The disruption caused by demonetisation has been a positive one for companies offering financial instruments, including mutual funds, banks, and life insurance companies. The shift away from physical assets like cash, real estate, and gold has boosted fortunes of financial service sector companies. “We actually benefitted from the move. With a lot of money coming into the formal channel, the financial services industry witnessed unprecedented growth during that time. Our company saw its individual new business premium grow at about 68% between December 2016 and March 2017 against the same period last financial year,” said Kedar Patki, Chief Financial Officer, IDBI Federal Life.
Extensive research by ICRA supports the view that inflows into life insurance products spiked in the aftermath of the note ban. “There was a substantial jump in the new business premium in November 2016. The increase is predominantly in LIC new business figures, and in particular the individual single premium product, indicating a one-time shift in the financial assets of individuals. The reasons can be attributed to demonetisation and new product releases,” explained Karthik Srinivasan, Group Head, Financial Sector Ratings, ICRA.
Insurers believe that the move towards financial savings instruments was prompted by the need to deploy the funds. “We call it the financialisation of household savings. Once the cash was in their bank accounts, people felt the need to deploy the same to earn returns. Bancassurance channel was the immediate beneficiary, but soon all distribution channels saw a surge,” said Deepak Mittal, CEO, Edelweiss Tokio Life. “There has certainly been a fundamental shift in the mindsets in terms of the desire to earn returns on their assets. We hope this will sustain over the long term.”