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Indian Financial Services Industry Analysis

October, 2014

India’s gross domestic savings (GDS) as a percentage of gross domestic product (GDP) has mostly remained above 30 per cent since 2004 and stood at 32.7 per cent in FY13. It is expected that the domestic savings in India will reach US$ 1,272 billion by 2019 from US$ 683 billion in 2013.

The financial services sector consists of the capital markets, insurance sector and non-banking financial companies (NBFCs). The asset management industry in India is among the fastest growing in the world. Total asset under management (AUM) of the mutual fund industry clocked a compound annual growth rate (CAGR) of 15.9 per cent over FY07-14 to reach US$ 150 billion.

The Government of India has taken various steps to deepen the reforms in the capital markets, including simplification of the IPO process which allows qualified foreign investors (QFIs) to access the Indian bond markets. The composite cap on foreign direct investment (FDI) in the insurance segment has been increased to 49 per cent from 26 per cent.

There is a lot of scope for growth in the financial services sector with the total wealth holdings by High Net Worth Individuals (HNWI) in India, which is estimated at US$ 584.5 billion, projected to reach US$ 3 trillion by 2020. Also, there is potential in the rural credit sector which can be tapped by ensuring timely loans that are critical to the agricultural industry.

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