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Financial Accounting With the increase in the short term rates and recent policy hikes, a number of banks

during mid August have increased the lending (PLR) and deposit rates. Many banks have started mobilizing the CASA deposits at higher rates. However, we expect margins to sustain as loans get reprised faster than deposits. Thus sustainable margins with upward bias, healthy credit demand and containment in the slippages and provisions will make Indian banking system stronger going forward. 2. Non-banking Financial Services Non-banking financial companies (NBFCs) are fast emerging as an important segment of the Indian financial system. It is an heterogeneous group of institutions (other than commercial and co-operative banks) performing financial intermediation in a variety of ways, like accepting deposits, making loans and advances, leasing, hire purchase, etc. They raise funds from the public, directly or indirectly, and lend them to ultimate spenders. They advance loans to the various wholesale and retail traders, small-scale industries and self-employed persons. NBFC are present in all competitive fields such as, vehicle financing, housing loans, leasing, hire purchase and personal loans financing etc. NBFC's are not required to maintain cash reserve ratio (CRR) and statutory liquid ratio (SLR). Priority sector lending norm of 40% (of total advances) is not applicable to them. While this is at their advantage, they do not have access to low cost demand deposits. As a result their cost of funds is always high, resulting in thinner interest spread. But currently with surplus liquidity in the system, the cost of funds for NBFC's has substantially eased thus improving their margins. Gradually, they are being recognised as complementary to the banking sector due to their customer-oriented services; simplified procedures; attractive rates of return on deposits; flexibility and timeliness in meeting the credit needs of specified sectors; etc. On regulatory front, NBFCs have been classified into 3 categories: (a) those accepting public deposits, (b) those not accepting public deposits but engaged in financial business and (c) core investment companies with 90 per cent of their total assets as investments in the securities of their group/ holding/subsidiary companies. The focus of regulatory attention is on NBFCs accepting public deposits. 3. Insurance India is the 5th largest market in Asia by premium following Japan, Korea, China and Taiwan. In life insurance segment, India stands at fifth position in the emerging insurance economies globally and the segment is growing at a healthy 32-34 per cent annually, according to the Life Insurance Council. According to the Insurance Regulatory and Development Authority (IRDA), total first year premium collected in 2009-10 was US$ 24.64 billion, an increase of 25.46 per cent over US$ 19.64 billion collected in 2008-09. Further, according to IRDA, in April 2010, life insurance companies collected first year premium worth US$ 1.29 billion, as compared to US$ 810.9 million in the corresponding period of 2009. The life insurance industry grew by around 60 per cent in new business in the first half of 201011 despite a slowdown in sales in September, according to data compiled by life insurance companies.

In September, the industry grew by 20 per cent on a year-on-year basis collecting US$ 2.14 billion in new business premium. However, the new business in September was almost 48 per cent lower than the previous month's collection. The life insurance industry is expected to cross the US$ 66.8 billion total premium income mark in 2010-11. "This year, we are expecting a growth of 18 per cent in total premium income. Total premium income, at US$ 56.04 billion, rose 18 per cent during 2009-10, against US$ 47.6 billion in the previous year. In the fiscal year ending March 31, 2010, total premiums in India amounted to US$ 64.7 billion. This included non-life premiums of US$ 7.77 billion and life premiums of US$ 56.9 billion. In the fiscal year ending March 31, 2015, the corresponding figures should be US$ 105.4 billion, US$ 14.6 billion and US$ 90.8 billion. In terms of the key drivers that underpin our forecasts, we are looking for non-life penetration to rise from 0.59% of GDP in the fiscal year ending March 31, 2010 to 0.61% in the March 2015 fiscal year. We expect that life density will rise from US$ 47 per capita to US$ 85 per capita. Taking the recent infrastructure related developments in consideration and the booming automobile industry in India as a parameter; we foresee the potential of the insurance sector in India. 4. Stock Markets Capital market is one of the most important segments of the Indian financial system. It is the market available to the companies for meeting their requirements of the long-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending funds. In other words, it is concerned with the raising of money capital for purposes of making long-term investments. The market consists of a number of individuals and institutions (including the Government) that canalize the supply and demand for long -term capital and claims on it. The demand for long term capital comes predominantly from private sector manufacturing industries, agriculture sector, trade and the Government agencies, while the supply of funds for the capital market comes largely from individual and corporate savings, banks, insurance companies, specialized financing agencies and the surplus of Governments. According to ICICI Securities, Indian companies are likely to raise up to US$ 42.43 billion from the primary market over the next three years. According to Madhabi Puri-Buch, Managing Director and CEO, ICICI Securities' nearly US$ 20 billion will be raised from the initial public offer (IPO) market this fiscal (2010-11), of which around US$ 8.49 billion would be from the public sector and an equal amount from private companies. On the back of an increase in the participation of agriculture and other commodities, the 23 commodity exchanges posted 50 per cent year-on-year growth in turnover in the April-February period of 2009-10, to touch US$ 1.53 trillion, according to the commodity markets regulator, Forward Markets Commission (FMC). 5. Mergers & Acquisition Services

The competitive and regulatory pressures for consolidation are leading to a rapid increase in M&A activity, with more than $36.5 billion worth of deals announced till May 2010 end. Such activity is likely to accelerate still further as international groups seek to establish foothold. The deals have been pouring in India this year and the ones which help companies merge, acquire,

raise capital and restructure are naturally in great demand. Senior Indian deal-makers are being snapped up by foreign investment banks with a speed and alacrity that is usually reserved for actual corporate deals. 1. Lack of qualified personnel There is a dearth of qualified and trained personnel & it is an important impediment in the growth of financial service sector. A proper and comprehensive training is needed to be given to various financial intermediaries. 2. Lack of investors awareness Many innovative financial products/instruments are coming in market but the investors are not aware about their advantages. Hence, financial intermediaries need to educate investors about various products. 3. Lack of specialization Each financial intermediary is dealing in different financial service lines without specializing in one or two areas as is the condition in foreign countries. Hence financial intermediaries have to go for such specialization. 4. Lack of recent data Most of the intermediaries do not spend more time on research and lack adequate data base required for financial creativity. 5. Lack of efficient risk Management system With the opening up of economy to Multinationals and exposure of Indian companies to international currency transactions exposing the client to exchange rate risk, interest rate risk, economic and political risk. Hence it is essential that they should introduce futures, options, swaps and other derivative products which are necessary for an effective risk management system.