Advantage India
Growing
Demand
*Rising income is driving the demand for financial services across income brackets.
*India’s financial services sector is projected to nearly double profits by FY30, led by NBFCs growing at 16% annually. Growth drivers include retail credit, wealth management, payments, and insurance.
*Investment corpus in Indian insurance sector might rise to US$ 1 trillion by 2025.
*Private credit investments in India hit a record US$ 9.0 billion in H1 2025, marking a 53% YoY jump. This surge in private credit is driven by expanding demand from businesses and confidence from institutional investors.
Innovation
*India benefits from a large cross-utilisation of channels to expand reach of financial services.
*Emerging digital gold investment options.
*AI-driven banking is said to cut operational timelines by over 60%, boosting digital customer bases and improving security.
Policy
Support
*FDI sectoral cap in the insurance sector has been revised from 49% to 74% under the automatic route. The Union Budget 2025-26 also announced the further increase of FDI sectoral cap for the insurance sector from 74% to 100%. This enhanced limit will be available for those companies, which invest the entire premium in India.
*The government launched a 3-month financial inclusion campaign starting in July 2025, targeting full saturation of inclusion schemes at local levels. In July 2025, nearly 6.65 lakh new bank accounts were opened under PM Jan Dhan Yojana, and over 10 lakh re-verifications of KYC were done. The campaign also promotes financial literacy and digital fraud awareness, showing steady progress towards inclusive finance.
Growing
Penetration
*Credit, insurance and investment penetration is rising in rural areas.
*HNWI participation is growing in the wealth management segment.
*Lower mutual fund penetration of 5-6% reflects latent growth opportunities.
*A report from the Reserve Bank of India (RBI) suggests that generative Artificial Intelligence (AI) has the potential to enhance banking operations in India by up to 46%.
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 payment banks to be created recently, thereby adding to the type 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% 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 MSMEs, issuing guidelines to banks regarding collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA). With a combined push by Government and private sector, India is undoubtedly one of the world's most vibrant capital markets.
India climbed to the fifth spot in global market capitalization rankings with a 4% share by June 2025, ahead of economies like UK, Germany, and Canada. This marked a significant rise from 3.6% in February 2025, reflecting increasing investor faith and resilience of Indian equities globally.
Market Size
India’s mutual fund AUM hit a record Rs. 72.2 lakh crore (US$ 819.71 billion) in May 2025, up 22.5% YoY, with SIPs contributing Rs. 26,688 crore (US$ 3.03 billion) monthly, and retail investor accounts seeing a 19% increase annually.
As of August 31, 2025, the Assets Under Management (AUM) of the Indian Mutual Fund Industry stood at Rs. 75.19 trillion (US$ 853.66 billion)
Indian stock market Sensex reached high of 82,381 on September 16, 2025.
In FY26 (April-June 2025), a total of 15 IPO were launched raising Rs. 29,652 crore (US$ 3.37 billion).
In FY25, the number of listed companies on the NSE and BSE were 2,629, and 5,595 respectively.
As of June 2025, India has 8.56 lakh HNWIs. It is expected to have 9.37 lakh HNWIs by CY28.
In July 2025, a Knight Frank wealth report projected a 58.4% rise in India’s UHNWI population by 2028, noting that the country currently enjoys 6% YoY UHNWI growth and is home to approximately 13,600 UHNWIs.
In FY25, premiums from new businesses of life insurance companies in India stood at Rs. 3,23,568 crore (US$ 37.8 billion).
New business premiums in India surged by 22.4% YoY, reaching a total of Rs. 38,958 crore (US$ 4.42 billion) in July 2025. This growth was driven by strong demand for single premium products. The life insurance sector showed robust expansion, supported by product innovation and digitalization efforts.
NBFCs are dominating India's financial markets with strong growth metrics, including double-digit Asset Under Management (AUM) growth, improved asset quality, and rising profitability, attracting significant investor attention.
