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nancial Services in India

Last Updated: July 2013

Financial Services in India- Brief Overview

The Indian financial services sector is one of the most complex, yet one of the most robust service segments ofthe Indian economy. Spanning from insurance to capital markets, banking to foreign direct investments (FDI) andfrom mutual funds to private equity (PE) investments, the financial services sector covers all related segmentsunder its umbrella. Having major effects in its abstract as well as physical form post liberalisation, the financialservices segment is undoubtedly the mainstay of Indian economy.

Today it is at par with the international financial frameworks and promises to surpass them in terms ofperformance in the years to come. This is very much evident from the fact that Indian financial services industrywas amongst the least affected during the crisis the world faced in 2010-11.

Major developments pertaining to the sub-segments of Indian financial services industry are discussed hereafter.

Insurance Sector

Indian life insurance sector collected new business premiums worth Rs 11,742.7 crore (US$ 1.96 billion)for April-May 2013, according to data from the Insurance Regulatory and Development Authority (IRDA).Life insurers collected Rs 1, 07, 010.7 crore (US$ 17.84 billion) worth of new premiums for the financialyear ended March 31, 2013

Meanwhile, the general insurance industry grew by 19.6 per cent in April-May period of FY14, whereinthe non-life insurers collected premium worth Rs 13,552.46 crore (US$ 2.26 billion)

Banking Services

According to the Reserve Bank of India (RBI)s Quarterly Statistics on Deposits and Credit of ScheduledCommercial Banks, September 2012, Nationalised Banks accounted for 52.0 per cent of the aggregatedeposits, while the State Bank of India (SBI) and its Associates accounted for 22.3 per cent. The share

of New Private Sector Banks, Old Private Sector Banks, Foreign Banks, and Regional Rural Banks inaggregate deposits was 13.6 per cent, 4.8 per cent, 4.3 per cent and 2.9 per cent, respectively

Nationalised Banks accounted for the highest share of 50.9 per cent in gross bank credit followed byState Bank of India and its Associates (22.1 per cent) and New Private Sector Banks (14.7 per cent).Foreign Banks, Old Private Sector Banks and Regional Rural Banks had shares of around 4.9 per cent,4.9 per cent and 2.6 per cent, respectively

India's foreign exchange (forex) reserves stood at US$ 280.167 billion for the week ended July 5, 2013,according to data released by the central bank. The value of foreign currency assets (FCA) - the biggestcomponent of the forex reserves stood at US$ 252.103 billion, according to the weekly statisticalsupplement released by the RBI

Mutual Funds Industry in India

Indias asset management companies (AMCs) have witnessed growth for the fifth consecutive quarter whereintheir average assets under management (AUM) during April-June 2013 increased by 3.68 per cent. The AUMsvalue touched a new high of Rs 8.47 lakh crore (US$ 141.17 billion), according to the latest statistics availablefrom industry body Association of Mutual Funds in India (AMFI).

Private Equity, Mergers & Acquisitions in India

Private equity (PE) firms upped their investments in India Inc by a hefty 42 per cent to US$ 5.4 billionthrough 197 deals during the first half of 2013; major deal being the US$ 1.2 billion-Bharti Airtel deal,according to a report by EY India (formerly Ernst & Young).

Meanwhile, Merger and acquisition (M&A) activity in India was also quite intense in April-June 2013period. The deal tally stood at US$ 10.9 billion across 130 transactions, according to global deal trackingfirm Mergermarket.

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Foreign Institutional Investors (FIIs) in India

Foreign investors have immense faith in Indian financial markets. The fact is substantiated throughstatistics which show that they pumped massive US$ 10 billion in Indian markets in January-March 2013quarter. Moreover, FII ownership in top 500 companies is highest at 21.2 per cent for the reportedquarter. It increased by 1.28 per cent in the January-March quarter alone and 2.87 per cent in 2012-13.

The number of registered FIIs in India stood at 1,757 in FY 2012-13 while the number of FII sub-accounts rose to 6,335, from 6,322 at the end of 2011-12.

Financial Services in India: Recent Developments

Tata Communications 100 per cent subsidiary Tata Communications Payment Solutions (TCPS) haslaunched Indias first white label ATM (WLA) at Chandrapada, a tier-V town near Mumbai. The WLA hasbeen branded 'Indicash' by the company. TCPS already operates about 27, 000 ATMs for 37 banks inIndia.

Meanwhile, US-based Customers Bancorp Inc (CUBI) has plans to infuse US$ 51 million in multiplesecurities of Religare Enterprises Ltd. Religare is currently aspiring for a banking licence to enter thebanking industry.

The investments will take place through a combination of primary and secondary market transactions.

Financial Services: Government Initiatives

The Finance Ministry has constituted a standing council of experts to assess the internationalcompetitiveness of the Indian financial sector. The council, to be headed by the Secretary, Departmentof Economic Affairs, will analyse various monetary and non-monetary transaction costs (of doingbusiness in the Indian market), and make recommendations for improving its competitiveness.

The council will also examine related policies and operating frameworks and the performance of varioussegments of the Indian capital market. It will also study and suggest possibilities for reform measuresaimed at improving transparency, promoting development and strengthening governance in the Indiancapital markets, while ensuring that risks are limited and investor interests are sustained.

Also, the RBI has, for the time being, relaxed the norm that stipulates non-banking finance companies

(NBFCs) to have a minimum gap of six months between two non-convertible debentures (NCDs) issues.The move is aimed at streamlining the process of moving into a more robust asset-liability managementframework in a non-disruptive manner.

Road Ahead

Foreign investments fuel Indian financial markets in a big way. Experts believe that India has fared really wellover the past few years and the similar macroeconomic trends would continue in 2013. This would result insteady FII equity flows that would enhance stock valuations, strengthen investment cycle, and sustainconsumption growth (especially at low-income levels). Moreover, portfolio fund flows are anticipated to be higherin 2013 than those in 2012, on the back of Government reforms like passing bills that would escalate foreigninvestment limits in insurance, having a uniform goods and services tax, and reconciling subsidies.

Moreover, with the Parliament passing the much awaited Banking Laws Amendment Bill recently, the face of theIndian banking industry is set to get a lift in the coming years as the passage of the bill has paved the way formore banks. This will not only create a healthy competition among the players in the industry, but will alsoescalate the style of operation and technology.

Exchange Rate Used: INR 1 = US$ 0.01667 as on July 15, 2013