1. 1
A RESEARCH
ON
VENTURE CAPITAL INVESTMENTS
@
IDBI FEDERAL LIFE INSURANCE CO LTD
Submitted By:
M. V. Sai Sunil,
13M080
DHRUVA COLLEGE OF MANAGEMENT
Project Report Submitted To
Dhruva College of Management
In Partial Fulfilmentof PGDM Program (2013-2015)

2. 2
DECLARATION
This is to certify that the project titled “A Research on Venture Capital
Investments at “IDBI Federal Insurance Co.ltd” is a bondified work completed by
M.V.Sai Sunil Enrolment Number 13M080, in partial fulfilment of the requirements of the
PGDM Program and submitted to Dhruva college of Management.
I declare that this project is a result of my own efforts and has not been copied from
any source. References from which information has been taken have been given in the
reference section. This work has not been submitted earlier at any other university or institute
for the award of the degree.
M.V.Sai Sunil
13M080
Dhruva college of Management.

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ACKNOWLEDGEMENT
“Too often we are so preoccupied with the destination, we forget the guiding light”
I would like to express my gratitude to Ms.Piyushi Verma for providing us an opportunity to
work in IDBI Federal Life Insurance Co. Ltd. I would also like to express my gratitude to
Mr. Chandu Sudheer Kumar (My company guide) for providing there valuable feedback
and intense support relentlessly throughout the project. I sincerely express my gratitude to
Dr.S.Prathap Reddy Chairman of Dhruva College of Management and my faculty guide
Prof.Gokula Krishnan giving him valuable guidance, healthy support and suggestions to
make the project a successful one. I am really thankful to my parents and friends for helping
me to study and giving feedback in all possible ways to make me feel comfortable during my
project. There have been numerous influences, big and small that have helped me to work on
my project successfully. Regardless of the source, I thank all those who may have contributed
to this project
“To find joy in work is to discover the fountain of youth.” --Pearl S. Buck89
Thank you for giving me the determination and helping me realize my potential. I would like
to thank Dhruva college of management, Approved by AICTE and IDBI FEDERAL
LIFE INSURANCE COMPANY LTD. for providing me an opportunity to gain hands-on
experience by working in a corporate environment. Lastly, I would like to thank my parents,
friends and well-wishers who encouraged me to do this research work.
M.V.Sai Sunil
Dhruva college of Management,
Approved by AICTE
13M080

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INDEX
S.NO CONTEXT PAGE NO
I. Executive Summary 06
II. Introduction 07
III. Research Methodology 09
IV. Limitation Of the Study 09
V. Literature Survey 20
VI. About IDBI Federal Insurance .Co 24
VII. Economic Analysis 49
VIII. Industry Analysis 49
IX. Investee Analysis 64
X. Bibliography 92

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EXECUTIVE SUMMARY
A Research on Venture Capital Investments
@
“IDBI Federal Insurance Co.ltd.”
As a part of Curriculum, I have done an internship project for the period of two months at
Funding Solutions, and by working in the organization I have been able to study venture
capital financing and prepare this project report on the factors involved while taking capital
decisions on a potential project by a venture capitalist. (Present financial condition, potential
of the venture, Cost of financing, ownership, organization structure and management,
existing customer base, size and tenure). It involves the reliability and innovation in the
business idea, companies earning stability (CMR ratios), quality of management, the
corporate governance and structure, investment structure and exit plans. Most of the
entrepreneurs fail to forecast these factors in a required manner that is demanded by the
venture capitalist for their analysis, thereby losing their chances of getting approved by a VC
and missing the opportunity of funding their potential venture idea....
I M.V.Sai Sunil s have been working with IDBI Federal Life insurance company ltd, as a
Finance Intern for the past 2 months. These two months proved to be a great experience for
me. I learnt many valuable lessons and will take them forward and apply them in the future.

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CHAPTER 1
1.1. INTRODUCTION
Background
Insurance industry in India has a bright future since it is one of the fastest growing sectors. Unlike
the past when the function of insurance was only limited minimizing the incidental risk, today
insurance has a broad scope and spread and includes almost everything which area round us that
needs to be insured ranging from our life to a new car which we recently purchased. So each
company is thriving hard to cover almost the entire country where only slightly above than 20% of
people are insure unlike US where almost 85% of people are insured. Every time the insurance
companies are coming up with new products and strategies to increase its arena of reach and cover
or insure almost all the people in India. My company IDBI FEDERAL LIFE INSURANCE COMPANY
LIMITED also engaging its personnel and actuaries to come up with novel, innovative and mind
boggling products to attract and retain its loyal customers and increase its market share or in other
words its reach. Today everyone wants maximum out of whatever minimum they have. My company
IDBI FEDERAL LIFE INSURANCE COMPANY LIMITED will only be able to provide the maximum return
to its customers, when it will properly be able to asses and analyse from one of its diversified
investmentsuchasventure capital investments.
Venture capital is considered as financing of high and new technology based enterprises. It is
said that venture capital involves investment in new or relatively untried technology, initiated
by relatively new and professionally or technically qualified entrepreneurs with inadequate
funds. The conventional financiers, unlike venture capitals mainly finance provenance
technologies and established markets. However, high technology need not be prerequisite for
venture capital. So, the company should employ its investments that provide them with good
returns. This is a question as how, where, when the company should employ its investments
that yields reasonably good amount of profits for the company

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THE ORETICAL FRAMEWORK
Concept of Venture Capital
The term venture capital comprises of two words that is, “Venture” and “Capital”. “Venture”
is a course of processing the outcome which is uncertain but to which is attending the risk or
danger of “Loss”. “Capital” means resources to start an enterprise. To connote the risk and
adventure of such a fund, the generic name venture capital was coined.
Venture capital is considered as financing of high and new technology based enterprises. It is
said that venture capital involves investment in new or relatively untried technology, initiated
by relatively new and professionally or technically qualified entrepreneurs with inadequate
funds. The conventional financiers, unlike venture capitals mainly finance proven
technologies and established markets. However, high technology need not be prerequisite for
venture capital.
Venture capital has also been described as ‘unsecured risk financing’. The relatively high risk
of venture capital is compensated by the possibility of high return usually through substantial
capital gain term. Venture capital is a broad sense is not solely an injection of funds into a
new firm, it is also an input of skills needed to set up the firm, design its marketing strategy,
organize and manage it. Thus it is a long term association of with successive stages of
company`s development under highly risky investment condition with distinctive types of
financing appropriate to each stage of development.
Venture capital is not a passive finance. It may be at any stage of business/ production cycle,
that is startup, expansion or to improve a product or process, which are associated with both
risk and reward. The venture capital gains through appreciation in the value of such
investment when the new technology succeeds. Thus the primary return sought by the
investor is essentially capital gain rather than steady interest income or dividend yield.
The SEBI has defined Venture Capital Fund in its Regulation 1996 as “a fund established in
the form of a company or trust which raises money through loans, donations, issue of
securities or units as the case may be and makes or proposes to make investments in
accordance with the regulations.”

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Venture capital commonly describes not only the provisions of startup finance or seed on
capital but also development capital for later stages of business. A long term commitment of
funds is involved in the form of equity investments, with the aim of eventual capital gains
rather than income and active involvement in the management of customers business.
Venture capital is a long term high risk and capital high risk projects but at the same time has
the potential for a strong growth.
Features of Venture Capital
 High risk: By definition the Venture capital financing is highly risky and chances of
failure are high as it provides long term startup capital to high risk-high reward
ventures. Venture capital assumes four types of risks, these are:
 Management risk - Inability of management teams to work together.
 Market risk - Product may fail in the market.
 Product risk - Product may not be commercially viable.
 Operation risk - Operations may not be cost effective resulting in increased cost
decreased gross margins.
 High technology: As opportunities in the low technology area tend to be few of lower
order, and hi-tech projects generally offer higher returns than projects in more
traditional areas, venture capital investments are made in high tech. areas using new
technologies or producing innovative goods by using new technology. Not just high
technology, any high risk ventures where the entrepreneur has conviction but little
capital gets venture finance. Venture capital is available for expansion of existing
business or diversification to a high risk area. Thus technology financing had never
been the primary objective but incidental to venture capital.
 Equity participation and capital gains: Investments are generally in equity and
quasi equity participation through direct purchase of shares, options, convertible
debentures where the debt holder has the option to convert the loan instruments into
stock of the borrower or a debt with warrants to equity investment. The funds in the
form of equity help to raise term loans that are cheaper source of funds. In the early
stage of business, because dividends can be delayed, equity investment implies that

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investors bear the risk of venture and would earn a return commensurate with success
in the form of capital gains.
 Participation in management: Venture capital provides value addition by
managerial support, monitoring and follow up assistance. It monitors physical and
financial progress as well as market development initiative. It helps by identifying key
resource person. They want one seat on the company’s board of directors and
involvement, for better or worse, in the major decision affecting the direction of
company. This is a unique philosophy of “hands on management” where Venture
capitalist acts as complementary to the entrepreneurs. Based upon the experience of
other companies, a venture capitalist advises the promoters on project planning,
monitoring, financial management, including working capital and public issue.
Venture capital investor cannot interfere in day today management of the enterprise
but keeps a close contact with the promoters or entrepreneurs to protect his
investment.
 Length of Investment: Venture capitalist help companies grow, but they eventually
seek to exit the investment in three to seven years. An early stage investment may
take seven to ten years to mature, while most of the later stage investment takes only a
few years. The process of having significant returns takes several years and calls on
the capacity and talent of venture capitalist and entrepreneurs to reach fruition.
 Illiquid investment: Venture capital investments are illiquid, that is, not subject to
repayment on demand or following a repayment schedule. Investors seek return
ultimately by means of capital gains when the investment is sold at market place. The
investment is realized only on enlistment of security or it is lost if enterprise is
liquidated for unsuccessful working. It may take several years before the first
investment starts too locked for seven to ten years. Venture capitalist understands this
illiquidity and factors this in his investment decisions.

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Stage of Venture Capital
The different stages of venture capital are
1.7.4.
Seed Money Stage
Small amount of financing needed to prove a concept or develop a product. Marketing is
not included in this stage
Start Up
Financingfora firmthat startedup inthe past one year.Fundsare likelytopayformarketing
and productdevelopment
First-Round Financing
Additional moneytobeginsalesandmanufacturingafterafirmhas spentitsstart-upcapital.
Second-Round Financing
Fundsearmarkedforworkingcapital fora firmthat issellingitsproduct,butisstill losing money
Third-Round Financing
Financingfora firmthat isbreakingevenandiscontemplatinganexpansionproject.
Fourth- Round Financing
Moneyprovidedforfirmsthatare likelytogoon public.Alsoknownasbridge financing.

