CHAPTER-1

INTRODUCTION

INDUSTRY PROFILE

Introduction

The insurance industry of India consists of 57 insurance companies of which 24 are in life
insurance business and 33 are non-life insurers. Among the life insurers, Life Insurance
Corporation (LIC) is the sole public sector company. Apart from that, among the non-life
insurers there are six public sector insurers. In addition to these, there is sole national re-insurer,
namely, General Insurance Corporation of India (GIC Re). Other stakeholders in Indian
Insurance market include agents (individual and corporate), brokers, surveyors and third party
administrators servicing health insurance claims.

Out of 33 non-life insurance companies, five private sector insurers are registered to underwrite
policies exclusively in health, personal accident and travel insurance segments. They are Star
Health and Allied Insurance Company Ltd, Apollo Munich Health Insurance Company Ltd, Max
Bupa Health Insurance Company Ltd, Religare Health Insurance Company Ltd and Cigna TTK
Health Insurance Company Ltd. There are two more specialised insurers belonging to public
sector, namely, Export Credit Guarantee Corporation of India for Credit Insurance and
Agriculture Insurance Company Ltd for crop insurance.

Market Size

Government's policy of insuring the uninsured has gradually pushed insurance penetration in the
country and proliferation of insurance schemes.

The domestic life insurance industry registered 10.99 per cent y-o-y growth for new business
premium in 2017-18, generating a revenue of Rs 1.94 trillion (US$ 30.1 billion).
Gross direct premiums for non-life insurance industry increased by 17.54 per cent y-o-y in FY18.

Investments

The following are some of the major investments and developments in the Indian insurance
sector.

Insurance sector companies in India raised around Rs 434.3 billion (US$ 6.7 billion) through
public issues in 2017.

In 2017, insurance sector in India saw 10 merger and acquisition (M&A) deals worth US$ 903
million.

India's leading bourse Bombay Stock Exchange (BSE) will set up a joint venture with Ebix Inc
to build a robust insurance distribution network in the country through a new distribution
exchange platform.

Government Initiatives

The Government of India has taken a number of initiatives to boost the insurance industry. Some
of them are as follows:

National Health Protection Scheme will be launched under Ayushman Bharat to provide
coverage of up to Rs 500,000 (US$ 7,723) to more than 100 million vulnerable families.

Over 47.9 million famers were benefitted under Pradhan Mantri Fasal Bima Yojana (PMFBY) in
2017-18.

The Insurance Regulatory and Development Authority of India (IRDAI) plans to issue
redesigned initial public offering (IPO) guidelines for insurance companies in India, which are to
looking to divest equity through the IPO route.

IRDAI has allowed insurers to invest up to 10 per cent in additional tier 1 (AT1) bonds that are
issued by banks to augment their tier 1 capital, in order to expand the pool of eligible investors
for the banks.

Road Ahead
The future looks promising for the life insurance industry with several changes in regulatory
framework which will lead to further change in the way the industry conducts its business and
engages with its customers. The overall insurance industry is expected to reach US$ 280 billion
by 2020. Demographic factors such as growing middle class, young insurable population and
growing awareness of the need for protection and retirement planning will support the growth of
Indian life insurance.

Company profile

IDBI was set up under an Act of Parliament as a wholly-owned subsidiary of Reserve Bank of
India in July 1964. In February 1976, the ownership of IDBI was transferred to Government of
India. In January 1992, IDBI accessed domestic retail debt market for the first time with
innovative Deep Discount Bonds and registered path-breaking success. In December 1993, IDBI
set up IDBI Capital Market Services Ltd. as a wholly-owned subsidiary to offer a broad range of
financial services, including Bond Trading, Equity Broking, Client Asset Management and
Depository Services. In September 1994, in response to RBI's policy of opening up domestic
banking sector to private participation, IDBI in association with SIDBI set up IDBI Bank .

IDBI FEDERAL LIFE INSURANCE is included in it and coming under IDBI bank, IDBI
federal is branch of IDBI bank. The concept of development banking rose only after Second
World War, Successive of the Great Depression in 1930s. The demand for reconstruction funds
for the affected nations compelled in setting up a worldwide institution for reconstructions. As a
result the IBRD was set up in 1945 as a worldwide institution for development and
reconstruction. This concept has been widened all over the world and resulted in setting up of
large number of banks around the world which coordinating the developmental activities of
different nations with different objectives among the world.

