The financial services sector in India has witnessed a fundamental transformation since the country was liberalised.

India, in the last few years, has emerged as the one of the most rapidly growing economies across the globe. The financial services market is growing rapidly, and there is significant potential for further growth. The financial services sector includes broking firms, investment services, national banks, private banks, mutual funds, car and home loans, and equity market Financial Services in India - Key Drivers


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India¶s high savings rate offers significant opportunity to put resources into the financial markets. The country has a favourable demographic profile with a large segment of the population under 30 years. The Census 2011 shows that 56.9 per cent of India¶s total population comes in the age group 15-59 years. The country will witness a sharp decline in the dependency ratio over the next thirty years ± which will be a great dividend. As the dividend begins to pay off, with the working age-group population rising disproportionately over the next two decades, the savings rate is likely to rise further, according to Mr Pranab Mukherjee, Union Finance Minister A large, untapped domestic market, with a huge growth potential Presence of financial and capital market mechanisms A large and continuously growing intellectual capital Healthy rate of economic growth

Banking Services The banking sector has undergone a lot of positive developments in the last decade. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made significant attempts to improve regulation, besides framing policies that are conducive to the growth of the sector. The banking industry in India is expected to grow by 20 per cent a year, with return on equity being more than 18 per cent, according to a survey by consulting firm, McKinsey, done for the Indian Banks' Association. The growth in the sector is specifically being driven by rising aspirations of corporate India , strong regulatory thrust, technological breakthrough, innovations, rising productivities and economies of scale. The sector carries a value creation opportunity of almost Rs 2.5 lakh crore (US$ 56.38 billion) in incremental revenue by 2015, according to Ranjit Tinaikar, Partner at McKinsey. In the financial year 2010-11, Public Sector Banks (PSBs) recorded a significant credit growth of 22.44 per cent. Net Profits of PSBs have gone up from approximately Rs 39,000 crore (US$ 8.8 billion) to approximately Rs 45,000 crore (US$ 10.15 billion) in the year 2010-11. The banks achieved 35 per cent growth in credit to Micro, Small and Medium Enterprises (SMEs) sector against the target of 20 per cent. Nationalised banks accounted for 52.2 per cent of the aggregate deposits, with State Bank of India (SBI) and its Associates accounting for 22.1 per cent. The share of new private sector banks, foreign banks, old private sector banks, and regional rural banks in aggregate deposits was 13.3 per cent, 4.8 per cent, 4.6 per cent and 3.0 per cent, respectively, according to RBI¶s Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, December 2010. With respect to gross bank credit, nationalised banks had the highest share of 51.6 per cent in the total bank credit. They were followed by SBI and its associates at 22.7 per cent and new private sector banks at 13.7 per cent. Foreign banks, old private sector banks and regional rural banks had shares in the total bank credit at 5.1 per cent, 4.5 per cent and 2.5 per cent, respectively. India's foreign exchange reserves were US$ 314.6 billion as on July 8, 2011, according to the data in the weekly statistical supplement (WSS) released by RBI. Indian bank loans increased by 19.9 per cent year-on- year (y-o-y) as of July 1, 2011, according to the central bank's WSS. Deposits rose by 18.4 per cent from a year earlier.

