30 years of reform. Report card of the Indian financial sector

This article is part of the series 30 Years After: Review and Renew the Reforms Agenda.

Photo by Lucky Trips on Pexels.com

At the heart of the complex web of bits and bytes that is the modern financial system is the ability to exchange and transfer capital (money) between various participants in an economy. Borrowers, lenders, investors and entrepreneurs form the four corners of this very busy square. Traffic flow and participants can either be controlled and owned by the government as it was in India till 1991, or it can be regulated by a set of independent regulators appointed by the government, as it is today in 2021.

When we see the hectic activity in the Indian financial system today, we tend to forget what it was like just 30 years ago — in terms of scale, products, efficiency, cost and service. The sole job of a financial system is to trundle money around to find its optimal use in terms of returns at a low-cost and safety of transactions. But the centrally planned Indian economy used the state-owned financial institutions such as banks and insurance companies to gather household savings for its own use, hard coding this into the reserve ratios in banks and investment guidelines in insurance firms.

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COVID-19 insurance complexity: Good time for regulator to set things right, says Monika Halan. CNBC

Insurance companies are in focus as the Insurance Regulatory and Development Authority of India (IRDAI) has received complaints about COVID policies not being offered and renewed. Atul Sahai, CMD of the New India Assurance Company and Monika Halan, Author of Let’s Talk Money shared their views.

“As far as New India Assurance is concerned, I don’t see this happening. This could be the approach adopted by some of the companies but in the wake of COVID, no new guidelines have been issued as far as we are concerned,” said Sahai.

“The need for health insurance has suddenly increased for most people. The new insurance buyer has got afraid that something may happen and is now running to buy insurance. Globally, insurance companies are struggling to understand this risk and to price this into premiums. So, different companies approach the cooling-off period differently. COVID-19 pandemic is a new event and everyone is struggling to find their balance with it and people seeking health insurance cover for the first time post COVID are in for a little bit of a rough ride unfortunately,” Halan added.

“This is a great time for the government and the regulator to set things right in terms of insurance,” Halan mentioned.

According to Halan, higher loading is expected for the new policy entrants.

“The companies will have to probably increase the premium for the entire age bucket. The price rise will be across the board and not specific to a person,” she mentioned.

Incurred Claim Ratio (ICR) is used to gauge whether this market is fair or not. The number is obtained by total claims paid divided by the total premium.

While explaining the current market condition, Halan shared, “If the net number is at 100 percent, then we are seeing a fair marketplace where after profit and cost, insurance companies are neutral.”

“According to data, the private insurance companies’ ICR is 53 percent, the standalone insurance companies’ number is 56 percent, and the PSUs are 92 percent, which means they are doing well. I think it is a complete regulatory failure because you are not being able to ensure that there is no gouging of the customer,” she further mentioned.

“We are not going to increase the premium till we tide over this crisis,” Sahai shared.

Watch: https://www.cnbctv18.com/personal-finance/covid-19-insurance-complexity-good-time-for-regulator-to-set-things-right-says-monika-halan-9353111.htm

Money with Monika S4 E19. Sebi settles the doctor or chemist issue. Other regulators needs to do the same

The Securities and Exchange Board of India has become the first financial regulator to settle the debate regarding the classification of advisors and agents when it comes to financial instruments. Personal finance expert Monika Halan explains Sebi’s solution, comparing advisors to doctors, and agents to chemists. Agents are only supposed to sell products which customers seek, while advisors will make recommendations after assessing various factors related to the buyer. Meanwhile, other regulators like the Insurance Regulatory and Development Authority, and the Reserve Bank of India are still lagging behind. Is it time for the government to intervene? Monika Halan is consulting editor, Mint, and author of the book ‘Let’s Talk Money’.

Watch on @livemint

https://www.livemint.com/videos/money-with-monika-advisor-doctor-agent-chemist-sebi-settles-debate-11596564752010.html

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The Modi mould for Indian regulators

The news of the appointment of Subhash Chandra Khuntia as the insurance regulator on 1 May 2018 came as a surprise to most financial sector watchers. Of the eight people shortlisted for the final round of screening, Khuntia was the only bureaucrat, the rest were insurance industry insiders, including the serving Life Insurance Corp. of India chairman V.K. Sharma, New India Assurance chairman and managing director (CMD) G. Srinivasan, member Life at Insurance Regulatory and Development Authority of India (Irdai) Nilesh Sathe, and K. Sanath Kumar, CMD, National Insurance. The choice of a person with limited domain knowledge over others who have spent their entire careers working in this very technical industry was the surprise. Remember that it took an earlier outsider, J. Hari Narayan, the first three years of his five-year term to understand the sector. In fact, by the time he demitted office, he understood the sector so well that it went against the then government’s own agenda to allow him to continue. So what has gone into the decision to appoint an outsider as the head of a regulatory body that watches over Rs28 trillion of household savings and over Rs2.2 trillion of general insurance money?

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