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Investment Process of Venture Capital :Venture capital investment process is
different from normal project financing. In order to understand the investment process a
review of the available literature on venture capital finance is carried out. Tyebjee and
Bruno in 1984 gave a model of venture capital investment activity which with some
variations is commonly used presently.
As per this model this activity is a five step process as follows:
 Deal Organization: In generating a deal flow, the VC investor creates a pipeline of deals or
investment opportunities that he would consider for investing in. Dealmay originate in
various ways. Referralsystem,active search system,and intermediaries. Referralsystem is an
important source of deals. Deals may be referred to VCFs by their parent organizations, trade
partners, industry associations, friends etc. Another deal flow is active search through
networks, trade fairs, conferences,seminars,foreign visits etc. Intermediaries is used by
Deal Organisation Screening
Due DeligenceDeal structuring
Post Investment
Activities
Exit

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venture capitalists in developed countries like USA, is certain intermediaries who match
VCFs and the potential entrepreneurs.
 Screening: VCFs,before going for an in-depth analysis, carry out initial screening of all
projects on the basis of some broad criteria. For example, the screening process may limit
projects to areas in which the venture capitalist is familiar in terms of technology, or product,
or market scope. The size of investment, geographical location and stage of financing could
also be used as the broad screening criteria.
 Due Diligence: Due diligence is the industry jargon for all the activities that are associated
with evaluating an investment proposal. The venture capitalists evaluate the quality of
entrepreneur before appraising the characteristics of the product, market or technology. Most
venture capitalists ask for a business plan to make an assessment of the possible risk and
return on the venture. Business plan contains detailed information about the proposed venture.
The evaluation of ventures by VCFs in India includes:
o Preliminary evaluation: The applicant required to provide a brief profile of the
proposed venture to establish prima facie eligibility.
o Detailed evaluation: Once the preliminary evaluation is over, the proposal is
evaluated in greater detail. VCFs in India expect the entrepreneur to have Integrity,
long-term vision, urge to grow, managerial skills, commercial orientation.
o VCFs in India also make the risk analysis of the proposed projects which includes:
Product risk, Market risk, Technological risk and Entrepreneurial risk. The final
decision is taken in terms of the expected risk-return trade-off.
 Deal Structuring: In this process,the venture capitalist and the venture company negotiate
the terms of the deals, that is, the amount, form and price of the investment. This process is
termed as deal structuring. The agreement also include the venture capitalist’s right to control
the venture company and to change its management if needed, buyback arrangements,
acquisition, making initial public offerings (IPOs),etc. Earned out arrangements specify the
entrepreneur’s equity share and the objectives to be achieved.
 Post Investment Activities: Once the deal has been structured and agreement finalized,
the venture capitalist generally assumes the role of a partner and collaborator. He also gets
involved in shaping of the direction of the venture. The degree of the venture capitalist’s
involvement depends on his policy. It may not, however,be desirable for a venture capitalist
to get involved in the day-to-day operation of the venture. If a financial or managerial crisis
occurs, the venture capitalist may intervene, and even install a new management team.

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 Exit: Venture capitalists generally want to cash-out their gains in five to ten years after the
initial investment. They play a positive role in directing the company towards particular exit
routes. A venture may exit in one of the following ways There are four ways for a venture
capitalist to exit its investment:
o Initial Public Offer (IPO)
o Acquisition by another company
o Re-purchase of venture capitalists share by the investee company
o Purchase of venture capitalists share by a third party.
Methods of Venture Capital Financing
The financing pattern of the deal is the most important element. Following are the various
methods of venture financing
 Equity: All VCFs in India provide equity. Generally, their contribution may not
exceed 49 per cent of the total equity capital. Thus, the effective control and majority
ownership of the firm may remain with the entrepreneur. When a venture capitalist
contributes equity capital, he acquires the status of an owner, and becomes entitled to
a share in the firm’s profits as much as he is liable for losses. VCFs buy shares of an
enterprise with an intention to ultimately sell them off to make capital gains. The
advantage of the equity financing for the company seeking venture finance is that it
does not have the burden of serving the capital, as dividends will not be paid if the
company has no cash flows. The advantage to the VCF is that it can share in the high
value of the venture and makes capital gains if the venture succeeds. But the flip side
is that the VCF will lose if the venture is unsuccessful. Venture financing is a risky
business.
 Conditional loan: A conditional loan is repayable in the form of a royalty after the
venture is able to generate sales. No interest is paid on such loans in India, VCFs
charged royalty ranging between 2 and 15 per cent gestation period, cost-flow
patterns, risk and other factors of the enterprise. Some VCFs gave a choice to the
enterprise of paying a high rate of interest (which could be well above 20 per cent)
instead of royalty on sales once it becomes commercially sound. Some funds
recovered only half of the loan if the venture failed.
 Income note : A unique way of venture financing in India was income note. It was
a hybrid security which combined the features of both conventional loan and
conditional loan. The entrepreneur had to pay both interest on royalty on sales, but at
substantially low rates. Some venture funds provided funding equal to about 80
percent of a project’s cost for commercial application of indigenous technology

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adapting imported technology to wider domestic applications. Funds were made
available in the form of unsecured loans at a lower rate of interest during
development phase and at a higher rate after development. In addition to interest
charges,royalty on sales could also be charged.
 Participating debentures: Such security carries charges in 3 phases. In the
startup phase, before the venture attains minimum operations to a minimum
level, no interest is charged, after this low, low rate of interest is charged upon
to a particular level of operation. Once the venture is commercial, a high rate
of interest is required to be paid.
 Quasi Equity: Quasi equity instruments are converted into equity at a later
date. Convertible instruments are normally converted into equity at the book
value or at certain multiple of EPS, i.e. at a premium to par value at a later
date. The premium automatically rewards the promoter for their initiative and
hard work. Since it is performance related, it motivates the promoter to work
harder so as to minimize dilution of their control on the company, the different
quasi equity instruments are follows:
 Cumulative convertible preference shares.
 Partially convertible debentures
 Fully convertible debentures
Venture Capital in INDIA
The concept of venture capital was formally introduced in India in 1976 by IDBI as per the
long term fiscal policy of government of India, with an initial of Rs. 10cr which was raised
by imposing a cess of 5% on all payments made for import of technology projects requiring
funds from Rs. 5 Lacks to Rs. 2.5cr were considered for financing.
ICICI started VC activities in India in 1986, in 1998 it promoted along with Unit Trust of
India (UTI) and technological Development and Information Company of India (TDIDI) as
first registered venture capital company under the company’s act, 1956.

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VCFs in India can be categorized into following five groups:
1. Those promoted by the Central Government controlled development finance
institutions.
o For example:
- ICICI Venture Funds Ltd.
- IFCI Venture Capital Funds Ltd (IVCF)
- SIDBI Venture Capital Ltd (SVCL)
2. Those promoted by State Government controlled development finance institutions.
o For example:
- Punjab InfoTech Venture Fund
- Gujarat Venture Finance Ltd (GVFL)
- Kerala Venture Capital Fund Pvt Ltd.
3. Those promoted by public banks.
o For example:
- SBI Capital Market Ltd
4. Those promoted by private sector companies.
o For example:
- IL&FS Trust Company Ltd
- Infinity Venture India Fund
5. Those established as an overseas venture capital fund.
o For example:
- Walden International Investment Group
- HSBC Private Equity management Mauritius Ltd

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Rules and regulations of venture capitalists in India
 As per Security Exchange Boardof India (SEBI)
VCF are regulated by the SEBI (Venture Capital Fund) Regulations, 1996.The
following are the various provisions:
o A venture capital fund may be set up by a company or a trust, after a
certificate of registration is granted by SEBI on an application made to it. On
receipt of the certificate of registration, it shall be binding on the venture
capital fund to abide by the provisions of the SEBI Act, 1992.
o A VCF may raise money from any investor, Indian, Non-resident Indian or
foreign, provided the money accepted from any investor is not less than Rs 5
lakhs. The VCF shall not issue any document or advertisement inviting offers
from the public for subscription of its security or units
o SEBI regulations permit investment by venture capital funds in equity or
equity related instruments of unlisted companies and also in financially weak
and sick industries whose shares are listed or unlisted
o At least 80% of the funds should be invested in venture capital companies and
no other limits are prescribed.
o SEBI Regulations do not provide for any sectorial restrictions for investment
except investment in companies engaged in financial services.
o A VCF is not permitted to invest in the equity shares of any company or
institutions providing financial services.
o The securities or units issued by a venture capital fund shall not be listed on
any recognized stock exchange till the expiry of 4 years from the date of
issuance.
 As per the provisions of Income Tax Act, 1961
o The Income Tax Act provides tax exemptions to the VCFs under Section
10(23FA) subject to compliance with Income Tax Rules.
o Restrict the investment by VCFs only in the equity of unlisted companies.
o VCFs are required to hold investment for a minimum period of 3 years.
o The Income Tax Rule until now provided that VCF shall invest only upto 40%
of the paid-up capital of VCU and also not beyond 20% of the corpus of the
VCF.

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o After amendment VCF shall invest only upto 25% of the corpus of the venture
capital fund in a single company.
o There are sectorial restrictions under the Income Tax Guidelines which
provide that a VCF can make investment only in specified companies.
Indian Venture Capital and Private Equity Association (IVCA)
 It was established in 1993 and is based in Delhi, the capital of India
 It is a member based national organization that
o Represents venture capital and private equity firms.
o Promotes the industry within India and throughout the world.
o Encourages investment in high growth companies.
o Supports entrepreneurial activity and innovation.
 IVCA members comprise venture capital firms, institutional investors, banks,
incubators, angel groups, corporate advisors, accountants, lawyers, government
bodies, academic institutions and other service providers to the venture capital and
private equity industry.
 Members represent most of the active venture capital and private equity firms in India.
These firms provide capital for seed ventures, early stage companies and later stage
expansion.

