MICROCAPITAL BRIEF: Three Social Security Insurance, Pension Schemes Launched in India; Banks May Bear Subsidy Costs

The administration of Indian Prime Minister Narendra Modi reportedly has launched three new social security schemes in an effort to increase access to insurance and pension coverage for a “large” segment of India’s population.  The three schemes, which comprise two insurance plans and a pension plan, will allow Indians to purchase a life insurance policy worth INR 200,000 (USD 3,150) for a fee of INR 330 (USD 5.20) per year, accident insurance worth approximately INR 200,000 (USD 3,150) for a fee of INR 12 (USD 0.20) per year, and a pension plan with “flexible” contribution amounts that will be matched by equal government contributions.

According to a statement attributed to State Bank of India chairperson Arundhati Bhattacharya, “these schemes are good and will help improve insurance awareness and penetration, [however] pricing may need adjustment depending on experience.”

The government will pay banks INR 1 (USD 0.02) for each customer enrolled in the life insurance program and INR 30 (USD 0.47) for each consumer they enroll in the accident insurance program. However, this fee plus program income may not cover the entire cost of the effort. According to a recent article in the Indian online newspaper Firstpost, “most likely this burden will end up on banks, since the government doesn’t seem to offer [sufficient] financial assistance to banks to launch these products.”

By Makai McClintock, Research Associate

Sources and Additional Resources:

Firstpost Article: “Schemes for poor are fine but why is govt not addressing banks’ quality, cost concerns,” http://www.firstpost.com/business/schemes-for-poor-are-fine-but-why-is-govt-not-addressing-banks-quality-cost-concerns-2237540.html

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