IDBI Federal Life Insurance (henceforth known as IDBI Federal / the Company) is one of
India’s prominent life insurance companies and offers a diverse range of wealth management,
protection and retirement solutions to individual and corporate customers. While we have

grown significantly since our inception in 2008; steered by our future-focused mindset, we are
driven not by our past accomplishments, but by the vision to be the leaders in the industry.
Through a nationwide network of 2,964 branches of IDBI Bank and Federal Bank, and a sizeable
network of advisors and partners, IDBI Federal Life Insurance has achieved presence across the
length and breadth of the country. As on March 31, 2018, the company has issued nearly 11 lakh
policies with a sum assured of over Rs. 75000 crores. IDBI Federal Life Insurance has total
assets under management of 7,503 crores and a robust capital base of over 800 crores, as on
March 31, 2018.

IDBI Federal Life Insurance is a Joint Venture of:

IDBI Bank

India’s premier development and commercial bank, serving retail and corporate customers in all
corners of the country. Through its 1,717 branches, the bank offers a wide spectrum of
innovative products and services.

Federal Bank

A leading private sector bank having a pan-India network of 1,247 branches and 1,485 ATMs,
with a dominant presence in Kerala. It offers a robust portfolio of financial solutions to meet
diverse needs of retail customers.

Ageas

A multinational insurance giant, Ageas has a proud heritage spanning 190 years. One of
Europe’s larger insurance companies, it is ranked among the top 20 in Europe, the No.1 insurer
in Belgium and among the market leaders in most of the countries in which it operates.

DEFINITION OF FINANCIAL STATEMENT:

According to American institute of certified public accountants, financial statement reflects, “A

comparison of recorded facts, accounting convections and personnel judgments applied affects
materially.”
THERORITICAL BACKGORUND OF FINANCIAL STATEMENT

A financial statement is an organized collection of data according to logical consistent

accounting procedure. The financial statement contains summarized information of the firm’s
financial situation to the owners, creditors and public. The top management is responsible for the
financial statement.

Objectives of financial statements:

To provide reliable financial information about economic resources and obligation of a

business firm. To provide other needed information about changes in such economic resources
and obligation. To provide required information to enable the users of financial statements to
evaluate the ability or performance of managerial personnel to utilize the company's resources
for the purpose of accomplishing the primary corporate objectives.

The important tools of financial statements:

Comparative financial statements.

Common-size statement analysis.

Trend analysis.

Ratio analysis.

Fund flow analysis.

Cash flow analysis.

NEEDS OF FINANCIAL STATEMENT:

Share Holders.

Management.

Creditors.

Prospective Investors.

Employers and trade unions.

Government.

Financial Institution and Commercial Bank.

LIMITATIONS OF FINANCIAL STATEMENT:

Financial statements are essentially interim reports:

The profit shown by profit and loss account and financial position as depicted by the balance
sheet is not exact position can be known only when the business is closed down.

Accounting concepts and conventions:

Financial statements are prepared on the basis of certain accounting concepts and conventions.
On account of this reason the financial position as disclosed by the statement may not be
compared.

Influence of personal judgment:

Personal judgment is left to the accountants for various items the method of depreciation mode
of an authorization of fixed assets, treatment of deferred revenue expenditure, and all depends
upon the personal judgment of the accountant.
CONCEPTUAL MEANING AND DEFINITION OF RATIOS

To evaluate cooperative bank branch profitability, ratios have been used. Hence a brief
study on ratio (meaning, classification,) has been done to enhance the knowledge & also it was
felt that it is an appropriate tool for the research. The classification of ratios is taken only from
the point of research.

Meaning of Ratios:

Accounting ratios is the relationship between two accounting figures expressed

mathematically. In short it is the arithmetical or numerical relationship between two accounting
figures. There are certain accounting ratios that can be best expressed as proportion. E.g.: current
ratio, quick ratio.

Another point to be noted is that, whatever may be the mode of expression, generally an
accounting ratio is expressed in such a way that the first figure appears as numerator and the
second figure appears as denominator.

Definition of Ratios

A ratio is defined as "the indicated quotient of mathematical expressions and as the

relationship between two or more things."

Nature of Ratio Analysis:

Ratio analyses are a technique of analysis and interpreting of financial statement. It is the
Process of establishing and interpreting various ratios for helping in making certain decisions,

It involves three steps.

Selection of relevant data from the financial statement depending upon the objective of the
Analysis.
Calculation of appropriate ratio with the above data.

Comparison of the calculated ratio with the ratio of the same firm in the past or the ratio
developed from projected financial statements or the ratio of some other firms or the comparison
with the ratio of some other firm or the comparison with the ratio of the industry to which the
firm belongs.

