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Banking Services

Overview

Indian Banking sector comprises of 27 public sector banks, 21 private sector banks, 49 foreign banks and 56 regional rural banks. Indian Banking sector has registered strong growth in the past decade. Demand for loans has grown for both corporate & retail, particularly in services, real estate, consumer durables & agriculture allied sectors. Government efforts to promote banking technology and expansion in rural areas have significantly improved the financial inclusion in the past few years. Sectoral level employment data (2017) suggests that Banks are providing huge employment opportunities in the country, nearly around 21% of total employment and is among the top 5 best growing sectors of India.

BANKING SECTOR CONTINUES TO GROW AT A HEALTHY PACE

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During FY07-18, the total lending by banks has increased from US $429.92 billion to $1347.18 billion at a CAGR of 10.94 %.

The high demand is aided by strong economic growth, rising disposable incomes, increasing consumerism & easier access to bank credit.

 
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Deposits has reached US$ 1.7 trillion in the FY18 at a CAGR of 11.66%.

Strong growth in savings, rising disposable income levels, improved banking system, digitalisation, etc. are the major factors influencing deposit growth..

 
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Assets base of total banks has increased at a CAGR of 5.97 % to US$ 2.22 trillion during FY13–18 with interest income CAGR of 6.61% over FY09-18.

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Indian Banks Overseas

RBI Data as on January 2018 shows that Indian Banks have total 185 branches worldwide. It includes both public and private sector banks such as State Bank of India, Bank of India, Bank of Baroda, Indian Bank, IDBI bank, etc. Indian Banks has strong presence in UK, Singapore, Hong Kong and United Arab Emirates with total 81 branches in these 4 countries. Indian Banks strong presence around the world is the indictor of growing Indian banking services exports and investments.

 

Notable Trends

Focus on financial inclusion

Government is working hard on Financial Inclusion Plan. Around 598,093 banking outlets were provided in villages as on March 2017 (RBI Data). As of September 2018, Ministry of Finance, Government of India launched the Financial Inclusion Index to measure access, usage and quality of financial services.

Derivatives and Risk Management Products

Increasingly dynamic business scenario & financial sophistication has increased the need for customised exotic financial products. To capture the market share, banks are developing innovative financial products & advanced risk management methods.

Focus towards Jan Dhan Yojana

Pradhan Mantri Jan Dhan Yojana (PMJDY) is implemented by the government to increase the accessibility of financial services such as bank accounts, insurance, pension, credit facilities, etc. mostly to the low income groups. Till September 2018, Rs 853.79 billion (US$ 12.17 billion) were deposited and 328.8 million accounts were opened in India under the scheeme increasing financial inclusion in the country.

Technology Advantages

Open banking, Cloud computing and other disruptive technologies such as Big Data, artificial intelligence (AI), block chain, IoT are significantly impacting banking operations worldwide. More progressive banks around the world have already made significant headway with the adoption of cloud computing and many Indian banks are fast warming up to its many benefits.

Rising Digital Lending

Increasing digitalisation significantly influencing Indian banking. India’s digital lending stood at US$ 75 billion in FY18. Digital lending is estimated to reach US$ 1 trillion by FY2023 driven by the five-fold increase in the digital disbursements.

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Innovative Banking Products and Services

Mobile banking, NFC Payments, Online financial tools, Social Media Banking, Video chat advisory, etc. are taking Banking services to the next level. These initiatives are making banking services more cost effective and easy to access.

 

Overseas Expansion

Many Indian Banks are looking to expand their branches overseas. State Bank of India, one of the biggest public sector bank, is looking to expand its international operations to 15% of its total business. Indian Banks are targeting Indian based customers overseas for banking and investments.

Advantage India

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Robust Demand

Increasing working population, demand for Housing and personal finance, disposable incomes, rural banking, etc. are expected to remain key demand drivers in the future.

 
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Innovative Services

Mobile wallets, Internet banking & extension of ATM Facilities, Cloud Computing, Big data analytics, etc. are some of the innovative services boosting the operational efficiency and reach of banking services.

Mobile wallet industry likely to grow 150% in 5 years: Capgemini. India's drive to become a less-cash economy as e-wallet industry is expected to grow to US$4.4 billion by 2022.

Around 80% of transactions in the newer banks are made through digital channels (The Indian Banks’ Association’s survey, 2016)

 
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Policy Support & Government Initiatives

Indian Government has undertaken many policy reforms and initiatives to strength banking sector such as Banking Regulation (Amendment) Bill 2017, Insolvency and Bankruptcy Code (Amendment) Ordinance 2017, Mudra Scheme, Pradhan Mantri Vaya Vandana Yojna, Pradhan Manrti Jan Dhan Yojna, Public Credit Registry (PCR), Capital Infusion Scheme, simplification of KYC norms, etc.

 
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Rising M&A and Investments

Government of India launched India Post Payments Bank (IPPB) and has opened branches across 650 districts to achieve the objective of financial inclusion

The total value of mergers and acquisition during FY17 in banking was US$ 79 million with the biggest merger deal in the microfinance segment of IndusInd Bank Limited and Bharat Financial Inclusion Limited of US$ 2.4 billion.