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OBJECTIVES OF THE STUDY
 To provide a basic idea on the Concept of Venture Capital.
 Study the Venture Capital Industry in India
 Understand the legal framework by SEBI to encourage Venture Capital activity in
Indian Economy.
 Study the venture Capital at IDBI FEDERAL.
NEEDS OF THE STUDY
 Venture Capital is a growing business of recent origin in area of industrial financing
in India. Due to this, it has a greater possible growth in the present scenario.
 Which would be a great asset in learning and gaining practical knowledge in it.
 The study will be conducted for gaining the practical knowledge about Venture
capital finance and various operations to reach them in a right manner.
 This study will also help in understanding the venture capital with respect to IDBI
FEDERAL.
SCOPE OF THE STUDY
The scope of the study is limited to venture capital scenario in India and in particular Venture
at IDBI FEDERAL.
METHODOLOGY
In this project historical data from the NATIONASL STOCK EXCHANGE and BOMBAY
STOCK EXCHANGE and particular scriptsof a particular period are being used by me to
arrive at a trend for generalization of resultsafter analysing them carefully. Moreover a
detailed micro analysis has been done on IDBI FEDERAL LIFEINSURANCE COMPANY
LIMITED`S investee company’s pertaining to its venture capitalist funds. This micro level
analysis is done with the help of statistical tools such as variance and standard Deviations and
also Average rate of return calculated from the markets opening and closing prices.

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LIMITATIONS TO THE STUDY
 Time duration given to complete the project was not adequate or enough as Venture
Capital is a broad area. The duration of the project was of 8 weeks and as such since
the market is quite unpredictable or dynamic so the risk return trade off might not
reflect a true picture.
 Inadequate data: As venture capital is itself a new topic and when coming to IDBI
Federal, only 4 of its investee companies have been listed in stock exchanges and only
3 companies from the 4 have been taken as one of the company has only 2 quarters
prices.
So, due to this, the analysis has been done only for the financial year 2013-2014
quarterly.

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LITERATURE REVIEW
 Subash and Nair, (May2005):
According to theses persons though the modern concept of venture capital stateduring
1946 and now practiced by almost all economies around the world, there seems to
be a slowdown of venture capital activities after 2000.There may be a longlist of
reasons for this situation, where people feel more risky to put their money innew
and emerging ventures. Hardly 5% of the total venture capital investmentglobally is
given to really stage ventures. In all the years people around the world hasseen the
potentiality of venture capital in promoting different economies of the world by
improving the standard of living of the people by expanding business
activities,increasing employment and also generating more revenue to the government
 Kumar, (June 2003):
This study focus on the industry should concentrate more on earlystage
businessopportunities instead of later stage. It is the experience world over and
especially inthe United States of America that the early stage opportunities have
generated exceptional returns for the industry. He also suggests that individual
capitalist’s shouldfollow a focused investment strategy. The specialization should be
in a boardtechnology segment.
 Kumarand Kaura, (March 2006): The present study reports four factors which are
used by the venture capitalist to screen new venture proposals. Using Kendall’s
Tau- analysis, the study brings outstrong association between several variable pair.
Broadly, the analysis finds that:
o Successful venture teams put in sustained efforts o identified target markets.
o They are highly meticulous while attending to the details.
o These teams are adept at dealing with risk because of their impeccable pastex
perience.
o Indian venture capitalists do not seem to be much enamoured of technologyve
nturing; at least some of the successful funded by them do not seem toshow si
gns of being hi- tech.

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The study brings out four important variables which are highly unique to successful
venture in India. They are:
o Ability to evaluate and react to risk
o Attention to details
o Market share
o Profits.Evaluating risk seems to be an area where unsuccessful venture fail. Si
ncesuccessful teams focus on established markets and meticulously pursue the
semarkets to gain market share, they achieve desired profits
 Kumar, (May 2004):
The Indian Venture Capital Industry has followed the classical model of venture
capital finance. The early stage financing which includes seeds, start-up& early
stageinvestment was always the major part of the total investment. Whenever
venturecapitalists invest in venture certain basic preference play a crucial role in
investmentdecision. Two such considerations are location preferences and ownership
preferences. Seed stage finance is provided to new companies for the use in
productdevelopment & initial marketing company may be in the process of setting
up the business or may be in the business for short period but have not reach the
stage of commercialization.
 Kaur, (March, 2004):
The industry should concentrate more an early stage business opportunities instead of
later stage. It is the experience world over and especially in the United States of
America that the early stage opportunities have generated exceptional for the
industry. It is recommended that the venture capitalists should retain their basic
feature that taking retain their basic feature that is taking high risk. The present
situation may compel venture capitalists to opt for less risky opportunities but it is
against the spirit of venture capitalism. The established fact is big gains are possible
in high risk projects.
 Chary, (September 2005):
There has been a plethora of literature on venture capital finance, which is
helping the practitioners’ viz., venture capital finance companies and fund manage
for better understanding the role of venture capital in economic development. There

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are number of studies on the venture capital and activities of venture capitalists in
developed countries.
 Vijayalakshman & Dalvi (Jan., 2006):
Whenever Indian policy makers have to encourage any industry. The usual practice is
to grant that the industry tax breaks for a limited period. This definitely acts as a
positive incentive for that industry. However, what is required is a thorough
understanding of the industry requirement framing and implementation of
aggregative strategy for its development. VC funds are not even registered with SEBI
in spite of all the benefit available. VC industry is one, which will today prepare a
base for astrong tomorrow. What is need for the development of VC industry is not
only tax breaks but simpler procedures legislation for simplified exit form
investment, moretransparency and legal backing to participate in business amongst
other things.
 Kumar, (July, 2005):
One of the integral aspects of venture funding is venture capitalist's involvement with
the entrepreneurial team. The relationship through broad interaction was explored by
Rosenstein (1988). A comparison was drawn between small and large firms with
regard to board interaction. While it is important in large firms the relative power of
small conventional firms, board interaction generally is undermined. Rosenstein
Et.a.(1993) studied the finer aspects of boards in the venture funded companies in
the USA. From 98 candidates in the sample, the study attempted to bring out the
changes in the board size board composition and control and their relation to value
added to the funded unit. The empirical analysis yielded results wherein the size of
the board increased after venture funding, indicating more transparency in board
operations. Through a case based approach Lloyd ET. al. (1995) explored the aspect
of deal structuring and post investment staging of venture capitalists through venture
capitalists' co- investing strategy. The study finds that even through venture
capitalists fix tight milestones and time lines they themselves contribute to many of
the delays that are experienced by a typical start-up firm.
This is because of the hierarchical co-investing partners and the lack of
understanding within the venture capitalist co-investors as to what role they
individually play in the development of their portfolio company.

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 Robbie, (1997):
Highlights the monitoring policies of funded units by venture capitalists
and studies the performance targets, monitoring information, and monitoring actions
through a questionnaire-based survey. The survey wasa dministered to 108 British
Venture Capital Association members and total of 77responses were gathered in the
study. The findings related to performance targets and other monitoring issues were
considerable addition to the literature in the subject. The issues concerning board of
directors' role in venture backed companies are widely debated topics in academic
research. The findings of the study by Fried et.al. (1998) emphasize that the board of
directors are a more involved in the venture- backed firms than boards where
members do not have large ownership at stake. Thes tudy provides an empirical
evidence of variation in the boards' involvement and shows its relevance in
performance management of funded units.
 Mishra, (July 2004):
There is abundant empirical research conducted in developed countries which
address the relative investment evaluation criteria taken into account in the screening
process for new venture investment proposals. Zopunid is (1994) provides a useful
summary of the previous research in this field. The identification of selection criteria
has been researched using different methodologies such as simple rating of criteria.
Multi methods (case analysis, study of administrative records, published interviews,
questionnaire and personal interviews) approach has also been used (Riquelme, 1994)
to enhance understanding of investment criteria and also extend it to other aspects of
investment process like deal structuring and divestment.
 Dossani and Kenney (2002):
In the last decade, one of the most admired institutions among industrialists and
economic policymakers around the world has been the US venture capital industry.
 Sharma (2002):
In this study with respect to Indian VCs, these investors gave high priority to referrals
or known potential investees whereas unsolicited calls by business plans were
considered less important.

24. 24
 Premus (1985) :
The sensitivity of venture capital process to government policies and other factors
that influence entrepreneurship and innovation was highlighted in a study by the US
General Accounting office on behalf of the Joint Economic Committee
 Gompers and Lerner 2002:
Venture capital entrepreneurship and innovation have been closely connected.
Entrepreneurs have long had ideas that require substantial capital to implement but
lacked the funds to finance these projects themselves.
 Gompers and Lerner 2002:
Venture capital evolved as a response to this felt need. Venturecapital represents one
solution to financing the high risk, potentially high-reward projects.
 Dossani and Kenney 2002:
Though venture capital can meet this gap to some extent, venture capital is aspecial
form of venture financing. In the case of venture capital, the capital market has to be
conducive for supporting venture funding. At some level, entrepreneurship occurs in
nearby every society, but venture capital can only exist when there is a constant flow
of opportunities that have great upside potential
 Hochberg et al. (2007):
Study how relationships and networks in the VC industry affect performance. They
focus on the co-investment networks that VC syndication gives rise to. Their central
argument is that syndication networks may both improve the quality of deal flow and
help VCs add value to their portfolio companies. Using graph theory to measure how
well networked a VC is, they find that VCs that are better-networked at the time a
fund is raised subsequently enjoy significantly better fund performance, as measured
by the rate of successful portfolio exits over the next 10 years. The size of a VC
firm’s network, its tendency to be invited into other VCs’ syndicates, and its access
to the best-networked VCs have the largest effect economically, while an ability to
act as an intermediary in bringing other VCs together plays less of a role.

25. 25
 Hsu (2004) finds evidence that better VCs get better deal terms (in the form of lower
valuations, for instance) when negotiating with startups. He developed a hand-
collected data set of 148 financing offers (both accepted and declined) made to a
group of 51 early-stage high-tech start-ups. In this way, he estimates that a financing
offer from a high-reputation VC is approximately three times more likely to be
accepted by an entrepreneur. As well, it is shown that highly reputable VCs acquire
start-up equity at a 10–14% discount.
 Tyebjee and Bruno (1984) observed that potential deals are brought to the attention
of VCs from sources like unsolicited calls from entrepreneurs and referrals. Deals
were referred to the VCs by venture capital community, prior investees, personal
acquaintances, banks and investment brokers.
 Fenn and Liang, 1998: financial guidance and expertise is an important
characteristic of venture capital financing.