Importance of ratio analysis:

Ratio analysis stands for the process of determining and presenting the relationship of items and
groups of items in the financial statements.

Useful in financial position analysis:- accounting ratios reveal the financial position of the
concern. This helps the balks, insurance companies and other financial institutions in lending and
making investment decisions.
Useful in simplifying accounting figures:- accounting ratios simplify summarize and
systematize the accounting figures in order to make them more understandable and in lucid form.
They highlight the inter-relationship which exists between various segments of the business as
expressed by accounting statements. Often the figures standing alone cannot help them convey
any meaning and ratios help to relate with other figures.
Useful in assessing the operational efficiency:- accounting ratio helps to have an idea of the
working of a concern. The efficiency of the firm becomes evident when analysis is based on
accounting ratios they diagnose the financial health by evaluating liquidity, solvency,
profitability etc. This helps the management to assess financial requirements and the capabilities
of various business units.

Useful in forecasting purposes:- if accounting ratios are calculated for a number of years, then a
trend is established. This trend helps in setting up future plans and forecasting.
Limitations of accounting ratios:

Ratio analysis is very important in revealing the financial position and soundness of the
business. But, in spite of its advantages, it has some limitations which restrict its use. These
limitations should be kept in mind while making use of ratio analysis for interpreting the
financial statements.
False results based on incorrect accounting data:- accounting ratios can be correct only if the
data are correct. Sometimes, the information given in the financial statements is effected by
window dressing, i.e., showing positions better
Than what actually is. So the analyst must always be on the Look out for signs of window
dressing, if any.
No idea of probable happenings in future:- ratios are an attempt to make an analysis of the
past financial statements. So they are historical documents. Nowadays keeping in view the
complexities of the business, it is important to have an idea of the probable happenings in future.

Variation in accounting methods:-the two firm’s results are comparable with the help of
accounting ratios only if they follow the same accounting methods. Comparison will become
difficult if the two concerns follow the different methods of providing depreciation or valuing
stock. Comparison of financial statements of such firms by means of ratios is bound to be
misleading.

Price level changes:- changes in price levels make comparison for various years difficult. For
example, the ratio of sales to assets in current year would be much higher than the previous years
due to raising prices.
INTRODUCTION OF BANKING SYSTEM

DEFINITION OF BANK:

A bank is an institution, which deals with money, it means a bank receives money in
form of deposits and lends money for the development of trade and commerce. Several
economists have defined the term banking in various ways. Banking Regulation Act 1949,
Sec. 5 (B) defines the term ‘Banking Company’ “a company which transacts the business of
banking in India” and the term ‘Banking’ has been defined as “Accepting for the purpose of lending
and investment, of deposits of money From the public, repayable on demand, order or otherwise and
withdraw able by cheque, draft order or otherwise”

The Economic Importance of banks is as follows:

Bank mobilizes the small scattered and idle saving of people. Bank plays a vital role in Economic
Development of a Country. Banks provides safety and security to surplus money and
deposits. Banks influence the rate of interest in the money market. Banks direct the flow of the
funds in to productive channels. It mobilizes funds from surplus place to deficit place.

CLASSIFICATION OF BANK:

 Central bank

 Co-operative banks.

 Commercial Banks.

 Investment or Industrial Banks.

 Exchange Banks

 Land Development Banks.

 CHAPTER-2

DESIGN OF THE STUDY:

Research Design
Research design means a search of facts, answers to question and solution to the
problems. It is a prospective investigation. Research is a systematic logical study of an issue or
problem through scientific method. It is a systematic and objective analysis and recording of
controlled observation that may lead to the development of generalization, principles, resulting in
prediction and possibly ultimate control of events.

In brief a research design contains

A clear statement of the research problem.
A specification of data required.
Procedure and techniques to be adopted for data collection.
A method of processing and analysis of data.

Research design used in the specific study includes the following:

Identifying the statement of the problem.

Collection of the company’s specific literature i.e., annual reports for the study period and the
profile of the company.
Scanning through standard books to understand the theory behind the financial performance
evaluation.
Collection of information from various journals to understand the industrial background of the
study
Decision regarding study period in this case it was decided to be 4 years i.e., from 2008-2010-
2011.
Identification of financial ratios likely to reflect the capital adequacy, resources deployed, assets
quality, management quality, earning quality and liquidity of the organization. In this case it was
decided to be:
Profitability Ratio
Liquidity Ratio
Activity Ratio
Calculation of the above ratios over the study period and analyzing it.
Forwarding certain suggestions and conclusion to the bank.

