Financial Services

Introduction

India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The banking regulator has allowed new entities such as payment banks to be created recently, thereby adding to the type of entities operating in the sector. However, financial sector in India is predominantly a banking sector with commercial banks accounting for more than 64% of the total assets held by the financial system.

The Government of India has introduced several reforms to liberalise, regulate and enhance this industry. The Government and Reserve Bank of India (RBI) have taken various measures to facilitate easy access to finance for Micro, Small and Medium Enterprises (MSMEs). These measures include launching Credit Guarantee Fund Scheme for MSMEs, issuing guideline to banks regarding collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA). With a combined push by Government and private sector, India is undoubtedly one of the world’s most vibrant capital markets. In 2017, a new portal named ‘Udyami Mitra’ was launched by Small Industries Development Bank of India (SIDBI) with an aim to improve credit availability to MSMEs in the country. India has scored a perfect 10 in protecting shareholders’ rights on the back of reforms implemented by Securities and Exchange Board of India (SEBI).

Investments/Developments

  • In August 2020, PAG agreed to acquire 51% of the wealth management and capital markets business of Edelweiss Financial Services for Rs 2,244 crore (US$ 305.2 million)
  • In September 2020, People’s Bank of China made an equity investment in Bajaj Finance to acquire less than 1%.
  • Value of Unified Payments Interface (UPI) transactions was valued at Rs 2.06 lakh crore (US$ 29.22 billion) in March 2020, recording 1.25 billion transactions.
  • In March 2020, ClearTax, an online tax filing platform, acquired GST software and services business of Karvy Data Management Services for an undisclosed amount.
  • In April 2020, Axis Bank acquired an additional 29% stake in Max Life Insurance.
  • Turnover from derivatives segment reached Rs 3,453.9 lakh crore (US$ 49.41 trillion) in FY20 and stood at US$ 5.09 trillion in FY21 (till May 2020).
  • In 2019, FPI investment in Indian equities touched a five-year high of Rs 101,122 crore (US$ 14.47 billion).
  • Merger and Acquisition (M&A) worth US$ 25.162 billion was recorded in the first ten months of 2019.
  • Total value of private equity (PE)/venture capital (VC) investment grew 44% over past three years in value terms to reach US$ 48 billion in 2019.
  • In October 2019, ICICI Lombard General Insurance Company acquired Unbox Technologies for an aggregate cash consideration of Rs 225 crore (US$ 32.19 million).
  • There were 9,659 non-banking financial companies (NBFCs) registered with the Reserve Bank as on March 31, 2019.

Government Initiatives

  • In November 2019, Government allocated Rs 10,000 crore to set up AIFs for revival of stalled housing projects.
  • Under the Interest Subvention Scheme for MSMEs, Rs 350 crore (US$ 50.07 million) was allocated under Union Budget 2019 20 for 2% interest subvention for all GST registered MSMEs on fresh or incremental loans.
  • In December 2018, Securities and Exchange Board of India (SEBI) proposed direct overseas listing of Indian companies and other regulatory changes.
  • Bombay Stock Exchange (BSE) introduced weekly futures and options contracts on Sensex 50 index from October 26, 2018.
  • In September 2018, SEBI asked for recommendations to strengthen rules which will enhance the overall governance standards for issuers, intermediaries or infrastructure providers in the financial market.
  • The Government of India launched India Post Payments Bank (IPPB) to provide every district with one branch, which will help increase rural penetration. As of August 2018, two branches out of 650 branches were already operational.

Road Ahead

  • India is expected to be the fourth largest private wealth market globally by 2028.
  • India is today one of the most vibrant global economies on the back of robust banking and insurance sectors. The relaxation of foreign investment rules has received a positive response from the insurance sector, with many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the coming quarters, there could be a series of joint venture deals between global insurance giants and local players.
  • The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in AUM to Rs 95 lakh crore (US$ 1.47 trillion) and more than three times growth in investor accounts to 130 million by 2025.
  • India’s mobile wallet industry is estimated to grow at a Compound Annual Growth Rate (CAGR) of 150% to reach US$ 4.4 billion by 2022, while mobile wallet transactions will touch Rs 32 trillion (USD$ 492.6 billion) during the same period.

Note: Conversion rate used in April 2020, Rs 1 = US$ 0.013123

References: Media Reports, Press Releases, IRDAI, General Insurance Council, Reserve Bank of India, Union Budget 2019 20

Notes – * – Private Equity Deal Tracker report by EY