Financial Services Sector

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

Posted on: 2 Dec 2012

For the fourth straight year, India has narrowly edged out China to emerge as the world’s top recipient of officially recorded remittances.

Financial Services Sector in India The Financial services sector comprising banking, capital markets, legal, accounting, insurance, private equity, stock markets, is a vibrant and dynamic sector in India. This is a growing sector providing a lot of opportunities to overseas investors. Market overview Since the early 1990s, a series of radical economic reforms has significantly reduced tariffs and removed many of the licensing and other barriers, which used to impede business. Some sectors of British business still face protectionist obstacles but the irreversible trend is towards liberalisation. This is as much in India’s own interests as in those of its trading partners. For the fourth straight year, India has narrowly edged out China to emerge as the world’s top recipient of officially recorded remittances. According to the latest issue of the World Bank’s Migration and Development Brief on estimates for 2011 remittances, India was expected to receive $58 billion this year, followed by $57 billion flowing to China, and $24 billion to Mexico. This means that FDI in India is growing. Standard Chartered have forecast that India’s per capita income will increase over the next two decades from US $1,164 in 2010 to US $7,780 in 2030. Alongside this, they also expect a significant increase in urbanisation and a rapidly expanding middle class. These changes will drive demand for different sorts of goods and services, which are likely to further play to the strengths of the UK. Key opportunities ξ The Indian economy has posted excellent growth during the last decade and has demonstrated the resilience to withstand the recent global crisis ξ The young and growing population and rising income levels are drivers of consumption for almost every product or service one can think of from low volume to luxury. ξ It is estimated that by 2015, financial savings will amount to around 296 bn USD out of which the net inflow into insurance will be approximately 67 bn USD. This gives us a glimpse of the latent opportunity that lies ahead for the Indian life insurance industry at the current savings rate. ξ India’s bankable population has witnessed rapid strides in previous decade due to the growing demand for consumer loans, housing loans and credit cards. In the retail loans segment, mortgages have grown from 1.5% of banks’ advances to 10% of advances over the last ten years. The Boston Consulting Group estimates that outstanding mortgages will increase 8 fold from Rs. 5 trillion in 2011 to Rs. 40 trillion by 2020. Further, there will be a requirement of at least 40,000–50,000 additional bank branches and 160,000– 190,000 additional ATMs in this decade. This will be 3 times more than the branches and ATMs launched in the last decade. ξ Infrastructure is a priority for a growing economy and hence there will be a lot of opportunities for Infrastructure financing in roads, ports, railways, and airports. Latest export opportunities in Financial and Professional Services sector Latest export opportunities in India Getting into the market Foreign direct investment is permitted to the extent of 26% in the insurance sector Foreign lawyers are not allowed to practise in India. However this has not stopped foreign law firms from working with Indian corporates expanding overseas. Foreign law firms also have forged referral arrangements with a lot of Indian law firms and continue to do business in India. The financing requirement in India for infrastructure for the 5 years (12th Five Year Plan) from 2012 to 2017 is estimated at US$ 1 trillion. The Finance Minister, in his budget speech for 2011- 12, had announced the introduction of Infrastructure Debt Funds (“IDFs”). The objective of setting up IDFs was to channelize the inflow of Long Term Debt in infrastructure projects. IDFs are aimed at attracting and providing long – term low cost debt for infrastructure projects by tapping into resources like Insurance, Pension Funds, Sovereign Wealth Funds, Endowments, Foundations, Multilateral Financial Institutions, Other financial Institutions, etc New overseas entrants in the Indian banking space will be asked by the Reserve Bank of India (RBI) to locally incorporate themselves while existing players will be encouraged to go in for local incorporation and act as subsidiaries of foreign parents and not their branches; If they do chose to incorporate they will " be treated virtually on a par with their domestic peers in terms of branch expansion" up to a cap of 15% market share. More about doing business in India Contacts Market intelligence is critical when doing business overseas, and UKTI can provide bespoke market research and support during overseas visits though our chargeable Overseas Market Introduction Service (OMIS). To commission research or for general advice about the market, get in touch with our specialists in country - or contact your local international trade team. ξ Sheela Kulkarni, UKTI India, Tel: +91 (0)22 66502258 or email: Contact your local international trade team UKTI Events UKTI runs a range of events for exporters, including seminars in the UK, trade missions to overseas markets and support for attendance at overseas trade shows. Latest events in Financial and Professional services Latest events: India Major Events None at present. Useful links More about OMIS and other UKTI services for exporters
Posted: 02 December 2012

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