afloat due to negative sales

growth. This directly affects motor insurance premium. Travel industry including airline

companies are witnessing lower traffic resulting into reduced travel insurance premium.

Reduced sale of property is resulting in reduced premium income on mortgage insurance

and householders’ insurance.

Declining international trade and consequent reduction in export and imports have

resulted in inflated inventories and consequent redundancy of work force has increased

job loss claims. Reduced international trade has also impacted marine cargo and marine

hull insurance businesses and premium incomes have dropped substantially.

There are other issues too to ponder. Insurance industry is likely to see multiple bad

moral hazard cases as depressed market conditions may lead to payment defaults and

corporate frauds. Such situation stimulates claims on fire losses, business interruption

losses and losses arising out of Directors’ and Officers’ liability litigation.

Retrograde Bancassurance

Recent phenomenon of some large financial conglomerates divesting their insurance

activities might suggest a retrograde trend in Bancassurance. Giant institutions like ING,

Fortis and UOB of Singapore have segregated their banking and insurance activities and

sold off insurance businesses to return to basic banking. They did this to maintain

segregation between banking and insurance activities.

There are several reasons why banks should seriously consider Bancassurance, the most

important of which is increased return on assets (ROA). One of the best ways to increase

ROA, assuming a constant asset base, is through fee income. Banks that build fee income

can cover more of their operating expenses, and one way to build fee income is through

the sale of insurance products. Banks that effectively cross sell financial products can

leverage their distribution and processing capabilities for profitable operating expense

ratios.

By leveraging their strengths and finding ways to overcome their weaknesses, banks

could change the face of insurance distribution. Sale of personal life insurance products

through banks meets an important set of consumer needs. Most large retail banks

engender a great deal of trust in broad segments of consumers, which they can leverage in

selling them personal life insurance products. In addition, a bank’s branch network allows

the face to face contact that is so important in the sale of personal insurance.

Another advantage banks have over traditional insurance distributors is the lower cost per

sales lead made possible by their sizable, loyal customer

SECTION V: CONCLUSION

The changed equation between banking and insurance businesses under the current

circumstances does not indicate any paradigm shift in Bancassurance. Banks across the

globe still continue to own insurance subsidiaries and get involved in risk taking

business. Banks who want to play it safe, just distribute products for a fee. Banks still

need fee income from the cross sale of insurance products and probably the need for such

fee income is more acute now than ever.

Product Integration

The success of Bancassurance lies in understanding the life cycle of Bancassurance and

integrating the product and distribution mix according to the stages of the life cycle. Most

Bancassurance partnerships go through three stages: early stage, youth stage and mature

stage.

Early stage is basically the passive mode of Bancassurance. This stage involves

predominantly product bundling and there is hardly any sales pitch. Simple insurance

products like term life, car insurance, home insurance and travel insurance are bundled

with core banking products like credit cards or savings account and offered as a packaged

product to the bank’s customers. Customers generally don’t have a choice as the cost of

insurance is not shown separately but factored in the product being sold by the bank.

Bancassurance moves into the youth stage as the banks’ hunger for fee income grows.

Insurance products are sold on a standalone basis rather being bundled. The emphasis is

on higher commission (fee income) and therefore sales efforts and processes are beefed

up. Typically, whole life, universal life and unit linked investment products are sold at

this stage.

The mature stage comes after the bank has gained enough experience and confidence in

selling insurance products. There is a desire to do something different at this stage. Risk

taking options are considered.

Product and Distribution Mix

Product roll-out and distribution strategy closely follows the partner selection process.

Products have to be in line with the customer profile of the bank and distribution channel

must be in sync with the product being offered. Customer base needs to be segmented in

a scientific way and could be based on income, age, occupation, sex, etc. and products

should be developed with the specific customer segment in mind.

Product differentiation is another key factor contributing to the success of Bancassurance.

Standard and off-the-shelf insurance products have no place in Bancassurance. Exclusive

and customer-centric products with add-ons like premium payment in instalment or free

additional coverage may work wonders. Similarly, a product may need to be sold through

multiple channels, e.g. direct mailer, call centre and through branch network. It is

important to remember that all products can’t be sold through all channels.