The Indian mutual fund industry is expected to register robust growth. The mutual fund industry. had their gross premium collections rise by 23 per cent to Rs 2. according to the Insurance Regulatory and Development Authority (IRDA). Private Equity (PE Investments) in India India offers a lucrative proposition to PE practitioners on the back of its young population. Total PE investment in India increased by 71.83 billion in the second quarter of 2010 (JulySeptember). according to Swiss Re¶s sigma study . reached a record level of 132.43 trillion (US$ 167. The average deal value rose by 21 per cent from US$ 24 million to US$ 29 million during the same period.28 per cent in 2002-03. 2011. KPMG in India is of the view that the industry AUM is likely to continue to grow in the range of 15 to 25 per cent from the period 2010 to 2015 based on the pace of economic growth. As Indians are getting richer. according to a report by SMC Global Securities.87 billion) in the fourth quarter (January-March) of the last financial year (2010-11).151. The country's market capitalisation (cap)-to-GDP ratio.Mutual Funds in India The Indian mutual fund industry has witnessed significant growth in the last few years.57 billion) in the first quarter (April-June) of the current financial year (2011-12). Besides the demographic factors. The country's market capitalisation as a proportion of the world market cap was 2. given the growing aspirations of retail customers.from US$ 10 million in the second quarter of 2010 to US$ 11 million in the second quarter of 2011. from Rs 3.358.73 million) in May 2010. which comprises 43 fund houses. Stock Markets The Indian equity markets are among the most deep and active markets across the globe. growth has been driven by the increasing reach of Asset Management Companies (AMCs) and distributors. a large and growing number of intellectuals. India's mutual fund industry's average AUM increased by 6 per cent to Rs 7. The four Public Sector Units (PSUs).47 per cent in financial year 2010-11 from 23. witnessed an increase of 6.from US$ 1. presence of structured financial and capital market mechanisms. ³World insurance in 2010´. according to the study. India ranks at number 11. and healthy rate of economic growth. to US$ 3.5 per cent .46 billion (US$ 9. Further.60 crore (US$ 531.from 90 to 137 during the same period. Volume of deals also increased by 52 per cent .9 million) in the same period. India has surpassed ten major markets in the last ten years. Indian Insurance Sector The insurance industry in India has a big opportunity for national as well as foreign investors. relatively low penetration levels coupled with rapid growth in the assets under management (AUM) in recent years signifies a high growth potential of the Indian mutual fund industry. an indicator of the total listed wealth of a country as a percentage of its GDP.14 billion in the second quarter of 2011.41 crore (US$ 710. The median deal amount rose by 10 per cent . according to the data released by industry body Association of Mutual Fund Industry (AMFI). which account for about 59 per cent of the total general insurance industry. India has surpassed Spain to become the 11th largest insurance market in the world. In the life insurance business itself. in terms of ranking by premium volume in 2010. The total gross premium of 23 players in the non-life insurance market increased by 27 per cent in May 2011.07 per cent to Rs 425. large domestic market.6 billion) on average AUM. from Rs 7 trillion (US$ 157. Foreign Institutional Investors (FIIs) . the desire to save for retirement is growing.8 per cent as on June 28.

Mercedes-Benz India (MBI) would look at offering vehicles on lease to individuals as well. the RBI has issued norms permitting them to either use overseas banks or those in the country to settle foreign trade transactions invoiced in the Indian rupee. individual investors from across the globe are expected to soon get the right to buy blue-chip Indian stocks Financial Services . Further. and now.245 crore (US$ 280. German luxury car maker Mercedes-Benz is preparing to start leasing vehicles to consumers in the Indian market by the end of 2011. In an effort to support hedging of currency risks for non-resident exporters and importers. has invested Rs 150 crore (US$ 33. Government Initiatives India has a strong financial regulatory system ± controlled by RBI and supported by regulatory body such as Securities and Exchange Board of India (SEBI). Noteworthy is the fact that International financial institutions are playing an increasing role in the expansion of India¶s large corporations. IDFC Private Equity. The company would start with leasing Mercedes cars to companies. a recently established local unit of German carmaker Daimler AG¶s financial arm. 2011. the Finance Ministry is stepping up its efforts to widen the class of foreign investors in the Indian stock market. based on the recommendations of Foreign Investment Promotion Board (FIPB).20 crore (US$ 1.T Group's financial services subsidiary L&amp. The government has taken many steps to encourage investments in the financial sector. Once the venture reaches a certain size. 2011] . India will allow qualified foreign investors to invest up to US$ 10 billion in domestic mutual funds from August 1. according to a senior finance ministry official. India already has more middle-class people on a purchasing power parity basis than the entire population of the US. The L&amp.T Finance Holdings has announced its plans to enter the capital markets to generate up to Rs 1.70 crore (US$ 867. the sector can be one of the most significant ones for the growth of the Indian economy.09 million) approximately.Road Ahead Demand for financial services in India is taking off.000 crore (US$ 1. On the retail side. The government expects good inflows from qualified financial institutions into mutual funds in this fiscal year to March 2012.17 billion). capital markets at the Finance Ministry.79 million) from the primary markets by diluting up to 17 per cent of its stake.FIIs remained upbeat on Indian companies during the quarter ended June 30. Joint Secretary. according to Klaus Entenmann. and with government considering steps to liberalise it further. This is evident from the fact that first. 2011. GVR will utilise the funding for its projects in engineering and contracting space.0225530 [as of July 24. net inflows in equities from FIIs have already reached around Rs 7. one of India's largest risk capital investors. Exchange Rate Used: INR 1 = US$ 0. global Chairman. and a consumer credit market that is rising by more than 40 per cent per annum. Daimler Financial Services India Pvt Ltd. which govern capital markets and mutual funds.58 billion) Recent Developments/Investments The Government has approved 31 Proposals of Foreign Direct Investment (FDI) amounting to Rs 3844. which remains largely untapped. the government gave the green signal for qualified foreign investors (QFIs) to invest in mutual funds.171. said Thomas Mathew. The sector has huge growth potential. In the current month (July 2011). Net inflows during the period were Rs 5.83 million) to acquire a minority equity stake in Chennai based GVR Infra Projects Limited. Great opportunity lies in the SME segment. is expecting to break even in four to five years and expects to have a loan book of US$ 500 million by 2016.

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