Financial Sector Opportunities in India

An Expert's View about Banking, Finance and Insurance in India

Posted on: 29 Sep 2010

In India the financial services sector is already the largest contributor to the UK economy, as measured by net earnings from UK companies from FDI.

Sector briefing Financial Sector Opportunities in India Why India? In India the financial services sector is already the largest contributor to the UK economy, as measured by net earnings from UK companies from FDI (£315 Million in 2007). This is in spite of limited market share - banks only occupy 4% and insurance only 8-10%. The Process of reforms as part of liberalisation has resulted in greater investment in Indian economy. Government policies have become investment friendly and paper work has been reduced. The capital markets have also been able to receive huge inflow of funds. The Indian economy is ready to face competition from overseas markets and as a result international investors see India as a potential market for excellent returns on their investment. Find general information on the India market conditions on UKTI?s website. The Doing Business Guide for India gives an overview of India?s economy, business culture, potential opportunities and an introduction to other relevant issue UK Trade & Investment Sector briefing: Financial Sector opportunities in India The Reserve Bank of India (RBI), the country?s Opportunities central bank, has effectively managed the country?s monetary policy over the last five decades. The country?s current Prime Minister, UK companies themselves believe and call for ? Dr. Manmohan Singh is a former Governor of that they stand to gain from liberalisation. UK the Reserve Bank of India and a former companies consider themselves as new Finance Minister. He has predicted that the entrants as opposed to incumbents in the economy would grow by 8.5%in the fiscal Indian market - they stand to gain from ending 31 March 2011 market opening. We estimate that by 2012, even with no increase in market share, the UK India?s financial sector has been one of the should be earning £800m per year from fastest growing sectors in the economy. It has banking and insurance alone (this assumes also witnessed increased private sector activity that the sector grows by 100% from 2008 ? including an explosion of foreign banks, 2012, as predicted by KPMG). With some insurance companies, mutual funds, venture gradual liberalisation, if UK firms were to capital and investment institutions. double their current market share, we could be earning £1.6bn per year; and if India were to Banking become as open as open as South Africa, for example, then we would predict closer to £3bn by 2012. In the banking sector, the strong position of UK (and other foreign) banks would suggest that It is estimated by McKinsey that with full further liberalisation would allow them to grow financial services reform and liberalisation, their operations further and increase their India?s real GDP could expand by an additional volume of business significantly (see later 3% per year. The direct and indirect benefit projected growth figures for banking sector). from such reform is estimated to be worth US$47.3 billion. By 2014, additional growth By asset size, 6 out of the top 10 foreign banks from such reform would increase India?s per in India are EU-based. The 9 EU-based banks capita income to more than US$1,200 ? together controlled 65% of total assets of approximately 30% higher than it would have foreign banks in India in 2008. Of these banks been otherwise. ? the top 3 are UK-based (HSBC, Barclays, Standard Chartered). Foreign banks are also expanding business through many off-site The financial sector in India is characterised by ATMs, non-banking finance companies and off liberal and progressive policies, vibrant equity balance-sheet exposures (e.g. derivatives). and debt markets and prudent banking norms. Indian companies borrowed an aggregate India has a transparent, highly technology- amount of USD 13.31bn over an 11 month enabled and well-regulated stock market period from April 2009 ? Feb 2010 through the defined by the most modern, nationwide, on- ECB route. ECBs in the Indian financial line screen-based trading system (SBTS), and parlance stands for ?External Commercial a T+2 rolling settlement system. With the Borrowing?. Technically ECBs are no different largest number of listed companies ? than any bank lending, but since the source of approximately 10,000 - across 23 stock borrowing is an overseas institution, the exchanges, India has the third largest investor Reserve Bank of India created a special base in the world. category so that it can monitor and track the total foreign exposure the country has. The country also has a vibrant and modern commodities exchange market. NCDEX, MCX UK based banks could be very well placed in and NMCEI are the major national exchanges addressing the needs of the services sector with a diversified portfolio of commodities that such as Life-sciences, healthcare and also of include agri-products, bullion, metals and major infrastructure sectors such as power, energy. The exchanges offer future contracts roads and ports. and India was the first to provide trading in steel futures. The ECB opportunity presents itself not only to banks but also a whole host of other service India?s healthy banking system with a network providers such as legal firms, credit rating of 70,000 branches is among the largest in the agencies, corporate finance houses, Fx world. UK Trade & Investment Sector briefing: Financial Sector opportunities in India specialists and even specialist hedge funds that Total banking assets expected to grow deal in debt based obligations. to US$1 trillion by 2010 ? a CAGR of 11% The appetite of Indian companies to borrow Over US$70 billion additional equity overseas