Last Updated: June, 2019
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 23.16 trillion
(US$ 321.00 billion) as of February 2019. 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 159,004 crore (US$ 22.04 billion) as of Jan 2019.
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) stood at Rs 14,032 crore (US$ 1.94 billion) as of
Feb 2019.
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
-
Investments by Foreign Portfolio Investors (FPIs) in Indian capital
markets have reached Rs 5,400 crore (US$ 748.44 million) up to December
30, 2018.
- As of October 2018, the Financial Inclusion Lab has
selected 11 fintech innovators with an investment of US$ 9.5 million
promoted by the IIM-Ahmedabad's Bharat Inclusion Initiative (BII) along
with JP Morgan, Michael and Susan Dell Foundation, and the Bill and
Melinda Gates Foundation.
- The private equity and venture capital (PE/VC) investments reached US$ 33.1 billion in 2018.
Government Initiatives
-
In December, 2018, Securities and Exchange Board of India (SEBI)
proposed direct overseas listing of Indian companies and other
regulatory changes. It has provided companies with a broader investor
base, better valuation, increased awareness, analyst coverage and
visibility.
- 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 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$ 0.0139 as of Q3 FY19.
References: Media Reports, Press Releases, IRDAI, General Insurance Council, Reserve Bank of India, Union Budget 2017-18