Distribution Channels in Bancassurance

One of the most significant changes in the financial services sector over the past few

years has been the growth and development of bancassurance. Banking institutions and

insurance companies have found bancassurance to be an attractive and profitable

complement to their existing activities.

Distribution is the key issue in bancassurance and is closely linked to the regulatory

climate of the country. Over the years, regulatory barriers between banking and insurance

have diminished and have created a climate increasingly friendly to bancassurance.

Bancassurers make use of various distribution channels: Career Agents, Special Advisers,

Salaried Agents, Bank Employees / Platform Banking, Corporate Agencies and

Brokerage Firms, Direct Response, Internet, e-Brokerage, Outside Lead Generating

Techniques.

Specific suggestions

Making Bancassurance work is more an art than a science. It requires human skills and

intuitive approach rather than structured processes alone. Banks around the world have

taken to various models of Bancassurance. Some of them have succeeded while many

stumbled. A successful Bancassurance at one place may not make a mark at other places

for reasons related to cultural, social, legal, demographic and economic environment.

Best practices therefore is to craft a model which leads to goal congruence for bank,

customers and insurance company and that alone can lead to a successful Bancassurance.

Corporate Bancassurance

Bancassurance provides more ways to earn fee income for the bank. As discussed earlier

that every relationship provides an opportunity to cross sell Bancassurance products

whether it is retail or corporate. Corporate relationships provide an opportunity for

corporate Bancassurance which is taking shape slowly but steadily. All commercial

enterprises need insurance for their buildings, factory or warehouses and banks can

capitalize on this existing need for insurance cover. There is more fee income in

distributing commercial property or liability insurance to corporate house as volume and

turnover are high. It is easy to cross-sell commercial insurance at the time of term lending

or providing Letter of Credit since it will be value addition from the customers’ point of

view. Further, lending is an asset creation process for the bank and it makes sense even

from the credit risk management perspective to have an insurance security of your choice.

Fire insurance, workers compensation insurance, group medical insurance and

contractors’ insurance are just some of the commercial property and liability insurance

which can be sold to the corporate customers of the banks thereby generating additional

source of fee income. Similarly, Trade finance or operations division within the bank

provide opportunity to cross-sell marine insurance. The importance of corporate

Bancassurance lies in further cross-selling opportunity to the individuals within those

companies.

Overall Recommendation to Nabil Bank:

Introducing innovative products and services

Banking industry is one of the highly competitive industries. New banks are

coming up in the market in increasing number. And all banks are providing

almost similar products and services. To address to this crucial problem, Nabil

should opt for introducing new range of products and services, new policies that is

different from what market is offering.

Nabil is the most preferred bank when it comes to taking consumer loans. So,

there is a greater scope for business expansion in consumer lending. Also, the

bank may introduce some novel deposit schemes that will delight customers.

Enhancing new investments

Our country is going through serious political and economic downturns since past

many years. Investments in industries and new businesses have dropped

significantly. But we still have a 'hope', as the saying goes- 'where there's life,

there's hope'.

There are investment opportunities in hydropower, real estate, industries,

businesses and other sectors which will hopefully improve.

Focusing on Marketing mix

Being an established and one of the top-rated banks of the nation, Nabil is more

easy-going on its marketing functions. However, it should not overlook that even

the best product needs marketing. There are many people who are unaware of

numerous facilities provided by Nabil.

Product- Focus on creating innovative products and schemes that will

appeal to a wider mass of audience.

Price- Deposit interest rates provided by Nabil is the least. It should

increase deposit rates a little higher. And the loan interest rates must be

lowered; it should be brought closer to competitors'. As such, Nabil can

serve a larger clientele base.

Place- Plan on expanding the branch network and the facilities. There are

many untouched markets which can be served profitably. That includes

rural areas as well; they call for serious development efforts.

Promotion- Integrated marketing communications (IMC) would assist

Nabil to send a consistent message throughout various media sources.