STATEMENT OF THE PROBLEM:

The banking industry after Liberalization is facing severe strains on the profitability
front. This is due to excess competition by way of various schemes provided by the Pvt. Sector
banks. There is too much squeeze on margin, which is the difference between cost of funds and
actual lending rate. Hence IDBI Bank branch has been taken up as case and an analysis was done
to know the

The financial assets & ability performance of the branch.

Tools and techniques needed to improve its profitability.

Scope of the Study

The analysis & interpretation of financial statements is made by using various techniques
of analysis, each having their own merits & demerits. Moreover, the study is confined to “IDBI
Bank” only.

OBJECTIVE OF STUDY:

Objective of the study is to analyze the financial statement in terms of liquidity, leverage,
profitability and activity of the institution. To analyze view and to draw meaningful conclusion
to come to a right decision, analytical techniques are required.
To study the ability of the Bank to meet its current obligations i.e., to determine the liquidity of
the Bank

To study the extent to which the Bank has used its long term borrowed funds i.e., leverage.

To study the overall operating efficiency & performance of the Bank

To study history & agenda of the bank.

To gain some practical experience about cash control & cash management.

To know the capital structure of the bank.

To study validity of tools of financial statements in real life situation.

To provide reliable financial information about economic resources and obligation of a business
firm. To provide other needed information about changes in such economic resources and
obligation. To provide required information to enable the users of financial statements to
evaluate the ability or performance of managerial personnel to utilize the company's resources
for the purpose of accomplishing the primary corporate objectives.

Hypothesis
This is a financial study & hence, there are no assumptions to be proved or disproved in this
report.
Data Collection

The data collection is one of the important aspect in the research design purely because, it
is the way that how we can get answer to the research question.

Data Details:- Data relating to Bank is required for the study i.e. about the Profit & Loss
Account, Cash flow Statement, Fund flow Statement and Balance sheet for calculating various
ratios.

Sources of Data Collection

 All the details are collected from secondary sources only. Secondary data includes the annual
reports, financial reports of the company etc., discussion with the concerned officials has also
helped to verify and evaluate the variations and results either to confirm it.

Collection of primary data:

The following tools were used for collection of primary data.

Interaction with the branch manager.

Observation at Bank.

Collection of secondary data:

Various references mentioned in bibliography and Annual reports of the bank have been
referred to collect secondary data necessary for the study

SAMPLE TECHNIQUE:

The sample technique cannot be applied for the available data.

SAMPLE SIZE:

The financial statements of the year 2016-07, 2017-18, and 2018-2019 of the bank have been
taken as sample size.

LIMITATIONS OF THE STUDY:

This study suffers from following limitations:-

Limited DATA provided by Bank.

Limited Information provided by Manager.

The scope of this study is limited to critical evaluation.

No full disclosure accounts.

Interactions with the bank professionals were limited due to their busy schedule.

The study does not reveal complete and accurate data though it stresses on objectives of
accuracy.

Due to lack of time, all the ratios are not calculated for the analysis purpose.

Milestones

2006 1DBI Bank, Federal Bank and Belgian-Dutch insurance major Fords Insurance
International NV signed a Moll to start a life insurance company
2008 IDBI Fortis Life Insurance Co. Ltd., which started its operations in March 2008
2008 IDBI Federal becomes one of the fastest growing new life insurers to collect
premiums worth Rs .100 crores
2009 IDBI Fortis announces Rs. 250cr capital infusion
2009 Nimbus ropes in IDBI Fortis as title sponsor of India-Sri Lanka series
2009 'IDBI Fortis' Boss-Ka-Boss receives PRCI Award
2009 IDBI Fortis receives bronze Dragon at 'PMAA
2009 2010 IDBI Fortis now renamed as IDBI Federal Life Insurance Company
2011 IDBI Federal launches Retiresurance Guaranteed Pension Plan
2012 IDBI Federal makes its online debut
2013 IDBI Federal in association with Phoenix Foundation organizes a trek for the
physically challenged
2013 IDBI Federal breaks-even in Five years; posts maiden profit of Rs. 9.24 crores
2016 Sold over 10 lakh policies
2017 Reached a robust capital base of Rs. 800 Crores
2018 Declared as top 10 Trusted insurance company by Economic Times.
2018 Emerging Asia Insurance awards & Conclave 2018.

