The Pioneer : 2019-02-11

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eople in low-income communities live in risky environments and in constant fear of a catastrophe or tragedy that may strike anytime. They live on the edge, vulnerable as they are to numerous perils, multiple risks, family misfortunes, economic shocks, accidental death or disability, loss of property due to theft or fire, agricultural losses and disasters, both natural and man-made. They are also the one’s who are the least able to cope with a crisis. A small misfortune can push them down into a tailspin. Yet, they aren’t considered as ‘insurable’ at reasonable levels of premium. This makes a case for high demand for insurance schemes for them, particularly in sectors of health and life, agricultural and property. Cover for natural disasters, too, must be considered. For the poor, insurance is the only hedge against financial ruin. Poverty and vulnerability reinforce each other in an escalating downward spiral. Exposure to these risks not only result in substantial financial losses but vulnerable households also suffer from ongoing uncertainty about whether and when a loss might occur. Often, the trigger for poverty is illness, which can eat away hardearned savings of low-income communities. The net result is bankruptcy and a slip into poverty. It is, therefore, essential that micro-insurance be made an integral component of financial inclusion if India wants to keep this segment away from the poverty trap. Women are the most vulnerable among the rural population. Yet, they are largely excluded from the insurance market. According to National Bank for Agriculture and Rural Development’s ( Nabard) All India Rural Financial Inclusion (NAFIS) Survey, 2016-17, overall, 25 per cent of the Indian households had at least one or the other kind of insurance. Fifteen per cent of them reported having at least one person with life insurance; two per cent had accident insurance; six per cent had health insurance; and five per cent had vehicle insurance. The poor usually face two types of risks — idiosyncratic (specific to household) and covariate (the most common, for example, drought and epidemics). The poor need insurance more than the rich because they have no cushion and are more vulnerable to the many risks. The state, too, has failed to help them. Micro-insurance, by definition, envisages protection of low-income people against debt traps that often imperil their livelihood and lives. This is mostly an outgrowth of micro-finance, with micro-finance institutions (MFIs) being the leading providers. Given its focus on low-income people, micro-insurance usually differs from regular insurance schemes in terms of types of risks covered, delivery channels, premium levels and documentation requirements. The working group of the Consultative Group to Assist the Poor (CGAP) defines micro-insurance as “the protection of low-income households against specific perils in exchange for premium payments proportionate to the likelihood and cost of the risk involved.” The poor prefer health insurance to life insurance. They say, “We die once but go to the doctor many times every year”. According to the Union Health Ministry, 25 per cent of the peo- Agricultural insurance: This mainly consists of crop insurance that covers farmers against multiple shocks and pays out against losses that the insurer assesses by observing harvest yields. Indexbased insurance pays out fixed sums to farmers when an independently observed trigger (often rainfall levels, crop yields or livestock mortality rates) shows that an insured event has occurred. Many countries are developing public, private and community-based health insurance programmes to pool the risks associated with health shocks. The coverage of these schemes remain quite low, particularly among the poor, but there is some growth in community health insurance for low-income populations. Typically, rural insurance products are clones of products introduced in urban areas and are not suited to the rural context. Risk mitigation mechanisms are weak and complexity of people and problems make underwriting and claim processing and resolution a very challenging process. Crop insurance has surprisingly been a bright spot on the insurance horizon. It has emerged as the third largest line of business after motor insurance and health insurance following the launch of the Pradhan Mantri Fasal Bima Yojana (PMFBY); though it is a market-driven scheme where insurers quote market rates. The farmer pays only two percentage points of the sum insured as premium and the rest is subsidised by the Government. Micro-insurance is now acknowledged as a highly effective tool to end the cycle of poverty by providing a robust safety net that families need. If the poor know that they are covered, they are more likely to plan their future better, invest in expanding businesses, diversify crops or send their children to school without the fear of losing their savings if something were to happen. The whole capacity to take risks changes. Thus, from just being a safety net, micro-insurance provides benefits that earlier generations could never imagine: Hope for the future. ple admitted to the hospital were driven to penury by the costs involved. Added to this was the loss of a day’s wage. By managing risks and avoiding debt, those who have micro-insurance policies, are in a position to protect the wealth they accumulate, generate more income and even get a fair chance to rescue themselves and their families out of the mire of poverty. The cost of insuring against an unforeseen development is considerably lower than selfinsuring through savings. Governments, donors and other development actors engaged in combating poverty and designing social protection measures need to have insurance as one of the weapons in their arsenal. The key challenge for micro-insurance is the high cost of administering the same. The poor live off the banking grid. Families are scattered, this makes physical access difficult. The transaction costs of issuing millions of small policies through service agents, too, are high. The difficulties in making micro-insurance viable stems from the fact that it is a ‘low ticket’ business, requiring huge volumes for sustainability. India also lacks the distribution channels appropriate for lower-income groups. But rapid advances in digital payment systems are creating opportunities to connect poor households to affordable and reliable financial tools, through mobile phones and other digital interfaces. Micro-insurance can piggyback on the exploding reach of cellphone banking and infrastructure created by micro- credit institutions. Insurance coverage can be widened by coupling services with existing mobile financial products or creating new mobile solutions that bring insurance services straight to a consumer’s phone. There are three major types of micro-insurance products: %/ ' 88 1 % 6 1 E2 1 = % 8 E %/ 8 1% %/ % % 3 ED % 16 %- H / =E 8E % % ' E 16 %/ ' % % E 1/ (( E( % 8E ED 2 1E E ( % ( ' '= 1 ' % ( % % 1 % E((E % % %E 1E 1% (EE /E /E ' %E 88E ' ' 8 1 %EE %/ E / E (/E ' E%/ ' % % 8 1 Health insurance: Life insurance: It is the most common form of micro-insurance, facilitated by the extension of the micro-finance model into the area of coverage. However, the life insurance provided by micro-finance institutions (MFIs ) is mainly a way of insuring loans (credit life insurance) rather than providing income support in the case of the policy holder’s death. (The writer is Member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women) ! 