26. 26
Company
An attempt is made to present the analysis on the Indian life profile of IDBI FEDERAL LIFE
INSURANCE COMPANY LIMITED and of its investee companies related to its venture
capital investments.
IDBI FEDERAL LIFE INSURANCE PRIVATE LIMITED
Introduction:
IDBI federal is a joint venture of IDBI Bank, India’s premier development and commercial
bank, Federal Bank, one of India’s leading private sector banks and Ageas, a multinational
insurance giant based out of Europe. In this venture IDBI owns 48% equity while federal
bank and Ageas own 26% equity each. IDBI federal endeavours to deliver the product that
provides value and convenience to the customer. Through a continuous process of innovation
in product and service delivery we intend to deliver world-class wealth management,
protection and retirement solution to the Indian customer. IDBI federal started in March 2008
and within few months of inception it became one of the fastest growing new insurance
companies to garner Rs 100 Cr. in premium. The company offers its services through a vast
nationwide network across the branches of IDBI bank and Federal Bank in addition to
sizeable network of advisors and partners. As on 31st March 2012 Company has issued over
3.76 lakh policies with over 21,578 Cr. in sum assured.
 Vision:
To be the leader provider of the wealth management, protection and retirement
solution that meets the need of the customer.
 Mission:
o To continue strive to enhance customer experience through innovative product
offering, dedicated relationship management and superior service while
striving to interact with our customer in most convenient and cost effective
way.
o To be transparent in the way we deal with our customer and act with integrity.
o To invest in and build quality human capital in order to achieve our mission.

27. 27
 Values:
o Transparency: Crystal clear communication to our partners and stake holders
o Value to customer: A product and service offering in which customer perceive
value
o Rock solid and Delivery on promise: This translates into being financially
strong, operationally robust and having clarity in claims.
o Customer friendly: Advice and support in working with customers and
partners.
o Profit to stakeholders: Balance the interest of the customers, partners,
employees and community at large.
Corporate Governance
 Board of directors:
o Mr. R .M. MALLA (Non-Executive Director)
o Mr. Bart De Smet (Non-Executive Director)
o Mr. Filip A. L. Coremans (Non-Executive Director)
o Mr. S. Santhanakrishnan Independent (Non-Executive Director)
o Mr. R. K. Thapliyal Independent (Non-Executive Director)
o Mr. Suresh Kumar (Non-Executive Director)
o Mr. R. K. Bansal (Non-Executive Director)
o Mr. Gary Lee Crist* Alternate Director to Mr. Bart De Smet
o Mr. Davinder Rajpal (Independent Non-Executive Director)
o Mr. P. C. Cyriac* (Non-Executive Director)
o Mr. G. V. Nageswara Rao (Managing Director and Chief Executive Officer)
 Senior Management Committee:
o Mr. G. V. Nageswara Rao (Managing Director and Chief Executive Officer)
o Mr. Ajay Oberoi (Chief People Officer & Head – Administration)
o Mr. Aneesh Srivastava (Chief Investment Officer)
o Mr. George John (Corporate Controller)
o Mr.Hans Van Wuijckhuijse* (Chief Operating Officer)
o Mr. Rajesh Ajgaonkar Head ( Legal, Compliance & Company Secretary)
o Mr. Aneesh Khanna Head (Marketing & Product Management)

28. 28
o Mr. Ashley Kennedy National Head (Agency & Alliances)
o Mr. Hans Loozekoot* (Chief Financial Officer)
o Mr. Nick Taket* (Chief – Actuary)
o Mr. Vignesh Shahane (President – Bancassurance)
Distribution of shareholding:
The details of Shareholding Pattern of the Company as on March 31, 2013 are
as under
S.no Names of share
holders
No. Of shares
held(in crores)
Percentage of shares
held
1 Idbi Bank Ltd 38.4 48%
2 Federal Bank Ltd 20.8 26%
3 Ageas Insurance
international N.V
20.8 26%
Total 80 100%
Insurance Value Chain:

29. 29
Company Structures:
 The organizational structure of IDBI Federal Life Insurance Limited
Chief Executive Officer
Country Head
Human Resources Head
Finance Head
Training Head
Marketing Head

30. 30
 Zonal Wise Organizational Structure
 sales Organizational Structure
Country
Head
North
Zonal Head
Mumbai
Lucknow
East Zonal
Head
West Zonal
Head
South
Zonal Head
Coimbatore
Area Head
Banglore
Area Head
Hyderabad
Area Head

31. 31
Business Segmentation:
Businesses Segment can be defined as technique used by the companies to separate
business to reflect key develop, sell and develop differences. Segmentation is basically
done by grouping customer according to homogenous attributes. Segmentation of business
allows companies to focus its marketing where it is most productive. IDBI federal has done
its business segmentation by introducing different range of products into the market.
For Eg: Childsurance, Healthsurance etc. that allows IDBI to very examine very closely
that how individual product is performing and it also helps to focus its marketing on
product that is most productive.
Products and Services Offered by IDBI Federal Life Insurance:
 Childsurance:
IDBI federal’s childsurance is for the parents who are looking to make their child’s
future shock-proof is its powerful insurance benefits. Childsurance allows to you to
protect your child plan with triple insurance benefits so that your wealth-building
plan remains unaffected by unforeseen events and your child future remains secure.
 Healthsurance:
IDBI federal Healthsurance Hospitalization and surgical plan offers host of features
and benefits that is designed to help the customers to manage extra burden that
comes with hospitalization.
 Lifesurance:
IDBI feral Lifesurance Plan is a saving insurance plan that helps you to safeguard
your wealth at the same time will present better opportunity to earning better return.
 Bondsurance:
Bondsurance is designed for customer looking for guaranteed returns which will not
get affected by financial market conditions. It offers guaranteed return on
investment along with life insurance cover.

32. 32
 Wealthsurance:
Wealthsurance plan enables the policyholder to save and build wealth to meet their
financial goals. Wealthsurance plan comes up with a wide range of 13 investment
option and 7 insurance benefits with low charge structure and unmatched flexibility.
 Homesurance:
Homesurance protection plan provides full insurance cover for properties under
construction, thus ensuring that beneficiary gets the full sanctioned amount in case
of an unfortunate event. It also has an innovative fixed cover for those who would
prepay their loans early.
 Incomesurance:
Knowing customer helped us to combine the Endowment & Money Back plans into a
single plan. It linked the returns to the G-sec rates, transparently declared by the
government. Also, the Guaranteed Annual Payout and other benefits upon death are
tax- free under Sec 10(10D).
 Termsurance:
Teramsurance protection plan of IDBI federal offers unique increasing cover option
that can automatically increase the cover every year without increasing the premium.
Promotional Practices:
IDBI federal Life Insurance Co Ltd is been involved in number of promotional practices.
IDBI uses different modes of advertisements for promoting their products. Following are the
different modes through which IDBI federal promotes its products:
 Print Media:
Print media is one the most reliable, cost effective and easy mode of advertisement
to reach the masses. Main ways of advertising via print media are:

33. 33
 Newspaper:
Paper Pages Cost (in
Rs.)
The
Economic
Times
3rd 320 per
sq. cm
Times of
India
3rd 320 per
sq. cm
The Hindu 1st 400 per
sq. cm
 Pamphlets:
Pamphlets are distributed across India at least 5 times in a month without any cost.
This distribution is mainly done to create maximum awareness about the
products/services.
 Magazines:
There is no specific magazine in which advertisement is given. Magazines are
selected based on their sales and reputation like outlook, money etc.
 Television:
Television is another mode of advertisement used by IDBI federal Life Insurance Co.
Ltd. Like print media television is also very popular mode of advertisement which
easily grasps attention of masses. Mainly the advertisements of IDBI federal are
shown on Cricket channels, star channels because of their popularity.
Main promotion is done in the month of February and March to:
o Highlight tax benefits
o To combat competition as all the competitor insurance companies
would advertise during this time at great frequency.
Also the companies will soon start displaying their advertisement on satellite TV like
Sun network etc.
Following are the cost associate with running the TVC:

34. 34
Region/ Channel Cost (in Rs.) Duration/ SLOT
Tamil Nadu 45,000 10 seconds
Local Channels 6000-8000 10 seconds
Cricket channels 60,000 onwards 10 seconds
 Word of Mouth:
A strong network of distributors and parent advisors also helps a lot in promoting
products/ services of IDBI federal by Word of mouth.
 Online:
A viral campaign also runs on the internet by wherein flash videos of working of
product are explained in a very humorous manner. This video is shown on
www.bosskaboss.com
 Hoarding:
As of now, total number of Hoardings which are put up in Hyderabad region counts to
be 17.
Cost (in Rs.) Time Lease
4,00,000 3 months
 Local Events:
Some are also created in and out of the city by IDBI federal to create more awareness
about the IDBI federal and free gifts were given wherein local marketing people
interact with the prospects and try to gauge their financial needs and respectively
pitch the products.
The overall costs associated with such an events totals to Rs. 2, 00,000 pm. Such
events are generally conducted in apartments and schools etc.

35. 35
2.1.1. Business Life Cycle:
Business life cycle is referred as various stages of development of a small business. Every
stage has its own unique characteristics and focus on. There are five different stages of
business Life Cycle:

36. 36
1. Stage 0- The Aspiration Stage:
Stage 0 is referred as the aspiration stage or can also be termed as start-up stage, this
is the starting stage of business where people start their business.
2. Stage 1- The Entry Stage:
Stage 1 is the entry stage where people have decided to start their business and they
work actively building market and offers. IDBI federal was at entry stage on March
2008 when it started its operations.
3. Stage 2- The Growth Stage:
Stage 2 is the growth stage. The entrepreneurs in the growth stage have a business
plan and are growing their revenues by meeting new clients and customers. IDBI
federal being started in March 2008 is in its Growth stage. The company is growing
very rapidly by becoming fastest growing new insurance company to garner Rs. 100
cr. in premium.
4. Stage 3-The Crucible Stage:
Stage 3 is the Crucible stage or the maturity stage. In this stage the entrepreneurs
work at full stream but the demands for their goods and services exceed their ability
to meet it.
5. Stage 4- The Cruise Stage:
Stage 4 is the cruise stage or can also be termed as the decline stage. In this stage the
entrepreneurs have to identify the bottlenecks that arrived at stage 3 and try to remove
them. They have the necessary team that allows them to focus on their core
competencies.