 

References - Data and reports available in the public domain including Ministries Annual Reports and Data Statistics, IBEF Sectoral Reports, Department of Industrial Policy and Promotion (DIPP), RBI Handbook of Statistics on Indian Economy, Media & Industry Reports, Press Information Bureau (PIB), Union Budget 2018-19

Disclaimer - This information has been collected through secondary research and is available in the public domain. We are not responsible for any errors in the same.

Insurance Services

Overview

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India’s Life Insurance sector is the biggest in the world with about 360 million policies. Indian Insurance Industry comprises of 57 insurance companies of which 24 are life insurance business and 33 are non-life insurers. Indian Insurance services has recorded significant growth in the past decade and is expected to reach US$ 280 billion by 2020 owing to the solid economic growth and higher personal disposable incomes in the country.

 

Sector Trends

  • India’s overall insurance penetration has reached 3.69% in 2017 from 2.71% in 2001.
  • Gross premiums written in India reached Rs 5.53 trillion (US$ 94.48 billion) in FY18 with US$ 71.1 billion from life insurance and US$ 23.38 billion from non-life insurance.
  • India’s Insurance sector has grown significantly in the past few years and expected to grow at a CAGR of 12-15% in the next 5 years.
  • India ranks 41st in 2017 in terms of insurance penetration and 73rd in terms of insurance density in 2017.
  • Over FY12–18, premium from new business of life insurance companies in India have increased at a 14.44% CAGR to reach Rs 1.94 trillion.
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Growing share of Public/Private sector

Share of private sector in life insurance segment has grown significantly over the years, from around 2% in FY03 to 30.6% in FY18.

Life Insurance Corporation of India, the only public sector life insurer in the country, continues to be the market leader. HDFC Life Insurance has the leading share of 6.4 per cent in new business premium, followed by SBI Life Insurance and ICICI Prudential Life Insurance.

Growth in Non-Life Insurance Market

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Non-Life insurers include general insurers, standalone health insurers and specialized insurers such as Motor, Fire, Marine Insurance, etc.

Gross direct premiums of non-life insurers has reached Rs 1.51 trillion in the FY18. Over FY12- 18, non-life insurance premiums increased at a CAGR of 16.65%.

The number of policies issued increased from 65.55 million in FY08 to 161.17 million in FY17.

 
 

 

Emergence of new distribution channels

Many new distribution channels have emerged such as bank assurance, NBFCs and online distribution that have widened the reach and reduced costs of opting insurance services.

Launch of innovative products

Both Life and Non-Life Insurance sector has witnessed the launch of innovative products such as Unit Linked Insurance Plans (ULIPs), HDFC Ergo launched ‘E@Secure’ a cyber insurance policy and other traditional products customised to meet specific needs of Indian consumers.

Growth Drivers/Advantages for India

Financial Industry Growth

India’s overall growth in the financial industry, disposable incomes, increased awareness about financial products and increasing working population has created more demand for Insurance products.

Due to RBI Financial inclusion drive, Investment corpus in Indian insurance sector can rise to US$ 1 trillion by 2025, driving strong growth in Indian Insurance sector.

Growth in specific segments

Micro insurance segment has grown substantially in the past few years, due to increased focus of government on financial inclusion. Sector specific insurance is rapidly expanding Indian insurance industry such as healthcare insurance, motor insurance, etc.

Open FDI
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FDI limit for insurance company has been raised from 26% to 49% by the Indian Government, beneficial for safeguard and ownership control to Indian owners.

Rising Private sector Investments

Insurance Regulatory and Development Authority of India (IRDAI) move allowing private equity investors to become promoters in unlisted insurance companies & Insurance Bill raising the stake of foreign investors in the insurance sector to 49%, has attracted both domestic and international investments in Indian Insurance market.

 

 

Government Initiatives

Indian government has undertaken many policy initiatives to promote insurance services such as –

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Union Budget 2018-19 - National Health Protection Scheme has been launched under Ayushman Bharat to provide coverage of up to Rs 500,000 (US$ 7,723) to more than 100 million vulnerable families.

 
  • To achieve the objective of achieving higher levels of transparency and accountability, government has merged 5 public sector insurance companies - The Oriental Insurance Co. Ltd, National Insurance Co. Ltd, The New India Assurance Company Ltd., General Insurance Corporation of India and United India Insurance Co. Ltd and list the merged entity.
  • Government of India’s initiated ‘India Post Payments Bank (IPPB)’ has started selling insurance products and mutual funds to its customers.
  • Approval of increase in FDI limit and revival package - FDI limit for insurance company has been raised from 26% to 49% by Indian Government to attract more investments in Insurance sector. Revival package to get faster product clearances, ease in investment norms and tax incentives are also focused by the government
  • Recently, Foreign Investment Promotion Board (FIPB) has cleared 15 FDI proposals including large investments in the insurance sector, leading to a cumulative investment of $1.09 billion.

