Financial Services in India- Brief Overview
Comprising primary markets, foreign direct investments (FDI), alternate investment options, banking, insurance and asset management segment, the Indian financial services market happens to be one of the oldest and robust across the globe. It is definitely fast growing and best among other emerging economies.
India is highly preferred as an investment destination as the savings rate is high (25 per cent plus) and financial products' penetration is low. Hence, it is a vast market for mutual funds, portfolio and wealth management services, insurance and a plethora of other financial products. Moreover, with a major pie of savings going into physical assets such as gold and real estate, the Indian Government is focussing on big policy initiatives to attract savers towards financial markets through incentives and tax savings. For instance, the recent relaxation in expense ratios for mutual funds and the prospects of higher foreign investment limits in insurance and pension sectors are certain steps that could unlock huge potential in these sectors and can emerge as a lucrative market for foreign investors.
Insurance Sector
- Life insurance industry, comprising over 20 companies, including public sector Life Insurance Corporation (LIC) of India, collected total premium of Rs 84, 501.75 crore (US$ 15.48 billion) during the April-February period of 2012-13 fiscal. Private insurers together raked-in Rs 23, 796.29 crore (US$ 4.36 billion) in these 11 months
- On the other hand, Indian general insurers' premium collection rose 19.36 per cent to Rs 561.1 billion (US$ 10.28 billion) in the April-January 2012-13, Insurance Regulatory and Development Authority (IRDA) said in a statement.
Of the total, premium collection of the four state-run general insurers rose 16.78 per cent to Rs 319.18 billion (US$ 5.85 billion) in the 10 months while that of 23 private sector non-life insurers increased 22.93 per cent to Rs 241.81 billion (US$ 4.43 billion) to Jan 31, 2013.
The four state-run general insurers are New India Assurance Co, National Insurance Co Ltd, Oriental Insurance Co Ltd and United India Insurance Co Ltd
Banking Services
- According to the Reserve Bank of India (RBI)'s 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks', March 2012, Nationalised Banks accounted for 53.0 per cent of the aggregate deposits, while the State Bank of India (SBI) and its Associates accounted for 21.8 per cent. The share of New Private Sector Banks, Old Private Sector Banks, Foreign Banks, and Regional Rural Banks in aggregate deposits was 13.0 per cent, 4.8 per cent, 4.4 per cent and 3.0 per cent, respectively.
Nationalised Banks accounted for the highest share of 52.0 per cent in gross bank credit followed by State Bank of India and its Associates (22.5 per cent) and New Private Sector Banks (13.5 per cent). Foreign Banks, Old Private Sector Banks and Regional Rural Banks had shares of around 4.8 per cent, 4.8 per cent and 2.4 per cent, respectively
- India's foreign exchange (forex) reserves stood at US$ 292.64 billion for the week ended March 29, 2013, according to data released by the central bank. The value of foreign currency assets (FCA) - the biggest component of the forex reserves - stood at US$ 259.72 billion, according to the weekly statistical supplement released by the RBI
Mutual Funds Industry in India
India's asset management companies (AMCs) have witnessed a growth of 19.5 per cent in their average assets under management (AUM) in FY13, wherein they stood at Rs 8.16 lakh crore (US$ 149.53 billion), as on March 31, 2013, according to the latest statistics available from industry body Association of Mutual Funds in India (AMFI)
Private Equity, Mergers & Acquisitions in India
Favourable demographics and growth opportunities keep India an 'attractive' destination for merger and acquisition (M&A) activities across diverse sectors including consumer goods and pharmaceuticals, according to global consultancy Ernst & Young.
The value of M&A deals in India stood at US$ 4.5 billion in the March 2013 quarter, according to Thomson Reuters' India M&A First Quarter 2013 Review. Meanwhile, there were 90 private equity (PE) deals valuing US$ 1.04 billion during January-March 2013 quarter, reveal data from Four-S Services.
Foreign Institutional Investors (FIIs) in India
- FIIs have infused US$ 26 billion in the Indian stock market during the fiscal ended March 31, 2013, according to latest data available with the market regulator Securities and Exchange Board of India (SEBI). The amount is the highest ever since overseas entities started investing in the country
- The number of registered FIIs in India stood at 1, 757 in FY 2012-13 while the number of FII sub-accounts rose to 6, 335, from 6, 322 at the end of 2011-12
Financial Services in India: Recent Developments
- Canada's largest insurer Manulife Financial is contemplating to enter Indian insurance sector. The company is actively doing a market research to find a viable business model to set up its shop here.
Indian insurance sector is home to many other foreign players like Allianz, Prudential, Standard Life, Aviva, Aegon and Nippon Life, which are present in the market through joint ventures (JVs)with their respective Indian partners
- The US$ 4 billion-media conglomerate - Essel Group has forayed into the Indian financial services sector. It has set up two businesses, private equity (PE) and investment banking, under the names of Essel Finance Managers and CAPSTAR, respectively, under the holding company, Essel Financial Services. CAPSTAR, to focus on deals in infrastructure, real estate and financial services, has set up an office each in Mumbai, Noida, Bangalore and Delhi and will open one each in Chennai and Pune. The firm will focus on mergers and acquisitions (M&A), pre-Initial Public Offering (IPO) deals, qualified institutional placements (QIPs) and portfolio management services
Financial Services: Government Initiatives
- In its latest attempt to attract international investors, the Government has simplified the process for FIIs investing in Government and corporate bonds. In the newly devised streamlined procedure, the Government, SEBI and the RBI have decided to remove sub-limits for FIIs within the overall cap for bonds. From now on, there will only be two ceilings - a US$ 25 billion limit for investment in government securities (G-secs) that has been formed by merging G-secs (old) and G-secs (long-term). In addition, there will be a US$ 51 billion sub-limit for corporate bonds that will include the existing one for FIIs (US$ 25 billion), qualified foreign investors (QFIs) (US$ 1 billion) and US$ 25 billion for FIIs in long term infrastructure bonds
- Meanwhile, Mr P Chidambaram, the Finance Minister, has expressed confidence that the Government would soon introduce amendments to the Insurance Bill. The Bill seeks to raise foreign investment cap in the sector from 26 per cent to 49 per cent, which is a much-awaited move in the capital-intensive industry
Road Ahead
Market analysts believe that Indian stocks may touch new highs in 2013, as the market sentiments in the US and Europe are still dismal. Higher-than-expected cuts in policy rates by the RBI and surprises in companies' earnings could potentially drive more FIIs in India.
Mr P Chidambaram has also indicated that there is a rising demand for opening bank branches in Indian towns and villages. More bank branches mean more mobilisations of savings and higher investments in the economy. On an average, about 6, 000 branches were being opened every year in the last 2-3 years and there's a plan to open more of them in 2013-14.
Exchange Rate Used: INR 1 = US$ 0.01832 as on April 8, 2013
References: Media Reports, Press Releases, RBI Documents
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