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Saturday, May 3, 2008

How to choose your Bank?

After extensive research on the Internet, I have not found a single article, writeup which tells Retail Customers how to choose their bank. Hence I though I would write a post on the first principles of banking which helps retail customers such as me decide which is the best bank to bank with.

In my opinion Retail Customers are of 2 types. The first is the group which belongs to my parents generation who have banked with a nationalised bank or co-operative bank all their lives. A weekly trip to the bank is a visit which is very exciting and they go there and have a 15 minute chat with the branch manager discussing recent weddings in the community and other similar topics. They attend the Poojas at the bank branch and do not mind the endless wait and bureaucracy and feel extremely elated in withdrawing money in the form of crisp budles handed to them by the cashier. If you are in this group, then I suggest that you do not read my blogs further as I am completely out of sync with these people and cannot identify with their banking needs either.

The second group of people, to which I belong, follow the principles listed below. We choose the banks based on the weightages that we assign to each of the following parameters.
  1. Doorstep Service : Need a sales person to visit us for all documentation and instructions. We would prefer not visiting the bank branch at all, due to a shortage of time. We would prefer it if the sales executive does all the photcopying, filling in the application form and we will just sign it after detailed inspection of the form.
  2. Remote Banking : We are very comfortable with Internet Banking, Phone Banking and SMS Alerts. We would like to have all our baking relationships on our fingertips. We monitor our portfolio from the comfort of our homes and we should be able to pay bills, transfer funds, track my credit card spending on the Internet. It is better if linking is possible between my cards, loans, investments and bank accounts so that I can make cross payments across these relationships with ease.
  3. Consolidation : We would like have all our Personal Loans, Home Loans, Credit Cards consolidated with a single bank for ease in linking the accounts and making cross payments. It is important that my banks offers all the products so that I do not want to start a fresh relationship with another bank and build a relationship with them.
  4. Zero Tolerance to Hidden Charges : We have zero tolerance towards hidden charges, fees which have not been disclosed upfront and arm twisting tactics. We will not hesitating writing to the RBI / Banking Ombudsman in the event of unfair practices being employed by the bank
  5. Best Rates : We would like to avail Loans at the best interest rates available in the market. However we would not mind paying a bit higher in terms of interest rate for personalised service.
  6. Quick Complaint Resolution : We understand that there is an error rate of upto 1% on all banking processes. However, we will would expect a speedy resolution within a week once the issue is highlighted

Very obviously, you are looking for how the various banks in India fare on each of the above mentioned parameters, and I am trying to research the same as well. But as I do not have personal experiences with each of the banks, it would be unfair of me to take a call on the same.

However, do write in to me at Ask.Pranav@Gmail.com and I will help you choose the bank which is best suited for you after understanding your personal requirements.

How to go about getting Life Insurance

In one of my previous blogs, I had mentioned that you must never mix up investments and insurance. In this post, I will focus on Life Insurance. It is always advisable to go in for a pure risk product for Life Insurance as opposed to an Unit Linked Scheme giving both Insurance & Investments.
By pure risk term insurance I mean a Life Insurance Cover without any returns attached to it. You pay a fixed annual premium (which may be paid in monthly, quarterly or half yearly instalments) and you are entitled for a Life Cover ranginf from 10 lakhs to 1 Crore. This Insurance will be paid out to your nominee in the event of death or permanent disability.
The extent of cover can be determined by the following 3 rules.
  1. A thumb rule for determining the extent of cover should be 8 times your annual slary package or 1 Crore whichever is lower.
  2. The insurance cover should be more than the value of assets for which you have taken a Loan. I have a Home Loan of 40 lakhs, a Personal Loan of 10 lakhs and a Card Loan of 5 lakhs, hence I need to ensure that my life insurance cover is more than 55 lakhs. (please use the outstanding amounts for calculation at any given point of time)
  3. You should insure yourself only upto the age of 40 years or lastest 45 year. After 45 your investment pool will be far in excess of the insured amount. In my case, I am working towards getting a corpus of about 10 Crores by the time I am 40, so after that the insurance cover is immaterial as in the event of death, I have significant investments to take care of my family. So my suggestion is that we should insure ourselves only upto the age of 45. If you insure yourself for longer periods of time beyond the age of 45 the annual premium charged to ou is also higher.

There are several companies where you can apply for Life Insurance, however I would suggest that you apply to LIC. The reasons for recommending LIC are as follows.

  1. Simple process and no hidden charges, personal service from agents, they come to your house / office and are more knowledgeble with regards to product features and claims processes. Other company agents will try to cross sell other products which are more profit making for the company and will also give you incorrect information to prevent you from taking pure term insurance. These insurance companies love to sell Unit Linked Plans which are more profitable for the companies.
  2. Medical tests conducted at convinient locations.
  3. Vareity of options for making payments. LIC has tied up with various banks to receive online payments. Payments can be made through agents as well.
  4. The are supposed to have the easiest claims procedure (though this opinion is based on information prevailing in the market and not my on experience)
  5. The premium for a fixed insurance cover is lowest in the case of LIC. All other insurance companies charge a higher premia.
  6. In case of premium payment delays and policy revivals in case of delays, the LIC charges are the least and the most customer favouring.

LIC has a fairly simple process for applying for Insurance. The agents visit you and help you sign up for the same. I have a policy of 1 Crore and the annual premium for the same is Rs.24,000. In the first year, the agent refunds a part of the premium between Rs.3,000 and Rs.5,000 back to the customer as a sign on bonus. This is paid out in the first year from the agents commision as he will make a percentage out of every annual payment you make thereon. Be sure to ask the agent for this rebate in the first year if you are signing up for an LIC Policy. This rebate may be available with som other company agents as well.

For most life insurance companies, you will have to undergo a medical test and fill up a detailed application form. Be sure to fill the Nominee details correctly.

For more details on which life insurance policy is best suited for you and for contact details of insurance agents, you can write to me on Ask.Pranav@Gmail.com and I will revert to you within 48 hours.