Page 235 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes Leasing is extended on a period to period basis, hence the rentals are higher.
Lessor undertakes maintenance/repairs, insurance, tax and training of lessee's staff operating
lease could be -

 dry lease - leaving the asset in the hands of lessee for his operation;
 wet lease - deputing the lessor's staff along with the asset to the lessee for its operation.

Leveraged lease

Lessor acquires the asset through borrowed funds and leases out.
Gearing on borrowed funds-obviously margins could be low/rentals could be high, usually
resorted to by a group of lessors, while leasing out high cost assets.
Arranger bank helps the borrower in preparing information memorandum about the company
and mails it to various banks, inviting participation in the loan.

Notes A lending institution called "originator" identifies the loans in its portfolio that are
to be securitised.

11.17 Bancassurance

Bancassurance stands for distribution of financial products particularly the insurance policies
(both the life and non-life), also called referral business, by banks as corporate agents, through
their branches located in different parts of the country.

11.17.1 Licence for Bancassurance

Banks are required to obtain prior approval of the Insurance Regulatory and Development
Authority (IRDA) for acting as 'composite corporate agent' or referral arrangement with insurance
companies. Banks need not obtain prior approval of RBI to undertake bancassurance.

11.17.2 Benefits of Bancassurance

Bancassurance helps the banks to build synergies between the insurance business and bank
branch network to sell insurance products through banking channels, as the bank branches have
a ready customer in need of financial products/services. Since those customers are already
having their dealings with the banking, they trust the branch staff, more than a private agent.
Accordingly not only large commercial banks but stronger RRBs and Urban/Distt. Central
Banks are also allowed to under taken bancassurance business now.

RBI guidelines on bancassurance (Sept 22, 2003)

1. Banks to comply with IRDA regulations for acting as 'composite corporate agent' or
referral arrangement with insurance companies.

2. Banks not to adopt any restrictive practice of financing its customers to go in only for a
particular insurance company in respect of assets financed by the bank.
3. Banks should also enter into an agreement with the insurance company.

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