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 four Public Sector Units (PSUs). witnessed an increase of 6.83 billion in the second quarter of 2010 (JulySeptember). to US$ 3. growth has been driven by the increasing reach of Asset Management Companies (AMCs) and distributors.from 90 to 137 during the same period. had their gross premium collections rise by 23 per cent to Rs 2. from Rs 7 trillion (US$ 157. The country's market capitalisation (cap)-to-GDP ratio. Further. reached a record level of 132. according to a report by SMC Global Securities. according to Swiss Re’s sigma study . In the life insurance business itself.73 million) in May 2010. Total PE investment in India increased by 71.60 crore (US$ 531. Besides the demographic factors. Volume of deals also increased by 52 per cent . an indicator of the total listed wealth of a country as a percentage of its GDP. presence of structured financial and capital market mechanisms.47 per cent in financial year 2010-11 from 23.07 per cent to Rs 425.from US$ 10 million in the second quarter of 2010 to US$ 11 million in the second quarter of 2011. a large and growing number of intellectuals. 2011. Foreign Institutional Investors (FIIs) . The Indian mutual fund industry is expected to register robust growth. India ranks at number 11. which comprises 43 fund houses. India has surpassed ten major markets in the last ten years. Private Equity (PE Investments) in India India offers a lucrative proposition to PE practitioners on the back of its young population. The median deal amount rose by 10 per cent .Mutual Funds in India The Indian mutual fund industry has witnessed significant growth in the last few years. 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. The total gross premium of 23 players in the non-life insurance market increased by 27 per cent in May 2011. India's mutual fund industry's average AUM increased by 6 per cent to Rs 7. large domestic market. India has surpassed Spain to become the 11th largest insurance market in the world.57 billion) in the first quarter (April-June) of the current financial year (2011-12). 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. Indian Insurance Sector The insurance industry in India has a big opportunity for national as well as foreign investors. from Rs 3.41 crore (US$ 710. according to the Insurance Regulatory and Development Authority (IRDA). and healthy rate of economic growth.6 billion) on average AUM. 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. “World insurance in 2010”. The mutual fund industry.8 per cent as on June 28.5 per cent .9 million) in the same period. according to the study.from US$ 1.46 billion (US$ 9. As Indians are getting richer.28 per cent in 2002-03.14 billion in the second quarter of 2011.151.87 billion) in the fourth quarter (January-March) of the last financial year (2010-11). in terms of ranking by premium volume in 2010.358. given the growing aspirations of retail customers. the desire to save for retirement is growing.43 trillion (US$ 167. Stock Markets The Indian equity markets are among the most deep and active markets across the globe. The average deal value rose by 21 per cent from US$ 24 million to US$ 29 million during the same period. The country's market capitalisation as a proportion of the world market cap was 2.

This is evident from the fact that first.17 billion).000 crore (US$ 1. Exchange Rate Used: INR 1 = US$ 0. net inflows in equities from FIIs have already reached around Rs 7.70 crore (US$ 867. individual investors from across the globe are expected to soon get the right to buy blue-chip Indian stocks Financial Services . Mercedes-Benz India (MBI) would look at offering vehicles on lease to individuals as well. Joint Secretary.T Group's financial services subsidiary L&amp. said Thomas Mathew. which govern capital markets and mutual funds.171. Great opportunity lies in the SME segment. capital markets at the Finance Ministry. The government has taken many steps to encourage investments in the financial sector. and now. 2011. GVR will utilise the funding for its projects in engineering and contracting space. German luxury car maker Mercedes-Benz is preparing to start leasing vehicles to consumers in the Indian market by the end of 2011.79 million) from the primary markets by diluting up to 17 per cent of its stake.T Finance Holdings has announced its plans to enter the capital markets to generate up to Rs 1. based on the recommendations of Foreign Investment Promotion Board (FIPB). according to a senior finance ministry official. IDFC Private Equity.58 billion) Recent Developments/Investments The Government has approved 31 Proposals of Foreign Direct Investment (FDI) amounting to Rs 3844. Net inflows during the period were Rs 5. On the retail side. a recently established local unit of German carmaker Daimler AG’s financial arm. and a consumer credit market that is rising by more than 40 per cent per annum. In the current month (July 2011). has invested Rs 150 crore (US$ 33. Daimler Financial Services India Pvt Ltd.245 crore (US$ 280. 2011] . 2011. the Finance Ministry is stepping up its efforts to widen the class of foreign investors in the Indian stock market. 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.20 crore (US$ 1. The L&amp.0225530 [as of July 24. The government expects good inflows from qualified financial institutions into mutual funds in this fiscal year to March 2012.Road Ahead Demand for financial services in India is taking off.83 million) to acquire a minority equity stake in Chennai based GVR Infra Projects Limited. The sector has huge growth potential. Once the venture reaches a certain size. one of India's largest risk capital investors. 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). which remains largely untapped. according to Klaus Entenmann. In an effort to support hedging of currency risks for non-resident exporters and importers. Further. India will allow qualified foreign investors to invest up to US$ 10 billion in domestic mutual funds from August 1. Noteworthy is the fact that International financial institutions are playing an increasing role in the expansion of India’s large corporations. is expecting to break even in four to five years and expects to have a loan book of US$ 500 million by 2016.FIIs remained upbeat on Indian companies during the quarter ended June 30.09 million) approximately. and with government considering steps to liberalise it further. global Chairman. the government gave the green signal for qualified foreign investors (QFIs) to invest in mutual funds. India already has more middle-class people on a purchasing power parity basis than the entire population of the US. the sector can be one of the most significant ones for the growth of the Indian economy. The company would start with leasing Mercedes cars to companies.

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