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India is expected to be the fourth largest private wealth market globally by 2028.

Financial Services in India

Latest update: March, 2020

Growth

 

Last Updated: March, 2020

Indian Financial Services Industry Report  (Size: 487.57 KB ) (April, 2020)

Introduction

India has a diversified financial sector undergoing rapid expansion, both in terms of 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 payments banks to be created recently thereby adding to the types 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 per cent of the total assets held by the financial system.

The Government of India has introduced several reforms to liberalise, 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 Credit Guarantee Fund Scheme for Micro and Small Enterprises, issuing guideline to banks regarding collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA). With a combined push by both government and private sector, India is undoubtedly one of the world's most vibrant capital markets. In 2017, a new portal named 'Udyami Mitra' has been launched by the Small Industries Development Bank of India (SIDBI) with the aim of improving credit availability to Micro, Small and Medium Enterprises' (MSMEs) in the country. India has scored a perfect 10 in protecting shareholders' rights on the back of reforms implemented by Securities and Exchange Board of India (SEBI).

Market Size

The MF industry’s Assets Under Management (AUM) has grown from Rs 10.96 trillion (US$ 156.82 billion) in October 2014 to Rs 28.18 trillion (US$ 403.32 billion) in January 2020.

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 214,673 crore (US$ 30.72 billion) during FY19.

Along with the secondary market, the market for Initial Public Offers (IPOs) has also witnessed rapid expansion. In FY19, Rs 14,674 crore (US$ 2.10 billion) has been raised from Initial Public Offerings (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.

Investments/Developments

  • In 2019, FPI investments in Indian equities touched a five-year high of Rs 101,122 crore (US$ 14.47 billion).
  • Total Merger and Acquisition (M&A) worth US$ 25.162 billion was recorded in first ten months of 2019.
  • Total value of Private Equity (PE)/Venture Capital (VC) investments grew 44 per cent over past three years in value terms to reach US$ 48 billion in 2019.
  • Mutual Funds asset base stood at Rs 27,22,937 crore (US$ 389.60 billion) at end of February 2020.
  • In November 2019, the government will invest Rs 10,000 crore (US$ 1.43 billion) in the Rs 25,000 crore (US$ 3.58 billion) alternative investment fund (AIF).
  • In October 2019, ICICI Lombard General Insurance Company acquired Unbox Technologies for an aggregate cash consideration of Rs 225 crore (US$ 32.19 million).
  • In 2018, Rs 30,959 crore (US$ 4.43 billion) were raised from initial public offerings (IPOs) whereas in financial year 2019, total funds raised stood at Rs 19,900 crore (US$ 2.85 billion).
  • The equity mutual funds registered a net inflow of Rs 6,489 crore in September 2019.
  • There were 9,659 non-banking financial companies (NBFCs) registered with the Reserve Bank as on March 31, 2019.
  • In FY19, over 3,133 core digital transactions were registered and reached 1,527 crore in FY20 (till September 2019).

 

Government Initiatives

  • 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) has been 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 are already operational.

 

Road Ahead

  • India is expected to be 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 assets under management (AUM) to Rs 95 lakh crore (US$ 1.47 trillion) and a 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 per cent to reach US$ 4.4 billion by 2022 while mobile wallet transactions to touch Rs 32 trillion (USD $ 492.6 billion) by 2022.

 

Note: Conversion rate used as on January 2020, Re 1 = US$ 0.01402

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

Notes - * - Private Equity Deal Tracker report by EY

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

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