Nabil has not yet developed any TV commercials yet. TVCs can address

to larger audiences that will have a greater impact on customers' minds.

Promotion of services can further attract a pool of deposits and loan assets

that will be of much value to Nabil.

Focusing on customers of every income level

The bank targets high income group customers when it comes to giving business

and consumer loans. The bank has strict documentation procedures which restrict

granting loans to deserving clients who have enough potential to play on their

strengths and payback the loan amount.

Only large-scale banks like Nabil are in position to take risks in investments and

contribute to developing of Nepalese economy.

Maintaining long term partnerships and focusing on quality

Communication strategies play a substantial role to develop long term

relationships and profiting from them. Nabil should therefore focus on developing

and maintaining partnerships with current and prospective customers, employees,

suppliers on international level.

Nabil provides quality services and it should continue doing so. One should never

compromise on quality so as to outperform competitors.

Expansion of locker facilities

This particular branch also provides locker facilities to its customers, known as

"Vault". Customer demand for lockers is very high at the branch. In response to

high demand, they should plan to expand the facility as soon as possible.

PART IV: REFLECTION OF INTERNSHIP

The nine weeks of internship at Nabil Bank has enabled me to refine the skills and

knowledge needed in the banking sector. I could learn the skills required to operate

different department of a bank. The departments I got to serve were cash department

(privilege banking), customer service department, bancassurance unit, accounts and

general service department and personal lending unit. From these entire departments, I

acquired the knowledge to handle specific tasks.

Being in the customer service department (CSD), I’ve learnt the importance of keeping

customers satisfied even in the busiest of hours. Even though the job in CSD seems

routine like opening new accounts, delivering cheque books but addressing different

needs of different customers is a challenging task.

One weeks’ time in the CSD taught me that it is important to be tactful when you have to

deal with customers.

Privilege department is where I spent the first week of the internship period.

Some of the important things I learned serving the privilege department are as follows:

Ability to create and sustain a network of important clients.

The fact that it’s the smallest gestures that makes the most difference to the

customers. Gestures like a warm welcome greeting or even a smile when they are

leaving shows that “we care”

The art of bring tactful without appearing rude.

Talking to clients who are not well versed in our language as well as English

language. Such clients are from organizations like Jica and they need to be treated

well. So it’s a skill communicating with them.

As a whole, now I know how to operate a cash department and deal with customers.

Being in personal lending department, I’ve acquired skills in the following areas.

Preparing CFR

Interviewing customers to get information about them which I have actually

practiced with a couple of them

Preparing sanction letter

Filling documents in order

Keeping up to date with customer’s process and informing them.

Though these tasks may seem too trivial to mention, they form the workflow of each

departments. Therefore, in order to be successful in one department, we must know what

it takes to run that department. I’ve learned skills required to operate the overall

framework of each department that I served.

Technology has revolutionized the banking functions. All banks use softwares to

maintain transactions and create report. And, almost all of them use “finacle” software. I

find myself fortunate to have got the opportunity to practice finacle. This is a technical

skill that will add to my portfolio.

For the specific task, I chose to do a research on “improving service of education loan at

Nabil Bank”. As I got to explain to the customers’ about the bank's charges, documents

required and the regulations and solve their queries, I improved on my communication

skills. I also assisted the relationship officers to prepare Credit Financial Reports (CFR)

and sanction letters for loan disbursement. That helped me to improve my business

writing skills.

These skills and knowledge are going to be my strength in future. When I join any bank

then I will use these findings in my workplace.

Some of the main internship goals and objectives mentioned above have been fulfilled.

Now I have the experience of working in a real life working environment. I have inbuilt

the problem solving skill through investigating problems and development of system/

strategy/ product. Now I have the increased level of maturity and understanding of the

business culture, specific professional and personal skills. I’ve developed personal

relations as well.

REFERENCES

Websites

www.nabilbank.com

www.ceoexpress.com

Online newspaper article

The Himalayan times

Republica

Officials publications

The Harvard business review

Text book

Rose, Peter S. Richard, Commercial Bank Management, USA: Irwin Inc.