37. 37
2.1.2. Working capital management
As shown in the above diagram there are only two ways in which cash inflow happens
for an insurance company that is one the premium what the companies collect from
the customers and second is the return from the investment what the company has
cash in
Premium
Collected
+
Investment Made
By the Company
Cash Out
Death Claims
+
Maturity of policy
+
Operating
Expenses
Existing
Policies/Financial
Instruments
+
New Financial
Instruments
founded
Policies/Financial
Instruments Sold

38. 38
made, similarly on the cash outflows would be the payouts arising out of death claims
and maturity of the policies along with the operating expenses of the company. Since
the Insurance Industry is a service industry there is nothing like stock or Inventory, all
we have is the existing products of the insurance companies in the market and the new
products what the insurance companies introduce into the market. This is how the
Working Capital cycle of Insurance industry works.
Since IDBI FEDERAL LIFE INSURANCE COMPANY LIMITED is an insurance
company, so managing working capital is not a big affair for the company. The areas
on which an insurance company needs to spend to carry out is daily operations
include: paying the rent of the building which is taken for the office, electricity
expenses, paying the employees and the various workers involved with the company
either directly or indirectly, indirect payment will be like paying to summer trainees,
agents, promoters , etc. Also other working capital expenses include stationery,
printing the policy forms, A4 sheets for getting the requisite documents needed to
carry operations, such as some instructions received from the head office need to be
printed and circulated., tea and coffee expenses for the customers and employees,
making calls to customers although many cold calls do not turn into final customers,
etc. So we see that the company just need to keep sufficient amount of cash, the
estimate of which can be known from the expenses made in the previous years or a
trend which the company generally follows in regard of managing its working capital.
IDBI FEDERAL LIFE INSURANCE COMPANY LIMITED has always understood
the basic instinct of managing its working capital very well as in the competitive and
highly uncertain market, each and every minor operation will affect the profitability
of the company as the competitors’ products donot differ much in pricing and features
and if the company wants to have an edge, then definitely it will need to cut its
expenditure on working capital management as the aggregate sum of money saved in
all the branches of a company, ultimately becomes a huge sum.

39. 39
2.1.3. Key milestones
On November 2006:
 IDBI FEDERAL started a joint venture between IDBI Bank, Federal Bank and Ageas.
 IDBI Bank is India’s premier development and commercial bank Federal Bank is one
of India’s leading private sector banks; Ageas is a multinational insurance giant based
out of Europe.
 In this venture, IDBI Bank owns 48% equity while Federal Bank and Ageas own 26%
equity each.
On December 2007:
 IDBI FEDERAL received license from IRDA.
On March 2008:
 IDBI FEDERAL sold its 1st policy.
On August 2008:
 IDBI FEDERAL collected its fasted100 cores premium.
On February 2009:
 IDBI FEDERAL breaks mould with wealthsurance cum (srilanka) annual report.
On March 2010:
 IDBI FEDERAL assets under management (AUM) which is basically the market
value of assets that an investment company manages on behalf of investors crossed
1000 cores.
On August 2010:
 IDBI Fortis Life becomes IDBI Federal Life.
On November 2012:
 IDBI FEDERAL Achieves ‘Master Brand’ status.
On March 2013:
 IDBI FEDERAL declared its Break-even & maiden profit.

40. 40
2.1.4. Awards
 IDBI Federal Life Insurance was recognized as the ‘Best Insurance Company in the
Private Sector’ at the IPE Banking Financial Services and Insurance Awards 2012-
2013.
 IDBI Federal Life Insurance was recognized as the ‘Master Brand 2012-2013’ by the
CMO Council USA and CMO Asia at the World Brand Congress.
 IDBI Federal Life Insurance was conferred with ‘Golden Award for Corporate
Advertising Campaign’ by PR Council of India (PRCI) at the 7 Global
Communication Conclaves 2013.
 IDBI Federal Life was awarded ‘Golden Award for Corporate Website’ by PR
Council of India (PRCI) at the 7 Global Communication Conclaves 2013.
 IDBI Federal Life Insurance was conferred with the ‘Organization of the year’ award
by the PR Council of India (PRCI) for the year 2012-2013.
2.1.5. Competitor Analysis:
Competitor analysis in marketing and strategic management is a judgment of
strength and weakness of the competitors. Companies generally do this analysis to
understand the strength and weakness of their current and potential competitors.
This analysis provides both offensive and defensive strategy to identify both
opportunity and threats. IDBI federal Life Insurance is one of emerging insurance
company. It is one of the few companies that have shown rapid growth since the
day of its inception. In order to gain higher market Share Company has to
understand its competitors that is their strength and weakness .Competitor analysis
will help IDBI to understand strength and weakness of their competitors. This
analysis will help IDBI to come up with offensive or defensive strategy to identify
both opportunity and threats.
Some of the main competitors of IDBI federal are:
1. Life Insurance Corporation of India (LIC)
2. ICICI prudential
3. SBI Life
4. HDFC standard Life
5. Bajaj Alliance

41. 41
1. Life Insurance Corporation of India ( LIC):
LIC was founded in 1956 with the merger of 243 insurance company and provident
societies. It is the largest insurance and investment company in India. It is a state
owned with 100% stake owned by government of India.
 Products offered by LIC are:
 Jeevan Arogya plan: Jeevan arogya plan is a unique non-linked health
insurance plan which provides health insurance against certain specified health
risk. LIC’s jeevan arogya plan is a direct competition to IDBI’s Healthsurance
plan.
 Bima Account plan: Under this plan the premiums paid by the customer after
deduction of all charges, will be credited to the policyholders account
maintained separately for each policyholder. If all premiums are paid the
amount held in policyholder’s account will earn an annual interest rate of 6%
per annum.
 Endowment plan: It’s a unit linked endowment plan which offers investment
cum insurance cover during the term of the policy.
 Children Plans
 Plan for Handicapped Dependents
 Endowment assurance plans
 Plans for high worth Individual
 Money Back Plans
 Special Money Back Plan for Women
 Whole Life Plans
 Term assurance plans
 Joint Life Plan

42. 42
 SWOT Analysis of LIC:
SWOT Analysis is a strategic planning method used to analyze strength, weakness,
opportunity and threat involved in a business or a project.
 Strength:
o LIC is India’s largest state-owned company and also India’s largest
investors
o LIC has over 2000 branches all across India and more than 1, 00,000
agents.
o LIC is the largest investor in India with largest fund base.
o LIC has over 1, 15,000 employees across India.
o LIC is the 8th most trusted brand of India.
o LIC has subsidiaries like LIC card services Ltd, LIC Housing finance Ltd,
LIC Nomura mutual fund.
 Weakness:
o It lacks imagination since it has an image of a government company
o Red tape, bureaucracy causes the problem since it is a government
company.
o During the economic crises managing a he workforce is a lot of burden.
2. ICICI Prudential:
ICICI prudential Life Insurance Company is the joint venture of ICICI bank and
Prudential Plc, one of the leading financial service groups in UK.
 Products offered by ICICI prudential:
 ICICI pru care: It is an insurance plan that protects family’s future and
ensures they lead their life comfortably.
 Save n Protect
 Cash back
 Home Assure
 Life Guard
 ICICI pru iprotect
 Smartkid Regular premium
 ICICI pru Elite Life

43. 43
 Group term insurance plan
 Group Gratuity plan
 Annuity solution
 ICICI pru life link pension SP
 Forever Life
 Immediate annuity
 ICICI pru heath saver
 ICICI pru Hospital care
 ICICI pru crisis cover
 ICICI pru Mediassure
 SWOT Analysis of ICICI prudential:
STRENGTHS:
1.Strong tie up
2.Brand Equity
3.Strong network
4.Huge customer database
5.Strong financial base
Weaknesses:
1.Low customer awareness
2.Less promotion
3.Untouched Rural Population
OPPORTUNITIES:
1.Untouched Rural market
2.Large Uninsured population
3.Network Building
Threats:
1.Competitors
2.Customer beliefs in LIC
3.Fast turnover of employees

44. 44
2.2. IDBI FEDERAL`S VENTURE CAPITAL AND IT`S INVESTEE COMPANIES
2.2.1. Introduction
2.2.2. Fund Objective
IDBI FEDERAL aims to selectively invest in companies operating in high growth sectors and
create value for all stakeholders. The companies that are capital efficient, can scale rapidly
and are early movers generate interest from IDBI FEDERAL VENTURE CAPITAL. Being
actively involved with all of the company`s investments, they seek to develop
close relationships with founders and management teams. The company is collaborative and
patient in approach and believe in supporting the entrepreneur at all levels.
The company’s endeavour is to provide the necessary management inputs towards
developing the company’s future direction and business strategies without either seeking
management control or interfering in day to day activities. The Fund further provides to its
investee companies a strategic support through its network, active partnership, etc. as a part
of value creation and maximization of shareholders wealth.
The Fund's investment in companies is through the route of equity, quasi-equity
and debt instruments. The Fund seeks to achieve its return through dividends and capital
gains at the time of disinvestment through an Initial Public Offering, a sale of its holding to
Strategic Investors, Buy-back, etc.
2.2.3. Investment Policy
 Eligible Projects:
The Fund's primary objectives are to make available growth capital to new companies,
which have shown performance, and to cater to growth and expansion of unlisted
companies in the Information Technology, Bio-Technologyand Retail, Auto, Agro-
Tech, Health Care, Tourism, Entertainment, Logistics, Packaging and other
Technology driven projects. The Fund also invests in start-ups, turn-around and buy-
out situations on case to case basis. We occasionally might make follow-on
investments over the life of a company, depending on its needs.