IRDAI Initiatives

  1. IRDAI has allowed life insurance companies with 10 years of operations and embedded value of twice the paid up equity capital to raise capital through Initial Public Offerings (IPOs).
  2. Recently, IRDAI has started a web portal – isnp.irda.gov.in –allowing the insurers to sell and register policies online. The portal is also open to intermediaries in insurance business.
  3. Insurance Regulatory and Development Authority of India (IRDAI) has given initial approval to Swiss, French, and German reinsurers to open branches in India.
 
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Tax Incentives

Insurance products are covered under the EEE (exempt, exempt, exempt) method of taxation giving an effective tax benefit of approximately 30 % on select investments (including life insurance premiums) every financial year.

 
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Financial Services

Sector Overview

The country’s financial services sector consists of the capital markets, insurance sector and non- banking financial companies (NBFCs).

  • Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth. All these factors suggest that India’s banking sector is also poised for robust growth as the rapidly growing business would turn to banks for their credit needs.
  • India is among the top five countries in terms of HNWI in the Asia-Pacific.

Asset under Management (AUM)

The asset management industry in India is among the fastest growing in the world. The number of mutual fund (MF) portfolios have increased to 74.6 million as of June 2018.

As of September 2018, the Assets under Management of the mutual fund industry stood at Rs 22.04 trillion (US$ 313.48 billion).

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Growing Indian Capital Market

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In the FY2017-18, the total amount of Initial Public Offerings (IPO) has increased to Rs 84,357 crore (US$ 13,089 million). Total IPOs are expected to reach Rs 35,000 crore (US$ 5.22 billion) in 2018-19 majorly backed by private equity.

Wealth Management

Wealth Management has emerged as one of the fastest growing segment. Between 2011 and 2017, number of HNWIs in India risen at a CAGR of 18.67%. Recorded at 330,400 at the end of 2017 and is expected to grow to over US$ 100 trillion by 2025.

The most demanding High Net worth Individuals includes Advisory asset management and tax planning, followed by financial planning.

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Growing Non-Banking Financial Companies

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In India, NBFC finances for around 80% of equipment leasing and hire purchase activities in the retail finance space

The public deposit of NBFCs has increased from US$ 0.29 billion in FY09 to Rs 319.05 billion (US$ 4.95 billion) in FY18, registering a Compound Annual Growth Rate (CAGR) of 36.86%.

The total value of mergers and acquisition during 2017 in NBFC recorded at US$ 2,564 million.

 

 

Growth Drivers

Government Initiatives

Indian Government has taken many initiatives to promote Financial inclusion such as RBI allow issuance of banking licenses for 2 Universal Banks, 8 Payments Banks and 10 Small Finance Banks, Universal banking license, Gujarat International Finance Tec-City (GIFT) as an International Financial Services Centre (IFSC), simplification of the Initial Public Offer (IPO) process, 'Bharat 22' exchange traded fund (ETF), etc.

Securities & Exchange Board of India (SEBI) allowed Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE) to launch commodity derivatives trading from October 1, 2018.

 

 

Growth in Country’s financial assets

Indian Financial sector growth is attributed by the rise in equity markets and corporate earnings. During the FY17, individual wealth in India expanded to Rs 344 lakh crore (US$ 5,337.47 billion) from Rs 310 lakh crore (US$ 4,620.66 billion) in FY16 and is forecasted to reach US$ 5 trillion by 2025.

Number of mutual fund equity portfolios is expected to reach 133 million portfolios in 2025 from 74.6 million portfolios as of June 2018 driving the growth of financial services.

 

 

Strong Contribution in Exports & Investments

India is a net exporter of financial services and has exported US $5164 million financial services in the year 2017-18. Abundant talented professionals and technology upgradation is promoting the exports of financial services from India.

Reserve Bank of India (RBI) has allowed 100% foreign investment through automatic route to the regulated financial services companies. It covers capital markets, investment management, real estate investments and foreign exchange services, etc.

 

 

Innovative Financial Products

FinTech, Wealth Management, Payment Banks, Alternate Investments Funds (AIF), Mobile Wallets, etc. are expected to promote financial services in India.

 

 

Government Initiatives

Indian government has undertaken many policy initiatives to promote financial services such as –

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Union Budget 2018-19 - - Government has allocated Rs 3 trillion (US$ 46.34 billion) towards the Mudra (Micro-Units Development & Refinance Agency Ltd) Scheme..

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.

 
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Reserve Bank of India (RBI) has allowed 100 % foreign investment through automatic route to the regulated financial services companies including Asset Reconstruction Company, Credit Information Companies and other financial services.

 
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Tax Incentives

Government has reduced securities transaction tax from 0.125% to 0.1% on cash delivery transactions and from 0.017% to 0.1% on equity futures.

 
  • Indian Government has initiated Financial Literacy programmes through 718 Financial Literacy and Credit Counselling Centres (FLCCs). A total of 17,422 skilling centres have been mapped with branches and literacy centres, and financial literacy imparted to 7 lakh students to make India skilful and knowledgeable in financial services.
  • Securities & Exchange Board of India (SEBI) allowed Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE) to launch commodity derivatives trading from October 1, 2018.
  • SEBI allowed strategic investors such as registered Non-Banking Financial Companies (NBFCs) and international multilateral financial institutions to invest up to 25% of the total offer size of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
 

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