Financial Services
India scored a perfect 10 in protecting shareholders' rights in 2017.

Financial Services in India

Latest update: September, 2018

  • The asset management industry in India is among the fastest growing in the world. As of November 2017, 42 asset management companies were operating in the country
  • At the end of March 2018, the assets under management of the mutual fund industry stood at Rs 21.36 lakh crore (US$ 331.42 billion).
  • India registered a record inflow of amount of US$ 51.02 billion in mutual funds in FY 2016-17. According to the Association of Mutual Funds in India (AMFI) data, this was the highest investment in mutual fund schemes since the fiscal 1999-2000.
  • The number of mutual fund (MF) portfolios have increased to 66.5 million as of December 2017, backed by rising interest in MFs among investors.
  • Mutual fund (MF) equity portfolios in India reached a 10-year high of 49.3 million, by end of 2017.
Growth

Notes: AUM – Assets Under Management, * - as on the March 31st of every year, * - Exchange rate used is average of 2017-18 i.e. 64.45
Source: AMFI, Aranca Research

  • The number of listed companies on NSE and BSE increased from 6,445 in FY10 to 7,501 in March 2018.
  • The market capitalisation of all the companies listed on the BSE reached a record Rs 150 lakh crore (US$ 2.33 trillion) backed by high gains in the broader market.
  • The amount raised by IPOs in India increased from US$ 318 million in FY 2008-09 to US$ 10,888 million in FY 2017-18*.
  • Initial Public Offers (IPOs) by small and medium enterprises (SMEs) in India received record funding of Rs 16.79 billion (US$ 259.35 million) in 2017 through 133 issues.
  • The total amount of initial public offerings increased to Rs 84,357 crore (US$ 13,089 million) by the end of FY18.
Growth

Notes: FII – Foreign Institutional Investors, NSE – National Stock Exchange, BSE – Bombay Stock Exchange, * - As of March 2018, ^ - as per a study by rating agency ICRA, # - as of January 2018
Source: SEBI, ^ - as per a report by EY

Last Updated: September, 2018

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 Mutual Fund (MF) industry in India has seen rapid growth in Assets Under Management (AUM). Total AUM of the industry stood at Rs 2.52 trillion (US$ 375.9 billion) between April - August 2018. At the same time the number of Mutual fund (MF) equity portfolios reached a high of 74.6 million as of June 2018.

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 193,866.23 crore (US$ 30.10 billion) during FY18.

Along with the secondary market, the market for Initial Public Offers (IPOs) has also witnessed rapid expansion. The total amount of Initial Public Offerings (IPO) increased to US$ 1.2 billion raised from 37 between April – June 2018.

Over the past few years India has witnessed a huge increase in Mergers and Acquisition (M&A) activity. In H12018, 74 deals of acquisition took place in financial sector. The total value of such transactions was US$ 4.166 billion. *

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 August 2018, a maiden fund called ‘Franklin India Long Short Equity AIF’ was launched by Franklin Templeton Alternative Investments (India) Pvt. Ltd (FTAIIPL). It aims to diversify investor’s investment portfolio.
  • To support fintech startups a Financial Inclusion Lab will be set up by IIM-Ahmedabad, Dell and Bill Gates foundations for which JP Morgan will create a US$ 7 – 9.5 million fund.
  • Private equity (PE) investments in India reached US$ 304 million with a volume of 8 deals, between January – June 2018. *
  • In May 2018, total equity funding's of microfinance sector grew at the rate of 39.88 to Rs 96.31 billion (Rs 4.49 billion) in 2017-18 from Rs 68.85 billion (US$ 1.03 billion). ^

Government Initiatives

  • 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.
  • The Government of India launched the 'Bharat 22' exchange traded fund (ETF), which will be managed by ICICI Prudential Mutual Fund, and is looking to raise Rs 8,000 crore (US$ 1.22 billion) initially.
  • In April 2018, the Government of India issued minimum FDI capital requirement of US$ 20 million for unregistered /exempt financial entities engaged in ‘fund based activities’ and threshold of US$ 2 million for unregistered financial entities engaged in ‘non-fund based activities’.

Road Ahead

  • 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.

Exchange Rate Used: INR 1 = US$ 0.0149 as of Q1 FY19.

References: Media Reports, Press Releases, IRDAI, General Insurance Council, Reserve Bank of India, Union Budget 2017-18

Notes - ^ - According to Microfinance Institution Network, * - PE Roundup – 1H2018 & Jun’18 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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