5 5 " ! tually to 33per cent. Recently, a committee, set up by the Reserve Bank of India (RBI) under P Nayak, also recommended reducing its share to below 50 per cent and housing the residual shares in a holding company. The Government may transfer its share — along with associated rights and responsibilities — to a banking investment company. After the banks turn robust and healthy, it should consider at an appropriate time (when their market capitalisation improves) divestment of the majority holding. The shares should be distributed in a way so as to avoid concentration of holding in a few hands and, hence, ensure that the management has greater accountability to the public. This indeed should be the way forward to enable the banking sector meet the credit needs of the Indian economy, to put it on a high growth trajectory and for the creation of more jobs in our country. under Prompt Corrective Action (PCA) framework that puts restrictions on their deposit taking and lending activities. An overriding reason for this anomalous situation is mammoth loans that were not paid back. These dues, known as non-performing assets (NPAs) in common parlance, are an offshoot of indiscriminate lending, especially during 2008-2014, to those patronised by the ruling establishment without conducting due diligence. If a bank has a major slice of funds simply going down the drain (forget interest, the principal amount, too, is not recovered), even high margin (difference between lending rate and cost of funds) won’t be of any help to keep their balance sheets in good shape. So, the banks plunged into a crisis-like situation. The Modi dispensation has initiated all necessary measures legislative, administrative, investigation and prosecution, to make an onslaught on mounting NPAs. At the core of the reform measures is the Insolvency and Bankruptcy Code (IBC) — a law enacted by it two years ago — which strikes all the right notes and provides for timely resolution of bad loans. From the day an account registers NPAs, the banks get six months to either get the defaulting borrower pay up or his assets be transferred to the new owner who can pay it up. On its expiration, the case is referred to the National Company Law Tribunal (NCLT), which gets six months to complete the resolution process; extendable by three months under extraordinary circumstances. This prompts all stakeholders Committee of Creditors (CoC), bidders/suitors and judicial authorities, into action mode so that the capital embedded in the enterprise is conserved and resolution yields maximum value. The time limit of six (plus three) months forces them to deliver results expeditiously. So far, banks have recovered over 350,000 crore, including 200,000 crore for settlement of 4,452 cases at the pre-admission stage and 150,000 crore under IBC ( 80,000 crore already recovered and 70,000 crore expected to be recovered during the remaining months of the current fiscal). This is over one-third of the total banks’ NPAs of about 1000,000 crore. Together with reining in fresh slippages (courtesy drastic changes in the eco-system of lending with an emphasis on due diligence for loan sanction, transparent processes and prompt reporting of large defaults), this has helped reduce gross NPAs from 11.5 per cent as of March 2018, to 10.8 per cent in September 2018. This is expected to further decline to 10.3 per cent by the end of the current fiscal. The NPA scenario in our country is expected to show further sustainable and substantial improvement. Confidence stems from the fear put by the IBC architecture in the minds of defaulting borrowers that they would loose ownership and management control of the company if they do not turn up to clear the dues. So, defaulters will have to pay up. It also forces the debtor to chase the creditor instead of the latter chasing the former (as it happened in the past) to get the dues cleared. However, for momentum to sustain, India needs a committed leadership. Things could be difficult if a new regime takes charge in May this year, leading to a return to the old days when PSBs were made to give loans on considerations other than the commercial viability of the project. To reduce vulnerability of the system to the political leadership, there is an urgent need to give autonomy to the PSBs and minimise political and bureaucratic interference in their working. For this, the Union Government should relinquish majority control by lowering its share holding to less than 50 per cent. The NDA dispensation, under the then Prime Minister Atal Bihari Vajpayee (1999-2004), had mooted reduction in its share in PSBs to less than 50 per cent initially and even- D E8 1/ . " # ( ")& *& )& "! ) ), 8 ) " ! " , , )&! )! !) ! ) )! ) " 8 ), )& ! - )! ) "" ) ! )&! , ! ) ! &! * ) CG , ) ) ! )& * ) ,&! & ) " - 2 !*&) )!2 ) "! & ) "!)! + ) ! ) " ) )& )& ? )& ), ! B anking is inherently a huge profitable business. To get a sense of it, all one needs to do is to look at the thousands of crores of rupees that a bank receives in various savings account on which it pays a meager 3.5 per cent to 4 per cent interest and earns a minimum of 10 per cent by way of lending. Even on account of funds, it garners by way of term deposits — 6.25 per cent to 7.5 per cent, depending on the period. There is enough room to make good money. Yet, Public Sector Banks (PSBs) have registered huge losses in recent times, leading to erosion in capital and impairment of their capacity to continue lending. Eleven out of a total of 21 PSBs have been put viz, viz, ( The writer is a freelance journalist) PRINTED AND DISTRIBUTED BY PRESSREADER +1 604 278 4604 ORIGINAL COPY . ORIGINAL COPY . ORIGINAL COPY . ORIGINAL COPY . ORIGINAL COPY . ORIGINAL COPY COPYRIGHT AND PROTECTED BY APPLICABLE LAW

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