TOOLS FOR DATA Collection

McKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters, Robert
Waterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos. Since the
introduction, the model has been widely used by academics and practitioners and remains one of
the most popular strategic planning tools. It sought to present an emphasis on human resources
(Soft S), rather than the traditional mass production tangibles of capital, infrastructure and
equipment, as a key to higher organizational performance. The goal of the model was to show
how 7 elements of the company: Structure, Strategy, Skills, Staff, Style, Systems, and Shared
values, can be aligned together to achieve effectiveness in a company. The key point of the
model is that all the seven areas are interconnected and a change in one area requires change in
the rest of a firm for it to function effectively. Below you can find the McKinsey model, which
represents the connections between seven areas and divides them into ‘Soft Ss’ and ‘Hard Ss’.
The shape of the model emphasizes interconnectedness of the elements.

The model can be applied to many situations and is a valuable tool when organizational design is
at question. The most common uses of the framework are:

• To facilitate organizational change.

• To help implement new strategy.

• To identify how each area may change in a future.

STRATEGY : Company strategy is a term that is used to describe the combination of policies,
processes, and procedures that are employed to help a company operate according to its mission
statement and achieve its short-term and long-term goals.

STRUCTURE : A structure defines how activities such as task allocation, coordination and
supervision are directed towards the achievement of organizational aims.It can also be
considered as the viewing glass or perspective through which individuals see their organization
and its environment.

SYSTEM : It means a set of protocols which are identified to carry out the activities in a
prescribed manner. This should be carried by the organization in all situations; system differs
from organization to organization.

STYLE : Within the framework of 7s model style refers to patterns of actions, the way
management behaves and collectively spends its time to achieve organization goals. IDBI
Federal Life Insurance follow Transactional Managers using the transactional leadership style
receive certain tasks to perform and provide rewards or punishments to team members based on
performance results. The transformational leadership style depends on high levels of
communication from management to meet goals. Leaders motivate employees and enhance
productivity and efficiency through communication and high visibility. This style of leadership
requires the involvement of management to meet goals.

STAFF : It refers to the quality of people in the enterprise and the socialization into organization
culture. Traditionally staff is not treated in the above two ways .Firstly, there will be appraisal
systems, pay scale & formal training, secondly, the employee morale, attitude, motivation and
behavior are considered.

SKILLS : Skills refers to core competencies of the company as well as that of its staff. It is the
ability that a person requires to perform the tasks in the company.The skills differ from person to
person, and also it is based on the work.In present situation there is more importance for multi
skilled persons.

SHARED VALUES: Shared value is a management strategy focused on companies creating

measurable business value by identifying and addressing social problems that intersect with their
business. The shared value framework creates new opportunities for companies, civil society
organizations, and governments to leverage the power of market-based competition in addressing
social problem.

PRODUCT RANGE OF IDBI FEDERAL

As on March 31, 2018, IDBI Federal has strong product suite comprising 21 products available
for sale across product and need categories. In the quest to develop products that resonate with
customer expectations, co. launched ‘I-Innovate’ contest wherein co. gleaned ideas from the
sales people who are constantly in touch with customers and know what they need and expect.
Over 100 product ideas were received across four zones through this campaign.

1. Online Plans
 Insurance Flexi Term Plan
Insurance Online Term Insurance Plan
2. Term Plans

Term insurance Sampoorn Suraksha Micro-insurance Plan

Term insurance Life Protection Insurance Plan
3. Child Plan

Child insurance Savings Protection Insurance Plan

Wealth insurance Future Star Insurance Plan
4. ULIP Plans

Wealth insurance Future Star Insurance plan

Wealth Gain Insurance Plan
Wealth insurance Growth Insurance Plan
Wealth insurance Growth Insurance Plan SP
5. Savings Plans

Wealth Gain Insurance Plan

Life insurance Savings Insurance Plan
POS Guaranteed Plan
POS Guaranteed Income Plan
Income insurance Guaranteed Money Back Insurance Plan
Income insurance Guaranteed Money Back Insurance Plan 7 Pay
Wealth insurance Growth Insurance Plan
Wealth insurance Growth Insurance Plan SP
6. Retirement Solutions

Wealth Gain Insurance Plan

Life insurance Savings Insurance Plan
Wealth insurance Growth Insurance Plan
Wealth insurance Growth Insurance Plan SP
7. Group Plans

Group Employee Benefit Plan

Group Loan Secure Plan
Group Micro insurance Plan
Loan insurance Group Insurance Plan SP
Retiresurance Group Insurance Plan
Term insurance Group Insurance Plan
Term insurance Group Protection Insurance Plan
Loan insurance Group Insurance Plan