05 Nov 2020 Ankit Chadha

Financial Services In India: Overview And Current Landscape

Financial Services In India | TRC Corporate Consulting

The financial services in India are witnessing a rapid expansion of a diversified financial sector, both in terms of the strong growth of existing financial services firms and the entry of new companies into the industry. Financial services in India is made up of commercial banks, insurance companies, non-banking financial corporations, cooperatives, pension funds, mutual funds and other smaller financial institutions.

The banking regulator has recently allowed new entities to be formed, such as payment banks, thereby adding to the form of entities operating in the sector. However, the sector of financial services in India is primarily the banking sector, and non-banking financial companies, with commercial banks responsible for more than 64% of the total assets held by the financial system.

Several reforms have been initiated by the Government of India to liberalise, control and develop this sector. Different steps have been taken by the Government and the Reserve Bank of India (RBI) to promote easy access to Micro, Small and Medium Enterprise (MSME) finance. These initiatives of government backed financial management and financial services in India include the introduction of the MSME Credit Guarantee Fund Scheme, the issuance of guidelines to banks on collateral criteria, and the establishment of a Production and Refinance Agency for Micro Units (MUDRA).

With a combined government, banking institutions, non-banking financial companies, private sector drive, the scope of financial management and financial services in India is undoubtedly one of the most competitive capital markets in the world. The Small Industries Development Bank of India (SIDBI) launched a new portal called 'Udyami Mitra' in 2017 with the goal of improving the availability of credit to MSMEs in the country. On the basis of reforms introduced by the Securities and Exchange Board of India (SEBI), India has scored a perfect 10 in safeguarding shareholder rights.

  1. Market Size

The AUM of the Mutual Fund industry rose from Rs 10.96 trillion in October 2014 (US$ 156.82 billion) to Rs 23.93 trillion in April 2020 (US$ 339.55 billion). Inflows into Indian mutual fund schemes reached Rs 82,453 crore (US$ 11.70 billion) in 2019 through the Systematic Investment Plan (SIP) path. At the end of December 2019, equity mutual funds posted a net inflow of Rs 8,04 trillion (US$ 114,06 billion).

When discussing the financial services in India, the insurance sector is another critical part of the industry. The insurance and financial management sector has grown at a rapid rate. In FY20, the gross premium for life insurance firms for the first year reached Rs 2,59 lakh crore (US$ 36,73 billion). Along with the secondary market, the market for Initial Public Offers (IPOs) has also witnessed rapid expansion. In 2019, US$ 2.5 billion was raised across 17 IPOs.

Furthermore, India’s leading bourse, Bombay Stock Exchange (BSE), will set up a joint venture with Ebix Inc to build a robust insurance distribution network in the country through a new distribution exchange platform.

  1. Investments/Developments

In August 2020, PAG agreed to acquire 51 percent of Edelweiss Financial Services' wealth management and capital markets business for Rs 2,244 crore (US$ 305.2 million). The People's Bank of China made an equity investment in Bajaj Finance in September 2020 to acquire less than 1 percent.

In March 2020, the volume of Unified Payments Interface (UPI) transactions, after a wealth management assessment, was estimated at Rs 2.06 lakh crore (US$ 29.22 billion), with 1.25 billion transactions reported. ClearTax, an online tax filing platform, acquired Karvy Data Management Services' GST software and services business for an undisclosed sum in March 2020. Axis Bank purchased a further 29 percent interest in Max Life Insurance in April 2020.

Derivative segment turnover in FY20 crossed Rs 3,453.9 lakh crore (US$ 49.41 trillion) and stood at US$ 5.09 trillion in FY21 (until May 2020). A five-year high of Rs 101,122 crore (US$ 14.47 billion) was affected by FPI investment in Indian equities in 2019. In the first ten months of 2019, Merger and Acquisition (M&A) worth US$ 25.162 billion was reported.

Total private equity (PE)/venture capital (VC) investment value grew 44 percent in value terms over the past three years to hit US$ 48 billion in 2019. In October 2019, for an aggregate cash valuation of Rs 225 crore (US$ 32.19 million), ICICI Lombard General Insurance Company acquired Unbox Technologies. As of March 31, 2019, there were 9,659 non-banking financial companies (NBFCs) registered with the Reserve Bank.

  1. Government Initiatives

In November 2019, Rs 10,000 crore was allocated by the Government to set up AIFs as an aiding financial services in India, to revive stalled housing projects. Rs 350 crore (US$ 50.07 million) was allocated under the Interest Subvention Scheme for MSMEs under the Union Budget 2019 20 for a 2 percent interest subsidy on new or incremental loans for all GST registered MSMEs under the Union Budget 2019 20.

The Securities and Exchange Board of India (SEBI) proposed direct overseas listings and other regulatory reforms for Indian companies in December 2018. On 26 October 2018, the Bombay Stock Exchange (BSE) launched weekly futures and options contracts on the Sensex 50 index.

In September 2018, SEBI sought recommendations to reinforce rules of Indian financial services that would boost the overall governance standards of the sector (wealth management, financial management and financial services in India) for issuers, intermediaries or infrastructure providers. India Post Payments Bank (IPPB) was launched by the Government of India to provide one branch for each district, which will help improve rural penetration. 

The Way Forward

By 2028, India is expected to be the fourth largest global private wealth sector. On the back of strong banking and insurance industries, India is today one of the most dynamic global economies and a leading player in delivering financial services in India and abroad alike.

With many companies announcing financial management plans to increase their stakes in joint ventures with Indian companies, the relaxation of foreign investment rules has received a positive response from the insurance sector of the financial services in India. There may be a series of joint venture deals between global insurance companies and local players over the coming quarters.

Top Indian Financial Services Institutions, Such as The Indian Mutual Funds Association (AMFI) is targeting nearly five-fold AUM growth to Rs 95 lakh crore (US$ 1.47 trillion) and more than three-fold growth of 130 million investor accounts by 2025.

India's mobile wallet industry, too, is expected to expand to reach US$ 4.4 billion by 2022 at a Compound Annual Growth Rate (CAGR) of 150%, while mobile wallet transactions will reach Rs 32 trillion (US$ 492.6 billion) during the same time.

How TRC Corporate Consulting Helps With Financial Services?

At TRC Corporate Consulting, our financial management experts practice a focused approach for identifying your business and transaction methods to analyse the operative, financial, and commercial aspects of the business.

With experienced and qualified financial management experts, our multidisciplinary teams including Indian financial services’ specialists, wealth management consultants, along with legal experts, who aim to add value to your business by concentrating on your business’s critical financial areas. So, if you have any queries or need further understanding about our financial services in India, reach out to us!