The sustained growth in India’s retail credit market is creating fresh opportunities for Non-Banking Financial Companies (NBFCs) to broaden their investor base, according to a recent report by Crisil Intelligence. As of FY25, India’s retail credit stood at Rs. 82,00,000 (US$ 937 billion), registering a Compound Annual Growth Rate (CAGR) of 15.1% between FY19 and FY25. In FY25 alone, the sector grew by 14%, fuelled by robust demand in key segments such as housing finance, auto loans, credit cards, and personal loans.
Unified Payments Interface (UPI) transactions crossed 20.01 billion in August 2025, recording a 3% rise from 19.47 billion in July, according to the National Payments Corporation of India (NPCI).
In value terms, UPI processed Rs. 24,85,000 crore (US$ 281 billion) during the month, maintaining strong momentum compared to Rs. 25,08,000 crore (US$ 284 billion) in July. On a YoY basis, UPI transactions rose 34% in volume and 21% in value, underscoring its role as the primary mode of digital payments in India.
India's foreign exchange reserves rose to US$ 698.27 billion on September 5, 2025, up from US$ 694.23 billion the previous week, primarily driven by a by a sharp rise in gold reserve.
The Indian passenger vehicle market registered record wholesales of 43 lakh units in FY25.
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 US$ 32.04 billion in FY23. In FY23 (until December 2022) non-life insurance sector premiums reached Rs. 1.87 lakh crore (US$ 22.5 billion).
Investments/Developments
The Financial Services Industry has seen major achievements in the recent past:
- In FY25, a total of 318 IPO was launched, raising Rs. 1.72 trillion crore (US$ 20.09 billion). In the agriculture sector, the DFS has facilitated record credit disbursements, with Agricultural Credit increasing from Rs. 8.45 lakh crore in FY15 to Rs. 24.30 lakh crore (US$ 283.8 billion) in FY24.
- UPI transactions surged to a record 17.89 billion in April 2025, value at Rs. 23.94 trillion (US$ 279.67 billion).
- During H1 2025, private equity (PE) and venture capital (VC) investments stood at US$ 26.4 billion across 593 deals.
- A report from the Reserve Bank of India (RBI) suggests that generative Artificial Intelligence (AI) has the potential to enhance banking operations in India by up to 46%.
- Banks focused on building a future-ready workforce by integrating Digital Personalization Intelligence (DPI) into skilling, enabling adaptation to evolving technology and customer demands in the banking sector.
- RBI unveiled the Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI), balancing AI-driven financial innovation with risk control, emphasizing ethical deployment of AI in financial services.
- Banks focused on building a future-ready workforce by integrating Digital Personalization Intelligence (DPI) into skilling, enabling adaptation to evolving technology and customer demands in the banking sector.
- RBI unveiled the Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI), balancing AI-driven financial innovation with risk control, emphasizing ethical deployment of AI in financial services.
- IT spending in India's banking and investment services sector is expected to hit US$ 15 billion in 2025, up from US$ 13.2 billion in 2024. This increase highlights the industry's strong commitment to adopting future-ready digital infrastructure to boost efficiency, security, and customer experience.
- Indian companies are strengthening their footprint on foreign shores, enhancing geographical exposure.
- The Indian government is actively pushing digital transformation in finance with initiatives like the Digital Rupee (Central Bank Digital Currency) to promote efficient payments and financial inclusion globally. The Reserve Bank of India (RBI) also explores internationalizing the Indian Rupee by allowing domestic banks to lend in rupees to neighboring countries, aiming to elevate the currency’s global standing.
- India demonstrated strong macroeconomic resilience, attracting stable and increased foreign institutional and domestic investor participation in its financial markets. The country’s foreign exchange reserves touched around US$ 700 billion in the week ending June 27, 2025. It maintained robust GDP growth projections (6.4-6.8%) by IMF and other international bodies, highlighting India’s rising global financial stature.