will only grow, therefore the timing is needed for growth plus Basel II right for the UK based institutions to throw compliance their hat in the ring and grab their fare share Consolidation in the banking space likely to be driven by private players On the retail banking side, foreign banks Retail finance is expected to grow at an committed to making a play in India will need annual rate of 18%, from US$27.6 to adopt alternative approaches to win the billion in 2003-04 to over US$75 billion ?race for the customer? and build a value- by 2010 creating customer franchise. Demand for credit likely to grow at 25% p.a. with rapid GDP growth Private Equity India today and for the next few years offers a once in a lifetime opportunity for PE funds to POTENTIAL invest in the infrastructure asset class across the board ranging from core sectors such as Several factors favour high growth power, roads, transport to social asset classes such as healthcare, education, environment. Capital expenditure by the government Other service economy infrastructure sectors and private industry expected to grow like telecom, ISPs, financial payment gateways at a high rate also offer massive opportunities. SME lending, a largely untapped It is estimated that there are now over 300 market, presents a significant private equity funds in the hunt for investment opportunity - SMEs account for 40% of opportunities in India but only a handful of the industrial output and 35% of direct these hail from the UK. exports Regulatory and technological enablers Insurance leading to high growth Insurance sector in India has been traditionally dominated by sta o Improved asset management te owned Life Insurance practices Corporation and General Insurance Corporation and its four subsidiaries. Government of India Investment opportunity across all has allowed FDI in insurance sector up to 26%. segments in the banking and financial Since then, a number of new joint venture services sector private companies have entered into life and o Low penetration in the pension general insurance sectors and their share in market makes it a lucrative business the insurance market in rising. Insurance segment Regulator Development Authority (IRDA) is the o Foreign banks likely to be regulatory authority in the insurance sector allowed to acquire local banks when under the Insurance Development and the next stage of banking reforms is Regulatory Authority Act, 1999. Once the proposed insurance bill is passed by the parliament, foreign firms can raise their stake to 49% If you have any questions on the opportunities which in turn would increase the scope of work above, contact the UKTI] contacts named in they do and the products offered. this report. Business opportunities aimed specifically at UK companies are added daily to Financial PR UKTI?s website. These leads are sourced by our As of now, there exists only one Indian firm staff overseas in British Embassies, High that focuses on Financial PR. As the Indian Commissions and Consulates, across all sectors financial sector grows the need for professional and in over 100 markets. PR firms is bound to grow and there is tremendous scope for UK financial PR firms to You can be alerted to business opportunities on establish and grow in this sector. a regular basis by registering on the UKTI OUTLOOK website. Find out more on UKTI?s business opportunities service on the UKTI website UK Trade & Investment Sector briefing: Financial Sector opportunities in India UKTI contacts Major events and activities Sheela Kulkarni Senior Trade & Investment Advisor India - Mumbai - Lord Mayor's delegation British High Commission to India Tel: +91 22 6650 2258, FTN: 8413 2258 City of London website Email: Contact: Mansion House Email: Time: October 2010 Jeff Glekin Deputy Head of Mission India - Mumbai - FICCI Banking British Deputy High Commission, Mumbai Conference T: +91 22 6650 2230 Contact: Sheela Kulkarni, UKTI British Deputy E: High Commission Mumbai T: +91 22 6650 2258, FTN: 8413 2258 Email: Time: September 2010 India - Mumbai - Capital Markets Conference Contact: Sheela Kulkarni, UKTI British Deputy High Commission Mumbai T: +91 22 6650 2258, FTN: 8413 2258 Email: Time: October / December 2010 India (& China) UK Roadshow Contact: Jeff Sinclair, Sector Group, UK Trade & Investment Email: Time: November 2010 (TBC) UK Trade & Investment Sector briefing: Financial Sector opportunities in India Next steps - How UKTI can help ? Arranging appointments British companies wishing to develop their ? Organise seminars or other events for business in the India market are advised to you to meet contacts and promote your undertake as much market research and company in the Chinese market planning as possible in the UK. UKTI?s team in India with its wide local knowledge and This work is available via our Overseas Market experience, can provide a range of services to Introduction Service (OMIS) a chargeable British-based companies wishing to grow their service which assists British-based companies business in global markets. wishing to enter or expand their business in overseas markets. This can include: ? Provision of market information To find out more about commissioning this ? Validated lists of agents/distributors work, or accessing other UKTI services and ? Key market players or potential specialist advice, please visit the UKTI website customers in the Chinese market to find contact details for your local UKTI ? Establishment of interest of such office. contacts in working with you Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation & Skills, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published 2010 by UK Trade & Investment. Crown Copyright © UK Trade & Investment Sector briefing: Financial Sector opportunities in India
Posted: 29 September 2010

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