Financial Services in India

• Rising income is driving the demand for financial services across brackets.
• India benefits from a large cross-utilisation of channels to expand reach of financial services
• Government has approved new banking licenses and has increased the FDI limit in insurance sector.
• Government approved 100 percent FDI for insurance intermediaries.
• FDI in insurance sector could be increased to 74 % from 49 %.
• Credit, insurance and investment penetration is rising in rural areas.
• HNWI particiapation is growing in the wealth management segment.

Introduction

India has a diversified financial sector undergoing rapid expansion, both in terms of the strong growth of existing financial services firms and new entities entering the market. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds, and other smaller financial entities. The banking regulator has allowed new entities such as payment banks to be created recently, thereby adding to the type of entities operating in the sector. However, the financial sector in India is predominantly a banking sector with commercial banks accounting for more than 64 percent of the total assets held by the financial system.

The Government of India has introduced several reforms to liberalize, regulate, and enhance this industry. The Government and Reserve Bank of India (RBI) have taken various measures to facilitate easy access to finance for Micro, Small, and Medium Enterprises (MSMEs). These measures include launching the Credit Guarantee Fund Scheme for MSMEs, issuing guidelines to banks regarding collateral requirements, and setting up a Micro Units Development and Refinance Agency (MUDRA). In 2017, a new portal named 'Udyami Mitra' was launched by the Small Industries Development Bank of India (SIDBI) with an aim to improve credit availability to MSMEs in the country. 

What is the Market Size Financial Services in India?

• The Mutual Fund industry’s AUM grew from Rs 10.96 trillion (US$ 156.82 billion) in October 2014 to Rs 23.93 trillion (US$ 339.55 billion) in April 2020. 
• Inflow in India's mutual fund schemes via the Systematic Investment Plan (SIP) route reached Rs 82,453 crore (US$ 11.70 billion) in 2019. Equity mutual funds registered a net inflow of Rs 8.04 trillion (US$ 114.06 billion) by end of December 2019.
• Another crucial component of India’s financial industry is the insurance industry. The insurance industry has been expanding at a fast pace. The total first-year premium of life insurance companies reached Rs 2.59 lakh crore (US$ 36.73 billion) in FY20.
• Along with the secondary market, the market for Initial Public Offers (IPOs) has also witnessed rapid expansion. In 2019, US$ 2.5 billion was raised across 17 IPOs.
• Furthermore, India’s leading bourse, Bombay Stock Exchange (BSE), will set up a joint venture with Ebix Inc to build a robust insurance distribution network in the country through a new distribution exchange platform.

What are the recent Investment/ Development in Financial Services in India?

• Value of Unified Payments Interface (UPI) transactions was valued at Rs 2.06 lakh crore (US$ 29.22 billion) in March 2020, recording 1.25 billion transactions.
• In March 2020, ClearTax, an online tax filing platform, acquired the GST software and services business of Karvy Data Management Services for an undisclosed amount.
• In April 2020, Axis Bank acquired an additional 29 percent stake in Max Life Insurance.
• Turnover from the derivatives segment reached Rs 3,453.9 lakh crore (US$ 49.41 trillion) in FY20 and stood at US$ 5.09 trillion in FY21 (till May 2020).
• In 2019, FPI investment in Indian equities touched a five-year high of Rs 101,122 crore (US$ 14.47 billion).
• Merger and Acquisition (M&A) worth US$ 25.162 billion was recorded in the first ten months of 2019.
• The total value of private equity (PE)/venture capital (VC) investment grew 44 percent over the past three years in value terms to reach US$ 48 billion in 2019.
• In October 2019, ICICI Lombard General Insurance Company acquired Unbox Technologies for an aggregate cash consideration of Rs 225 crore (US$ 32.19 million).
• There were 9,659 non-banking financial companies (NBFCs) registered with the Reserve Bank as of March 31, 2019.

What are Government Initiatives taken for the development of Financial Services in India?

• In November 2019, Government allocated Rs 10,000 crore to set up AIFs for revival of stalled housing projects.
• Under the Interest Subvention Scheme for MSMEs, Rs 350 crore (US$ 50.07 million) was allocated under Union Budget 2019-20 for 2 per cent interest subvention for all GST registered MSMEs on fresh or incremental loans.
• In December 2018, Securities and Exchange Board of India (SEBI) proposed direct overseas listing of Indian companies and other regulatory changes.
• Bombay Stock Exchange (BSE) introduced weekly futures and options contracts on Sensex 50 index from October 26, 2018.
• In September 2018, SEBI asked for recommendations to strengthen rules which will enhance the overall governance standards for issuers, intermediaries or infrastructure providers in the financial market.
• The Government of India launched India Post Payments Bank (IPPB) to provide every district with one branch, which will help increase rural penetration. As of August 2018, two branches out of 650 branches were already operational.

Road Ahead

• India is expected to be the fourth largest private wealth market globally by 2028.
• India is today one of the most vibrant global economies on the back of robust banking and insurance sectors. The relaxation of foreign investment rules has received a positive response from the insurance sector, with many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the coming quarters, there could be a series of joint venture deals between global insurance giants and local players.
• The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in AUM to Rs 95 lakh crore (US$ 1.47 trillion) and more than three times growth in investor accounts to 130 million by 2025.
• India's mobile wallet industry is estimated to grow at a Compound Annual Growth Rate (CAGR) of 150 percent to reach US$ 4.4 billion by 2022, while mobile wallet transactions will touch Rs 32 trillion (USD $ 492.6 billion) during the same period.

References: Media Reports, Press Releases, IRDAI, General Insurance Council, Reserve Bank of India, Union Budget 2019-20

Disclaimer: This information has been collected through a secondary source and ASC is not responsible for any errors in the same.