India has a diversified financial sector, which is undergoing rapid expansion. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The financial sector in India is predominantly a banking sector with commercial banks accounting for more than 60 per cent of the total assets held by the financial system.
India's services sector has always served the country’s economy well, accounting for about 57 per cent of the gross domestic product (GDP). In this regard, the financial services sector has been an important contributor.
The Government of India has introduced reforms to liberalise, regulate and enhance this industry. At present, India is undoubtedly one of the world's most vibrant capital markets. Challenges remain, but the future of the sector looks good. The advent of technology has also aided the growth of the industry. About 75 per cent of the insurance policies sold by 2020 would, in one way or another, be influenced by digital channels during the pre-purchase, purchase or renewal stages, as per a report by Boston Consulting Group (BCG) and Google India.
The size of banking assets in India reached US$ 1.8 trillion in FY13 and is expected to touch US$ 28.5 trillion by FY25. Information technology (IT) services, the largest spending segment of India's insurance industry at Rs 4,000 crore (US$ 649.31 million) in 2014, is projected to continue strong growth at 16 per cent.
The total market size of the insurance sector in India was US$ 66.4 billion in FY13 and is expected to breach the US$ 350–400 billion mark by 2020.
Investment corpus in India's pension sector could cross US$ 1 trillion by 2025, following the passage of the Pension Fund Regulatory and Development Authority (PFRDA) Act 2013, according to a joint report by CII–EY on Pensions Business in India.
India’s foreign exchange (Forex) reserves touched US$ 320.56 billion on July 25, 2014, which was just US$ 23 million less than the all-time high of US$ 320.79 billion achieved on September 2, 2011.
Corporate law firms in India are benefiting from an increase in the value of mergers and acquisitions (M&As) and share acquisitions during the course of the year. The enterprise value of deals on which law firms have advised has shot up to US$ 35.7 billion this year till December, a 22 per cent increase over the US$ 29.3 billion in deals seen in the whole of 2013, according to Thomson Reuters data.
Several measures have been outlined in the Union Budget 2014-15 that aim at reviving and accelerating investment which, inter alia, include fiscal consolidation with emphasis on expenditure reforms and continuation of fiscal reforms with rationalization of tax structure; fillip to industry and infrastructure, fiscal incentives and concrete measures for transport, power, and other urban and rural infrastructure; measures for promotion of Foreign Direct Investment (FDI) in selected sectors, including defence manufacturing and insurance; and, steps to augment low cost long-term foreign borrowings by Indian companies. Fiscal reforms have been bolstered further by the recent deregulation of diesel prices. The launch of ‘Make in India’ global initiative is intended to invite both domestic and foreign investors to invest in India. The aim of the programme is to project India as an investment destination and develop, promote and market India as a leading manufacturing destination and as a hub for design and information. The programme further aims to radically improve the Ease of Doing Business, open FDI regime, improve the quality of infrastructure and make India a globally competitive manufacturing destination.
The Reserve Bank of India (RBI) has eased norms for mortgage guarantee companies (MGC) enabling these firms to use contingency reserves to cover for the losses suffered by the mortgage guarantee holders, without having to take approval of the apex bank. However, such a measure can only be initiated if there is no single option left to recoup the losses.
Financial inclusion is among the topmost priorities of the Indian government. Exclusion of a large number of people from access to financial services affects the growth of the country. Prime Minister Mr Narendra Modi launched the Pradhan Mantri Jan DhanYojana in August 2014. He said that that the objective to cover 75,000,000 households with at least one account under the Yojana will be achieved by January 26, 2015.
Retirement fund manager EPFO will launch its project to provide portable universal PF account numbers (UAN) to its subscribers on October 16, 2014. Also, the government will launch unified web portal LIN (Labour Identification Number) to simplify business regulations and bring in transparency and accountability in labour inspections by agencies and bodies under the control of the labour ministry.
The RBI has simplified the rules for credit to exporters. Now, exporters can get long-term advance credit from banks for up to 10 years to service their contracts. The requirement is that they have a satisfactory record of three years in order to get payments from the banks, which can adjust the payments against future exports.
India is today one of the most vibrant global economies, on the back of robust banking and insurance sectors. The country is projected to become the fifth largest banking sector globally by 2020, as per a joint report by KPMG-CII. The report also expects bank credit to grow at a compound annual growth rate (CAGR) of 17 per cent in the medium term leading to better credit penetration. Life Insurance Council, the industry body of life insurers in the country also projects a CAGR of 12–15 per cent over the next few years for the financial services segment.
Exchange Rate Used: INR 1 = US$ 0.0162 as on January 21, 2015
References:Media Reports, Press Releases, RBI Document, KPMG-CII Report