Financial Services in India

The term “financial services” refers to the economic services that are provided by the finance industry. This industry includes a wide variety of businesses that manage money, such as credit unions, banks, credit-card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokerages, investment funds, individual asset managers, and some government-sponsored enterprises. Financial services are the economic services that are provided by the finance industry.

Financial sector in India

The financial sector in India is highly diversified, and it is currently undergoing a period of rapid expansion. This expansion can be seen in terms of the robust growth of existing financial services firms, as well as the introduction of new players into the market. The term “sector” refers to the collection of financial institutions that includes commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds, and other less significant financial entities. The banking regulator has recently allowed new entities to be created, such as payment banks, which has resulted in an increase in the variety of entities that are currently operating in the sector. Commercial banks account for more than 64 percent of the total assets held by the financial system. Despite this fact, the banking sector dominates India’s financial sector, which can be seen by the fact that India’s financial sector is called the “financial sector.”

The Government of India has implemented a number of new policies in order to liberalise, regulate, and improve upon this industry. Micro, Small, and Medium-Sized Businesses in India will have easier access to financing thanks to a variety of measures that have been taken by both the government and the Reserve Bank of India (RBI) (MSMEs). 

Market Size

As of January 2022, the total number of accounts held by investors was 123.1 million, and the total amount of assets under management (AUM) managed by the mutual fund industry was Rs. 38.89 trillion (US$ 518.15 billion).

When compared to November 2020, the amount of money that was invested in India’s various mutual fund schemes through the use of a systematic investment plan (SIP) rose by 17 percent, reaching Rs. 1.05 lakh crore (US$ 13.98 billion) in November 2021. By the end of December 2021, equity mutual funds had seen a cumulative net inflow of Rs. 22.16 trillion, which is equivalent to approximately US$ 294.15 billion.

The insurance sector is also an essential part of India’s thriving financial sector. The market for insurance has been experiencing rapid growth recently. In the fiscal year 2021, the total first-year premium collected by life insurance companies reached $37.1 billion in the United States. Life insurance companies in India brought in a total of $17.6 billion in premiums from new customers during their fiscal year 22 (FY22). Premiums collected by the non-life insurance sector reached a total of Rs. 1.82 lakh crore (or 24.18 billion US dollars) during the first ten months of the fiscal year 22.

Initiatives of the Government

•NPCI International Payments (NIPL), the international branch of the National Payments Corporation of India (NPCI), announced a partnership with Liquid Group, a provider of cross-border digital payments, in September 2021. This partnership will make it possible for QR-based UPI payments to be accepted in 10 countries located in north and southeast Asia.

•The Reserve Bank of India announced on September 30, 2021 that the applicable average base rate that non-banking financial companies – microfinance institutions (NBFC-MFIs) will be allowed to charge to their borrowers for the quarter that will begin on October 1, 2021, will be 7.95 percent.

•The International Financial Services Center Authority established an expert committee on September 30, 2021, with the charge of recommending an approach toward the development of a sustainable finance hub and providing a road map for the same.

•Mr. Narendra Modi, the Prime Minister of India, was responsible for the launch of the digital payment solution known as e-RUPI in the month of August 2021. e-RUPI is an electronic voucher in the form of a QR code or an SMS string that is delivered to the mobile phone of the recipient. Users of this one-time payment mechanism will be able to redeem the voucher at the service provider without the need to use a card, digital payments app, or internet banking access to complete the transaction.

•The Factoring Regulation (Amendment) Bill was approved by the Rajya Sabha in July 2021, which opened the door for 9,000 non-bank financial companies to participate in the factoring market. The factoring industry is estimated to be worth 6 billion US dollars, and the bill grants the central bank the authority to create guidelines for enhanced oversight of the factoring industry.

Road Ahead

•By the year 2028, it is anticipated that India will have the fourth largest private wealth market worldwide.

•The insurance sector in India presents a significant opportunity for expansion. By 2025, it is anticipated that India’s insurance market will be worth $250 billion USD. Additionally, between the years 2020 and 2030, it presents an opportunity for an additional 78 billion dollars in life insurance premiums.

•On the strength of its robust banking and insurance sectors, India has emerged as one of the most dynamic economies in the world in recent years. The loosening of restrictions on foreign direct investment has been met with approval in the insurance industry, which has resulted in a number of businesses announcing their intentions to increase their ownership stakes in joint ventures with Indian businesses. In the course of the next few quarters, there may be a number of joint venture deals struck between major international insurance companies and significant local players.

•The Association of Mutual Funds in India (AMFI) has set a goal for the total amount of assets under management (AUM) to reach Rs. 95 lakh crore (US$ 1.47 trillion) by the year 2025. Additionally, the number of investor accounts is expected to increase by more than three times, reaching 130 million.

Conclusion

The financial sector in India is highly diversified, and it is currently undergoing a period of rapid expansion. This expansion can be seen in terms of the robust growth of existing financial services firms, as well as the introduction of new players into the market. The term “sector” refers to the collection of financial institutions that includes commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds, and other less significant financial entities.As of January 2022, the total number of accounts held by investors was 123.1 million, and the total amount of assets under management (AUM) managed by the mutual fund industry was Rs. 38.89 trillion (US$ 518.15 billion).NPCI International Payments (NIPL), the international branch of the National Payments Corporation of India (NPCI), announced a partnership with Liquid Group, a provider of cross-border digital payments, in September 2021.