45. 45
 Investment Criteria:
The fund is looking for projects offering potential for an attractive growth and
earnings. Some of the parameters critical for projects selection are:
o Management: a strong management team with a demonstrated track record
and integrity.
o Market: High growth potential in the market, which the investee company
seeks to serve the market will need to be quantifiably large with growth
opportunities especially in emerging areas that address global markets.
o Competitiveness: The investee company should possess the ability to develop
and retain a long term competitive advantage through the use of technology.
o Return on Investment: There should be a logical and visible exit mechanism
available for investor that provides attractive capital appreciation with above-
average profitability.
 Investment Instrument:
The Fund invest/Invested is in the form of equity, Optionally Convertible
Debentures (OCD)/ Optionally Convertible Cumulative Preferential Shares (OCCPS),
etc. The exact instrument varies from case to case depending on the risk perception,
the requirements of the investee company and the applicable SEBI regulations.
 Investment Range:
o Instrument Range
The Fund undertakes individual investment in the preferred range of Rs. 50
million to 150 million. Normally investment in equity is restricted to 40% of
the total paid up capital of the company. Larger investment may also be
considered jointly with national funds.
o Investment Horizon
The Funds investment horizon varies from 3 to 7 years with the option for a
quicker exit incase the situation so warrants.
 Disinvestment
The preferred exit route is through a listing on the stock exchange within 3 to 5 years,
or as may be stipulated, from the date of investment. In case a public listing is not
feasible due to the reasons of size of the investment or other circumstances, the

46. 46
alternative method of exit consists of a sale to strategic investor, buy-outs and
buyback of share by the company and promoters on the basis of a pre-determined
formula and independent valuation of shares as on the date of buyback.
2.2.4. IDBI FEDERAL Venture Capital Relationship
 Besides financial assistance IDBI FEDERAL VENTURE CAPITAL’s role is to
o Help the entrepreneur to manage his business more effectively and achieve
rapid growth in internationally competitive environment
o Use SIDBI’s close functional linkages with domestic and international venture
capital funds/ companies, Govt. agencies, financial institutions, commercial
banks, foreign institutional investors, merchant bankers, consultancy agencies,
management institutes, R&D organizations, software technology parks etc. to
provide strategic support to assisted companies of this fund
o Provide Indian Small enterprises not only with fund support but also
information and market access
o Technology networking and hand holding required to add value to assisted
units so as to enable them to become global companies and aim at future
listing on the NASDAQ and other foreign stock exchanges

47. 47
 General Investment Criteria:
Key requirements for the project selection are:
o A strong management team which has commitment, demonstrated track record
and a high degree of integrity
o Long term competitive advantage
o Potential for above average profitability leading to attractive returns
on investments
o Subscription to equity/ equity type instruments
o Unlisted companies preferably in small scale
o Exit should be established
 Business Plan:
A good business plan will expedite company’s decision making. A Business Plan
which shall include:
o Executive summary giving brief details of the project and levels of financing
required
o Resume and references on the promoters and management team
o Details of subsidiary/ associate companies of the chief promoters. Details of
credit facilities, if any, enjoyed by the associate companies from any bank/ FI
o Detailed shareholding pattern of the company (existing and proposed) with
brief write up on the extent of interest of each of the major shareholder/
promoter in the company
o Human resource and requirement in future. Details of ESOP scheme, if any
o Details of performance of the company during the preceding 3 years (where
applicable) covering financial performance, nature/ type of operation, projects
completed, products developed, competitive strengths etc.
o Details of technical tie-up/ collaborations
o Technological strengths vis-a-vis competitors.
o Quality systems adopted and milestones achieved in obtaining Quality
Certifications
o Marketing Strategy
o Key clients, major orders executed for them

48. 48
o Details of ratings (if any) of major foreign clients. Other relevant information
on the clients like ‘DUN’ number etc. may be given.
o Details of overseas site offices, representative offices, subsidiary/ associate
companies set up abroad for marketing/ offshore development
o Cost of venture and proposed means of finance
o Present status of the proposed project
o Financial projections with underlying assumption
o Implementation schedule
o Risk Analysis
o Clearly laid out exit plan
o Contact persons at your company, with e-mail address and website, if any.
 Investee`s Approach:
The details of the active funds being managed by IDBI FEDERAL VENTURE
CAPITAL are given in the website www.idbifederal.com. The investee company’s
must submit a business plan to IDBI FEDERAL VENTURE CAPITAL in the given
and prescribed format of IDBI FEDERAL VENTURE CAPITAL. Based on a
preliminary assessment of the business plan, course of further interaction with IDBI
FEDERAL VENTURE CAPITAL can be decided.
This business plan could be sent to IDBI FEDERAL VENTURE CAPITAL through an
email to info@idbifederal.com., forwarding a copy of the executive summary of the
business plan including the profile of management team. The investee company can
simultaneously forward a hard copy of business plan along with supporting documents to
IDBI FEDERAL VENTURE CAPITAL so as to make a preliminary assessment of the
proposal.
 Association :
IDBI FEDERAL VENTURE CAPITAL invests in companies that are engaged in
wide range of growth sectors such as life sciences, retailing, light engineering, food
processing, information technology, infrastructure related services, healthcare,
logistics and distribution etc. in the MSME sector. The investee Company should
have high growth potential so that it can scale up sufficiently within 3 - 5 years

49. 49
of investment so as to provide a profitable exit to investors by way an IPO, Strategic
Sale, Mergers & Acquisition, etc.
 Investment stage:
IDBI FEDERAL VENTURE CAPITAL is focusing on all stages of investment. The main
criteria is that the investee Company at the time of investment should be unlisted.
 Geographic Focus:
IDBI FEDERAL VENTURE CAPITAL proposes to make investment on an all India
basis. Both the funds being managed by IDBI FEDERAL VENTURE CAPITAL are
domestic fund and the investee Company must be incorporated in India. Part of the
investment can be utilized for investment in opening overseas branch offices/
subsidiaries provided the investment is beneficial to the parent Company in India.
 Key investment criteria for IDBI FEDERAL VENTURE CAPITAL:
o A strong committed management team, established performance record and a
high degree on integrity
o Sustainable competitive advantage
o Scalability of operations
o Potential for above average profitability leading to attractive returns on
investment
o Subscription to equity/ equity type instruments
o Unlisted companies preferably in small scale/ small scale graduating to
medium scale
o Availability of exit route for Venture Capital investment
 Project evaluation process:
The Process of evaluation of the proposal involves scrutiny of a business plan,
detailed due diligence including visit to existing facilities/ operation site, reference check,
feedback form clients etc. All proposals are reviewed by an Investment Committee (IC)
which also involves a presentation by the promoters.

50. 50
 Processing time:
On an average it should be possible to complete the full cycle of processing of the
proposal including due diligence, sanction, documentation etc. between 8 - 12 weeks.
However it is difficult to specify time frames as is depends on a numbers of factors
including the availability of information with the promoters and the speed with which
additional information is furnished.
 Instruments of finance for Venture Capital investment:
Investment is made by way of equity and equity type instruments. Financial structuring is
done on a case to case basis keeping in view factors like risk perception, growth potential,
equity base and market condition. IDBI FEDERAL VENTURE CAPITAL also co-
invests with other VC funds. IDBI FEDERAL VENTURE CAPITAL does not take a
majority stake in a Company.
 IDBI FEDERAL VENTURE CAPITAL's role in the investee company
IDBI FEDERAL VENTURE CAPITAL acts as a partner in its investee companies and
insists on a Board seat. The Board seat is primarily to ensure transparency of operation
and facilitating monitoring.
 IDBI FEDERAL VENTURE CAPITAL's role after an investment is made
IDBI FEDERAL VENTURE CAPITAL provides "smart money" to entrepreneurs. This
means apart from finance, IDBI FEDERAL VENTURE CAPITAL provides networking
and management support as well with the objective to make the company grow rapidly.
IDBI FEDERAL VENTURE CAPITAL also assists investee companies to attract
investment from other venture capitalists in subsequent rounds of financing.

51. 51
2.2.5. IDBI FEDERAL VENTURE CAPITAL investments
 Real Estate
Real Estate dominates key sectors of the economy. Even a small street level project is
worth large amount. Hence, having the right information and financing mechanism is
crucial for making a good decision. Staying ahead of the market is also a key priority.
IDBI FEDERAL VENTURE CAPITAL is a partner in real estate financing. The
company`s team get the right product in equity or debt format to finance real estate
project and also the experienced team members have local insights and extensive real
estate knowledge.
The following investment options for any project:
 High net worth individual(HNI) Investment
 Private Equity
 NBFC Financing
 Term Loan
 Contractor line of Credit
Team at IDBI FEDERAL capital financing is focused on long term relationship and has
connections with the best in real estate finance industry. IDBI FEDERAL capital financing
clients are institutional and private investors, private and public listed real estate funds and
private and public companies. The company`s primary products and services consist of
investment and syndicated loans, mezzanine finance, sales and leaseback transactions and
securitization.
Current Investmentopportunities:
o 1-BHK Goregaon East starting Rs. 1 Cr
o 4-BHK Bandra West Starting Rs. 10 Cr
o 3-BHK Prabhadevi starting Rs. 7 Cr.
o 2 BHK flats in vile parle east starting Rs. 1.25 Cr
o 3 BHK Flat in Prabhadevi
o 4 BHK flat in Malabar Hill
o 4 BHK flat in Pedder Road

52. 52
 Infrastructure
IDBI Federal Fund is the most important for infrastructural investments. IDBI Federal
financial resources are divided according to a minimum and maximum amount for each state
in India as per the year 2000.
State Range
Delhi 8.0% - 12.0%
Hyderabad 5.5% - 8.0%
Gurgaon 2.0% - 3.5%
Mumbai 7.0% - 10.0%
Noida 3.5% - 5.5%
Gujarat 4.0% - 6.0%
Vishakhapatnam 30.0% - 37.0%
Chennai 20.0% - 26.0%
Goa 3.5% - 5.5%
Ahmedabad 1.0% - 2.0%
Tab.Breakdown of IDBI Federal budget by states.
The total budget allocate by IDBI for the years 2000-2006 are as follows
Company
Name
2000 2001 2001 2003 2004 2005 2006 Total
(in
millions)
IDBI 1040 1040 1040 1040 1040 1040 1040 7280
Tab. Budget allocation
For the period 2000-2002 more than 249 projects have been funded for a total co-funding of
5648 millions and a total eligible cost of investments of more than 8700 millions. These
amount represents more than 73% of the total IDBI FEDERAL budget announced for years
2000-2006.