- Cross-border Unified Payments Interface (UPI) transactions are witnessing rapid growth as the system expands internationally. Volumes surged from just 180 payments in FY22 and 144 in FY23 to 37,060 in FY24, before jumping over 20 times to more than 7,55,000 in FY25. In the first four months of FY26 alone, 6,01,000 transactions were processed.
- As of August 2025, aadhar-enabled cooperative banking revolutionized rural finance for more than 380 cooperative banks, making banking services accessible to millions in remote villages by leveraging biometric authentication and simplifying account opening.
Government Initiatives
Some of the major Government Initiatives are
- The government launched a 3-month financial inclusion campaign starting in July 2025, targeting full saturation of inclusion schemes at local levels. In July 2025, nearly 6.65 lakh new bank accounts were opened under PM Jan Dhan Yojana, and over 10 lakh re-verifications of KYC were done. The campaign also promotes financial literacy and digital fraud awareness, showing steady progress towards inclusive finance.
- The Reserve Bank of India (RBI) cut the repo rate by 50 basis points to 5.50% and reduced the Cash Reserve Ratio (CRR) by 100 basis points to 3%, aiming to enhance liquidity and support credit growth amid global uncertainties.
- CSC e-Governance disbursed over Rs. 3,000 crore (340.60 million) in loans since mid-2023, supporting rural beneficiaries with formal credit access that helps financial empowerment and inclusion.
- The Union Budget 2025-26 brought key financial reforms:
- The FDI limit in insurance was raised from 74% to 100% to attract more foreign investment.
- NaBFID launched a Partial Credit Enhancement Facility to improve credit quality for infrastructure corporate bonds.
- A revamped Central KYC registry will simplify verification across financial institutions.
These steps aim to expand credit access, simplify compliance, and boost foreign capital in the finance sector.
- On August 29, 2025, the Union Ministry of Finance proposed increasing the FDI limit in the insurance sector from 74% to 100% through the automatic route, allowing foreign investors to establish wholly owned insurance subsidiaries (fund-based entities). This is aimed at attracting long-term foreign capital and accelerating growth in the insurance market.
- The Income-Tax (No. 2) Bill, 2025, approved by the Lok Sabha on August 11, 2025, and by the Rajya Sabha on August 12, 2025, received the President's assent on August 21, 2025. It replaces the Income-tax Act, 1961, effective from April 1, 2026. The bill simplifies the direct tax law by reducing sections from around 819 to 536 and chapters from 47 to 23, making compliance easier and the system more digitally aligned, while retaining existing tax rates and regimes. This marks a major reform aimed at modernizing India's tax framework.
Road Ahead
India’s financial services industry has witnessed remarkable growth in recent years, a trend that is poised to continue. The private wealth management segment holds immense potential, with India expected to have 16.57 lakh High Net-Worth Individuals (HNWIs) by 2027, positioning the country as the fourth-largest private wealth market globally by 2028.
The insurance sector is also expanding rapidly, projected to reach US$ 250 billion by 2025. This opens an additional life insurance premium opportunity of US$ 78 billion between 2020 and 2030. Continued liberalisation in foreign investment norms has spurred renewed interest, with several global insurers planning to raise stakes in Indian joint ventures, =setting the stage for a wave of new partnerships in the quarters ahead.
The mutual fund industry is targeting a nearly five-fold jump in assets under management (AUM) to Rs. 95,00,000 crore (US$ 1.15 trillion), along with a tripling of investor accounts to 130 million by 2025. Simultaneously, India’s mobile wallet segment is expected to grow at a Compound Annual Growth Rate (CAGR) of 23.9% between 2023 and 2027 to reach US$ 5.7 trillion.
With growing investor participation, rising digital adoption, and sustained policy support, India’s financial services sector is well-positioned to become a global powerhouse, driving inclusive growth and long-term economic resilience.
Note: The conversion rate used for July 2025 is Rs. 1 = US$ 0.012
References: Media Reports, Press Releases, IRDAI, General Insurance Council, Reserve Bank of India, News Articles, NSE, Business Today
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