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Financial Services

October, 2011

Financial Services in India- Brief Overview

India’s strong financial fundamentals and so-called conventional financial approach helped the country come strong through the world-wide crisis. Financial services, being the back bone of any economy, entail various segments of the industry in its purview. It includes banking, insurance, broking, mutual funds and stock markets to be named as major sub-segments.

How India has fared in each of these sub-segments in the recent past has been discussed hereafter.

Insurance Sector

Indian insurance sector is in top-gear growth wherein the number of life policies in force has increased nearly 12-fold over 2000-2010 and those pertaining to health insurance have increased nearly 25-fold.

Data released by the Insurance Regulatory and Development Authority (IRDA) indicates that 23 life insurers mopped US$ 4.1 billion by writing new policies during April-June 2011. For non-life insurers, the gross premium underwritten during April-August 2011 increased by 24 per cent at Rs 23,712 crore (US$ 4.82 billion) as against Rs 19,114 crore (US$ 3.89 billion) in the year-ago period.

The total industry premium collection (of both life and non-life companies) for August 2011 grew 34 per cent at Rs 5,065 crore (US$ 1.03 billion) compared with Rs 3,752 crore (US$ 762.73 million) in August 2011, the IRDA said.

Banking Services

The Indian Banking sector has been successful in maintaining its growth trajectory due to low defaulter ratio, least complicated financial products, regular intervention by central bank and proactive adjustment of monetary policy.

According to the Reserve Bank of India (RBI)’s ‘Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks’, March 2011, Nationalised Banks, as a group, accounted for 53.0 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 21.6 per cent. The share of New private sector banks, Old private sector banks, Foreign banks and Regional Rural banks in aggregate deposits was 13.4 per cent, 4.6 per cent, 4.4 per cent and 3 per cent respectively.

With respect to gross bank credit also, nationalised banks hold the highest share of 52.8 per cent in the total bank credit, with SBI and its associates at 22.1 per cent and New Private sector banks at 13.2 per cent. Foreign banks, Old private sector banks and Regional Rural banks held relatively lower shares in the total bank credit with 4.9 per cent, 4.6 per cent and 2.4 per cent respectively.

The report also found that scheduled commercial bank offices with deposits of INR 10 crore (US$ 2.03 million) or more accounted for 69.1 per cent of the bank offices, 97.3 per cent in terms of aggregate deposits and 95.6 per cent in total bank credit.

Due to an increase of US$ 763 million in the foreign currency assets to US$ 276.462 billion, India's foreign exchange reserves swelled by US$ 749 million to US$ 312.231 billion in the week ended October 7, 2011, according to RBI’s Weekly Statistical Supplement.

Mutual Funds Industry in India

The Rs 6.42 trillion (US$ 130.496 billion) Indian mutual funds (MF) industry has 44 asset management companies (AMCs), according to Association of Mutual Fund Industry (AMFI). The industry is poised to grow leaps-n-bounds in the coming years due to lower penetration coupled with soaring assets under management (AUM). Data from AMFI has also revealed that between March and August 2011, the mutual fund industry had introduced 377 new schemes and raised Rs 42,015 crore (US$ 8.54 billion) from investors.

For the quarter July-September 2011, average AUM for the industry was worth Rs 712,742 crore (US$ 145 billion).

Private Equity (PE), Mergers & Acquisitions (M&A) in India

Quenching its thirst for foreign assets, India Inc announced 177 M&A deals worth US$ 26.8 billion in the first nine months of 2011. For the quarter July-September 2011, inbound deals worth US$ 7.32 billion were registered as against the deals worth US$ 2.65 billion in the previous quarter.

PE investment in India touched US$ 1.91 billion in July-September 2011 quarter, 18 per cent higher than US$ 1.71 billion struck in the corresponding quarter last year, according to Grant Thornton’s ‘Dealtracker’ report. In terms of number, Q3 2011 witnessed 94 PE deals getting closed as against 58 of them in Q3 2010.