53. 53
Country No. of
projects
INDIA
funding
€ million
Projects financed in 2001
Delhi 9 349.6 Construction of regional wastewater treatment plants and the
electrification of railway networks.
Hyderab
ad
14 171.4 Construction of roads, regional drinking and wastewater
treatment plants and the decentralisation of the management
system.
Gurgaon 14 82.4 Construction of roads, sewerage system upgrading, regional
waste treatment plants and technical assistance
Mumbai 23 337.1 Regional waste management, the rehabilitation of railway lines,
a regional sewerage and sewage treatment programme, the
preparation for implementing INDIA urban wastewater
directives and technical assistance.
Noida 17 219.7 Waste management, road construction, modernisation of railway
systems and technical assistance
Gujarat 16 143.6 Modernisation of telecommunications, the development of
regional waste management systems and technical assistance.
Vishakha
patnam
35 1,402 Construction of sewage treatment plants, preparation and
upgrading of railways, motorway construction, urban and
municipal water and wastewater projects and technical
assistance.
Chennai 22 1,014.2 Construction and rehabilitation of regional wastewater treatment
plants, road and motorway construction and technical assistance.
Goa 10 172.5 Upgrading and extension of regional wastewater treatment,
motorway construction, modernisation of railway networks, and
technical assistance.
Ahmeda
bad
9 45 Construction of regional water supply and wastewater treatment
plants and the modernisation of a railway line
Tab. Funding decided in 2000 and 2001

54. 54
 Samridhi Fund
The Department for International Development (DFID), United Kingdom, in association with
IDBI Federal, has envisaged the creation of the Samridhi Fund to provide capital to social
enterprises which can deliver both financial and social returns, in Bihar, Uttar Pradesh,
Madhya Pradesh, Orissa, Chhattisgarh, Jharkhand, Rajasthan and West Bengal.
o Under this samridhi fund a corpus fund of 350 cores(approx.) has been pooled.
o The primary focus of the Fund will be to provide financial assistance by way of equity
or equity linked instruments (like convertible debentures, preference shares etc.) to
companies with developmental impact in 8 States of India viz., Bihar, Uttar Pradesh,
Madhya Pradesh, Odisha, Chhattisgarh, Jharkhand, Rajasthan and West Bengal.
Further, these companies shall:
 Be economically viable
 Provide access to markets for the poor
 Be socially relevant and impact the poor as customers, producers or employees
 Increase the flow of capital to the above mentioned states
 Focus on Environment, Social and Governance matters.
o The target sectors of this samridhi fund are
 Investment in companies which are MSMEs.
 Target sectors shall include, but not be limited to:
 Water & Sanitation
 Affordable Healthcare
 Agriculture &Allied services
 Clean Energy
 Financial Inclusion
 Education
 Skill Building, etc.

o The size of each investment must be within the range of 5-25 cores(approx)
o The term of this investment fund would be 7years.
o The investee companies under this samridhi fund

55. 55
 Ashapura Intimates Fashion Limited, MumbaiIntimates Fashion
Ashapura intimates Fashion Limited is engaged in manufacturing,
designing, branding, marketing and retailing loungewear & lingerie
under Valentine Nightline (N-Line) N & D (Night & Day), Valentine
Sport, Valentine Secret Skin & Valentine Pink brands.
 Autocal Solutions Private Limited, Mumbai
Autocal Solutions Private Limited is engaged in the business of calibration
(ofinstruments and equipment) and validation (of facilities such as cold rooms/
manufacturing facilities).
 Avni Energy Solutions Private Limited, Bangalore
Avni Energy Solutions Private Limited is engaged in the business of design
and assembly of LED lighting solutions.
 GEO Biotechnologies (India) Private Limited, Bangalore

A Bangalore based agricultural biotechnology company engaged in research,
production and marketing of hybrid seeds such as corn, sunflower, paddy, BT
cotton, bajra, jowar and few other vegetable seeds.
 MITCON Consultancy & Engineering Services Limited, Pune
MITCON Consultancy &Engineering Services Ltd. is an ISO 9001:2008
certified company, having an experience of over three decades in consultancy
and engineering services. Its consultancy services cover diverse areas such
as power generation, carbon credit, energy conservation, industrial
infrastructure, environment engineering, food processing, sugar, textiles,
chemicals, and market research.
 Opal Luxury Time Products Private Limited, Pune

56. 56
Opal Luxury Time Products Private Limited is engaged in the business of
designing, manufacturing/ assembling and marketing of high-end designer
wall clocks and table clocks under two well-known brands 'Opal' & 'Caliber'.
 Plazma Technologies Private Limited (Plazma), Pune
Plazma Technologies Private Limited (Plazma) is Pune based company
engaged in manufacturing, designing, engineering, fabricating, installing and
commissioning of equipment’s and machines used for cutting jobs of various
sizes and capacity using plasma metal cutting technology.
 Prasad NC Machine Systems Private Limited, Chennai
A Chennai based company engaged in synergistic integration of mechanical
engineering with electronics and intelligent computer control in the design,
development and manufacture of large size CNC machines like CNC Vertical
Turning Lathes, CNC Gantry Type Machining Centre and CNC Special
Purpose Machines.
 Synergistic Financial Networks Private Limited (Mosambee),
Mumbai
Synergistic Financial Networks Private Limited offers POS solutions under
the brand "Mosambee". It enables mobile payments by plugging in a small
Mosambee card reading device into the audio jack of merchant's mobile
handset.
 Thejo Engineering Limited (Thejo), Chennai
Thejo Engineering Limited (Thejo) is Chennai based manufacturer and
engineering solutions provider engaged in supply, installation, operation,
maintenance and repair of material handling, mineral processing and
corrosion protection systems.

57. 57
Thejo is the first company to list on national Stock Exchange’s SME
Platform "EMERGE".

58. 58
CHAPTER 3
An attempt is made here to present the analysis on IDBI FEDERAL LIFE INSURANCE
CORPORATION based on secondary data. This also includes analysis on insurance industry
at macro and micro level.
3.1. ECONOMIC AND INDUSTRY ANALYSIS
3.1.1. Introduction to Insurance Industry:
Insurance is a form of risk management that shields insured from the risk of any uncertain of
unfortunate events. In simple terms insurance can be defined as transfer of risk from one
entity to another in exchange of the payment. The transaction consists of insured assuming a
guaranteed small loss in the form of payment to the insurer in exchange of the promise to
compensate insured in case of any kind of financial loss to insured. In a layman’s term,
insurance is a guard against monetary loss arising on the happening of an unforeseen event.
In developing countries like India insurance sector still holds lot of potential which need to be
tapped.
3.1.2. Types of Insurance:
Insurance can be classified into three categories:
 Life Insurance:
Life Insurance is a concord between the insurer and the policyholder, where insurer
promises to pay beneficiary designated sum of money upon death of the insured person.
Life Insurance covers number of contingencies like Death, Disability and Disease.
 General Insurance:
General Insurance is a non-life insurance policy including automobile and homeowner
policy. General insurance specifically consist of non- life insurance. It includes
property insurance, liability insurance and other forms of insurance. Fire and Marine
insurance are called property insurance.

59. 59
 Social Insurance:
Social insurance is another type of insurance for weaker section of the society. It
provides protection to weaker section of the society who are unable to pay premium.
Industrial Insurance, sickness insurance, pension plan, disability benefits,
unemployment benefits are some the type of social insurance.
3.1.3. Insurance Sector in India:
Indian insurance sector has gone through different phases of competition, from being an open
competitive market to a nationalized market and then again getting back to liberalized
market. Indian insurance sector has witnessed complete dynamism in past few centuries.
Insurance sector in India has a deep- rooted history. Its mention has been found in writings of
Manu (Manusmriti), Yagnavalkya (dharmashastra) and Kautilya (Arthshastra). Ancient
Indian history has preserved traces of insurance in the form of marine trade loans and carrier
contracts.
Insurance industry in India is governed by Insurance Act of 1938, Life Insurance Corporation
Act of 1956 and General Insurance business Act, 1972, Insurance Regulatory and
Development Authority (IRDA) Act of 1999 and other related acts. Insurance industry in
India is considered as an industry with big potential market. One of the reason that India is
seen as huge potential market is because of its huge population and untapped market area of
this population. In terms of population India has an immense potential expanding their life
insurance cover. Majority of people in India are unaware of the functions and benefits of
Insurance because of which insurance sector has a bright future in India. But it is relevant to
consider factors like different varieties of social structure, urban and rural composition other
than very important factors like age, sex, income level, literacy level. Making assessment of
Life Insurance potential of India is very difficult task due to wide variance in every aspect of
Indian circumstances and without a refined analysis any estimate would be meaningless.

60. 60
.
3.1.4. Indian Insurance Industry at present:
Life Insurance Corporation (LIC) had the monopoly over the market till the late 90’s when
the insurance sector in India was opened for private players. Before that there were only two
state insurer, one was LIC (Life Insurance Corporation of India) and GIC (General Insurance
corporation of India).
Indian insurance sector at present has undergone many structural changes in 2000. The
Government of India has liberalized the insurance sector in 2000 with IRDA (Insurance
Regulatory and development authority) lifting all entry restriction of foreign players with a
specific limit on direct foreign ownership. Under the current guideline 26% of equity cap is
there for foreign players in an insurance company and proposal is being given to increase this
limit to 49%. Post liberalization insurance industry in India have come a long way and today
it stands as one of the most competitive, challenging and exploring industry in India.
Increased use of new distribution channels are in limelight today due to entry of private
players. In the long run the use of these distribution channels and modern IT tools has
increased scope of the insurance industry. Also the changing economics patterns, changing
political scenario, modern IT tools will eventually help in reshaping future of Indian financial
market and Life Insurance business in the country.

61. 61
73%
27%
Shareof Public and PrivateLifeInsuranceCompanies in Indian
InsuranceSector
Public Sector
Private Sector
2.6
2.5
2.8
3.9
4.4
4.2
4.7
4
3.5
3.2
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
FY-04 FY-05 FY-06 FY-07 FY-08 FY-09 FY-10 FY-11 FY-12 FY-13
Life InsuranvePenetration In India(%)

62. 62
3.1.5. Major Players:
Various players in Indian Life insurance are given below:
1. Life Insurance Corporation of India
2. IDBI federal Life Insurance Co. Ltd
3. Bajaj Allianz Life Insurance Co. Ltd
4. Birla Sun Life Insurance Co. Ltd
5. HDFC Standard Life Insurance Co. Ltd
6. ICICI Prudential Life Insurance Co. Ltd
7. ING Vysya Life Insurance Co. Ltd
8. Max New York Life Insurance Co. Ltd
9. Met Life India Insurance Co. Ltd
10. Kotak Mahindra old Mutual Life Insurance Ltd
11. SBI Life Insurance Co. Ltd
12. Tata AIG Life Insurance Co. Ltd
13. Reliance Life Insurance Co. Ltd
14. Aviva Life Insurance Co. India Pvt. Ltd
15. Sahara India Life Insurance Co. Ltd
16. Shriram Life Insurance Co. Ltd
17. Bharti AXA Life Insurance Co. Ltd
18. Future General Life Insurance Co. Ltd
19. Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd
20. AEGON Religare Life Insurance Co. Ltd
21. DLF Pramerica Life Insurance Co. Ltd
22. Star Union Dai-ichi Life Insurance Co. Ltd

63. 63

64. 64
3.1.6. Regulatory Issues:
Insurance Regulatory and Development Authority (IRDA) is a national agency of
government of India. It was formed by an act of Indian Parliament known as IRDA Act
1999 which was amended in 2002 to incorporate some upcoming requirement. It is
responsible for protecting the interest of policy holders, to regulate and promote orderly
growth of Insurance Industry in India. To achieve this objective IRDA has taken following
steps:
 IRDA has notified protection of policyholders Interest Regulation 2001 to provide
for: policy proposal document is in easily understandable language; claims procedure
in both life and non-life; setting up grievance redress machinery; speedy settlement of
claims and policy holders servicing. The regulation also provides for payment of
interest by insurer for delay in settlement of claims.
 Solvency margins are to be maintained by the insurer so that they can be in a position
to meet their obligation towards the policyholder with respect to payment of claims.
 The Insurance Company has to clearly disclose the benefits, terms and condition
under the policy.
 The advertisement issued by the insurer should not mislead the insuring public.
 Proper grievance redress machinery should be set up in the head office and all the
other offices by the insurer.
 If any complaints are received by the policyholder with respect to the services
provided by the insurer under the insurance contact, then the authority takes up with
the insurer.
 Insurer has to maintain separate account related to the fund of Policyholder. The funds
of the policyholder should be retained within the country.
 According to the new regime, Insurance companies will have to exposure to rural and
social sector.

