BANKING, FINANCIAL AND INSURANCE SERVICES
India’s banking sector is sufficiently capitalised and well-regulated. The financial and economic conditions in the country are far superior to any other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking models like payments and small finance banks. RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry.
The digital payments system in India has evolved the most among 25 countries with India’s Immediate Payment Service (IMPS) being the only system at level 5 in the Faster Payments Innovation Index (FPII).* In August 2017, Global rating agency Moody's announced that its outlook for the Indian banking system was stable. In November 2017, Global rating agency Moody's upgraded four Indian banks from Baa3 to Baa2.
The Indian banking system consists of 27 public sector banks, 21 private sector banks, 45 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions.
As of Q3 FY17-18, total credit extended by commercial banks surged to US$ 1,288.1 billion and deposits grew to US$ 1,715 billion. Assets of public sector banks stood at US$ 1,518 billion in FY17. Indian banks are increasingly focusing on adopting integrated approach to risk management. Banks have already embraced the international banking supervision accord of Basel II, and majority of the banks already meet capital requirements of Basel III, which has a deadline of March 31, 2019.
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).The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 Bill has been passed and is expected to strengthen the banking sector.
Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) are growing. Rs 79,012.10 crore (US$ 12.26 billion) were deposited and 314.2 million accounts were opened in India. ^ Rising incomes are expected to enhance the need for banking services in rural areas and therefore drive the growth of the sector. The RBI has relaxed its branch licensing policy, thereby allowing banks (which meet certain financial parameters) to set-up new branches in tier-2 to tier-6 centers, without prior approval from RBI.
The digital payments revolution will trigger massive changes in the way credit is disbursed in India. Debit cards have radically replaced credit cards as the preferred payment mode in India, after demonetisation. Debit cards garnered a share of 87.62 per cent of the total card spending.
The country’s financial services sector consists of the capital markets, insurance sector and non-banking financial companies (NBFCs).
India’s gross domestic savings (GDS) as a percentage of Gross Domestic Product (GDP) has remained above 30 per cent since 2004. It is projected that national savings in India will reach US$ 1,272 billion by 2019.
Over 95 per cent of household savings in India are invested in bank deposits and only 5 per cent in other financial asset classes.
The asset management industry in India is among the fastest growing in the world.
Corporate investors accounted for around 43.03 per cent of total AUM in India, while High Net Worth Individuals (HNWI) and retail investors account for 29.65 per cent and 25.25 per cent, respectively. In the Asia-Pacific, India is among the top five countries in terms of HNWIs.
RBI has allowed 100 per cent foreign investment under the automatic route in ‘other financial services’.
The Government of India has 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.
The Securities and Exchange Board of India (SEBI) has allowed exchanges in India to operate in equity and commodity segments simultaneously, starting from October 2018.
India’s equity market turnover has increased significantly in recent years. The annual turnover value in the National Stock Exchange (NSE) witnessed a CAGR of 19.13 per cent between FY 96 and FY 17 to reach US$ 790 billion. During the month of January 2018, equity mutual funds have registered a record net inflow of Rs 14,683 crore (US$ 2.27 billion).
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’.
The Government of India has taken various steps to deepen the reforms in the capital markets, including simplification of the Initial Public Offer (IPO) process which allows qualified foreign investors (QFIs) to access the Indian bond markets. In FY18 the total amount of Initial Public Offerings increased to Rs 84,357 crore (US$ 13,089 million).
- 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.