65. 65
3.1.7. Critical Success factors:
Post Liberalization Insurance industry in India has become very competitive. With private
players entering into the India market making the market lot more competitive. Insurance
industry in India has become highly competitive with different companies and individual
agents competing against each other to gain higher market share. In order to gain higher
market share companies have to differentiate themselves from others. Companies can
differentiate themselves in the market by using a number of critical success factors:
 Product Quality:
One the most important factor that differentiates companies is by the quality of
product it offers. Quality of product instills a confidence in the customer that the
product offered by the company is better. Better the quality of product, more
successful is the company.
 Developing relationships with the customer:
Insurance Industry is a highly competitive industry. In order to gain the market share
first priority is to be given to the customer. Range of product and services should be
designed to give the customer what he desires.
 Market Segmentation:
Greater market segmentation should be done in which target audience should be
divided into homogenous groups and products and services should be targeted
towards such market. This would tie company to their client by customized
combination of coverage, easy payment plan, risk management advice and quick
claim handling.
 Designing new strategies:
Insurance Industry cannot be satisfied with consolidation of their existing market, but
have to achieve future growth and penetration. Companies must focus on new
distribution channels, strengthening their existing point of services, direct contact with
their ultimate customer, refresh their marketing setup, new comers should focus on
tapping the market which is left unexploited by public sector companies.

66. 66
 Shift towards Rural market:
Rural market is India is still uncovered by this sector. Insurance penetration can be
achieved by tapping the untapped rural market of India.
 Motivating sales force:
Sales force is one the major strength that the company has that could differentiate
them from their competitors. A good sales force can do wonders to the future of the
company, because of which a proper motivation of sales force is very important for
the company. Life Insurance Company should constantly involve in motivating their
sales force so that they can meet their target on time.
 Use of technology:
Technology plays a very important role in the success of the company. Internet based
Life insurance will help companies to reduce time and transaction cost and also
improves quality of services to its customer.
3.1.8. Domestic Economic Conditions:
Domestic economic conditions play a major role in growth or downfall of an Insurance
company, No matter how financially stable an insurer is; none is immune to the slow
economic growth. In an Indian economy double digit inflation is one the uncomfortable
factor and RBI which is the central bank of India has a huge task of controlling the inflation
without hampering the economic growth. Tradeoff between Interest rates and Inflation has
been the core the business of the RBI and the past one year has been very difficult for the
RBI. In an attempt to manage inflation, RBI has been constantly raising repo rate and
reverse-repo rates every quarter but it has not succeeded in moderating inflation. This simply
implies that inflation is more of a supply side issue than a monetary implication. The
implications of this relatively high interest rates and high inflation regime are unlikely to be
positive for insurance industry. It would be difficult for an Insurance industry to manage
return expectations as they are likely to be high. While competing with a fixed income
product higher assured returns are required for high.

67. 67
Interest rates in order to increase penetration. There may be some reductions in actual
growth rates, but Indian’s long term fundamentals remain intact as life Insurance being an
industry with long time horizon, it would be able to tide over economic cycle.
Inflation on the other hand means lower disposal incomes in the hand of the consumer
leading to lower household savings which currently stands at 34.7%, though significantly
lower than china which is 50%.
3.1.9. Global Economic Environment:
According to the Swiss Re’s newly appointed Economist, Kurl Karl low interest rates
and euro debt crisis will prove to be a problem for insurance industry. According to
Kurt karl momentum of growth has been slowed down due to this two factors, but the
only bright spot according to him is the ongoing growth in the emerging market.
However Kurl is lot more optimistic looking forward to 2013 forecasting a pick-up in
investment yield and premium in a modest improvement in economic conditions.
 Political Development: Political developments are the more serious threat in
Europe and US. In Europe this can lead to serious sovereign defaults and also exit
from the euro monetary union.
 Emerging markets has been negatively impacted by faltering growth in the
developed economy. Also tighter monetary policies on the part of several
emerging economies also slowed down growth.
 Both global in-force and new business life insurance fell in 2011, but it again
recovered. According to the economist in order to return to the pre-crisis
profitability short- term factors like low investment returns, high hedging cost and
more onerous capital requirement. Life Insurance industry’s capitalization has
improved markedly and it is in the better shape to cope up with the future
challenges.
 Because of some Regulatory changes in China and India, coming two years will
see life insurance business in emerging market returning to its long term trend of
around 8%.

68. 68
3.1.10. Demand Drivers:
Insurance industry in India has become lot more competitive in recent years. With private
players entering into the market, competition level has significantly increased with more
private players trying to gain more market share. Some of the demand drivers that give
change to the smaller companies to compete against giants like Life Insurance Corporation
of India Ltd (LIC) which has 70% market share are:
 Rural market: According to the Mckinsey report, titled India Insurance 2012:
Fortune Favors the Bold, finds that the sector is still in a dissident with different
players in different stage of development and market presence. According to the
Mckinsey’s report the rural penetration is likely to increase from about 25% at
present to around 35-40% in 2012. With 65% of the Life insurance coming from
rich urban class, smaller companies can look for rural and low income group as
potential demand driver.
 Product Mix: A better product mix would also drive growth of insurance
companies, with companies making a move to lower the share of single premium
products.
 Life insurance product can also fill the gap that is created by growing demand for
investment products and long-term savings.

69. 69
3.2. ANALYSIS ON IDBI FEDERAL
3.2.1. Cash management at IDBI FEDRAL LIFE INSURANCE CORPORATION
IDBI FEDERAL’s cash balance depends on:
 Available (short-term) investment opportunities
E.g. money market funds, CDs, commercial
 Expected return on investment opportunities
E.g. If expected returns are high, the company is quick to invest excess cash
 Transaction cost of withdrawing cash and making an investment
 Demand for Cash for daily transactions
The company has an optimum utilization of cash operating cycle, it forecasts its cash
requirements before making any important decision for the country. The following two cash
management techniques are used by the company,
 Liquidity Analysis:
The importance of liquidity in a business cannot be over emphasized. If one does the
autopsies of the businesses that failed, he would find that the major reason for the failure was
their inability to remain liquid. Liquidity has an intimate relationship with efficient utilisation
of cash. It helps in the attainment of optimum level of liquidity.
 Profitable Deployment of Surplus Funds:
Due to non-synchronous nature of cash inflows and outflows, surplus cash may arise at
certain points of time. If this cash surplus is deployed judiciously cash management will lead
to profits. However, much depends on the quantum of cash surplus and market conditions for
short-term investments.
The company always focuses on speedy cash collections, for this the company encourages the
customers to pay as quickly as possible and secondly, the payment from customers is
converted into cash without any delay.

70. 70
Three steps are involved in reducing the time interval and receiving prompt payments are:
1. Transit or Mailing time:- This is the time taken by the post office to transfer the cheque
from the customers to the firm. This delay is referred to as Postal Float.
2. Time taken in processing the cheque within the firm before they are deposited in the Bank.
3. Collection time within the bank called Bank Float.
This is important to reduce the time lag between depositing of the cheque by the customer
and realization of money by the firm. The collection of account receivable is accelerated, by
reducing transit, processing and collection time. An important cash management technique
adopted for this is Decentralized Collection.
3.2.2. Financial Analysis
 Financial Performance
The financial performance of the company can be measured through ratio analysis which
helps to analyse the operational efficiency and performance of the company when
compared to the previous year results.
 CURRENT RATIO
The current ratio is a measure of the firm’s short term solvency. It indicates the
availability of current assets in rupees for every one rupee of current liability. A
ratio of greater than one means that the firm has more current asset than claims
against them.
Current Ratio = Current Assets/ Current Liabilities
Year Current Assets(Rs) Current Liabilities(Rs) Current Ratio
2008-2009 1149184 1121223 1.024:1
2009-2010 1930392 1925910 1.00:1
2010-2011 1937966 1888216 1.026:1
2011-2012 2804141 2242705 1.25:1
2012-2013 2636583 1782261 1.47:1

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The company’s liquidity position was 1024:1 in 2008-2009 which indicates the current assets
are ahead of current liabilities. The current ratio in the year2009- 2010 was 1:1 which
indicates the Current assets were equal to current liability which is not a good sign at the time
of contingency. The company had a down fall in the year 2009-2010 and gradually started
improving in the year 2010-2101 with the ratio of 1.026:1. From there the company showed a
significant rise i.e. 1.25:1 in 2011-2012 and 1.47:1 in 2012-2013. This illustrates us that the
current ratio of the company has risen significantly from 2010.
 Net Profit
Net profit helps in measuring the efficiency in manufacturing, administration and
selling of the product.
Year Net Profit
2008-2009 1357640
2009-2010 2407096
2010-2011 3624932
2011-2012 4,323,548
2012-2013 4,231,116
The net profit of the company has been increasing range from 2008-2011. But there has been
a slight decrease in the net profit for the year 2011-2012.
 Earnings per Share
EPS shows the profitability of the company on per share basis. A consistent
improvement in the EPS figure year after year is the indication of continuous
improvement in the earning power of the company
Year EPS
2008-2009 4.99
2009-2010 2.33
2010-2011 2.53
2011-2012 0.90
2012-2013 0.12