Advantage India
Growing
Demand
*The AUM of the Indian MF Industry has grown from Rs. 9.16 trillion (US$ 110.63 billion) in 2014, to Rs. 64.97 trillion (US$ 780.70 billion) in July 2024, growing ~6x in a span of 10 years.
*Investment corpus in Indian insurance sector might rise to US$ 1 trillion by 2025.
*With >2,100 fintechs operating currently, India is positioned to become one of the largest digital markets with rapid expansion of mobile and internet.
Innovation
*India benefits from a large cross-utilization of channels to expand reach of financial services.
*Emerging digital gold investment options.
*In the Union Budget 2022-23 India announced plans for a Central Bank Digital Currency (CBDC) which will be known as Digital Rupee.
Policy
Support
*FDI sectoral cap in the insurance sector has been revised from 49% to 74% under the automatic route. The Union Budget 2025 also announced the further increase of FDI sectoral cap for the insurance sector from 74% to 100%. This enhanced limit will be available for those companies, which invest the entire premium in India.
*International Financial Services Centres Authority (Banking) Regulations, 2020, are expected to drive and facilitate the constituent operations in the IFSC and help the sector reach its potential.
Growing
Penetration
*Credit, insurance and investment penetration is rising in rural areas.
*HNWI participation is growing in the wealth management segment.
*Lower mutual fund penetration of 5-6% reflects latent growth opportunities.
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, the 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 guidelines 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.
Market Size
In FY25 (Until October), AUM managed by the mutual funds industry stood at Rs. 67.25 lakh crore (US$ 808.17 billion). Inflow in India's mutual fund schemes via Systematic Investment Plans (SIP) from April 2024 to October 2024 stood at Rs. 1.59 lakh crore (US$ 19.11 billion).
Equity mutual funds registered a net inflow of Rs. 22.16 trillion (US$ 294.15 billion) by end of December 2021. The net inflows were Rs. 7,303.39 crore (US$ 888 million) in December as compared to a 21-month low of Rs. 2,258.35 crore (US$ 274.8 million) in November 2022.
Another crucial component of India’s financial industry is the insurance industry. The insurance industry has been expanding at a fast pace. The total first-year premium of life insurance companies reached US$ 32.04 billion in FY23. In FY23 (until December 2022) non-life insurance sector premiums reached Rs. 1.87 lakh crore (US$ 22.5 billion).
Furthermore, India’s leading bourse, the 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. In FY23, US$ 7.17 billion was raised across 40 Initial Public Offerings (IPOs). The number of companies listed on the BSE increased from 135 in 1995 to 5,415 as of June 2024.
Investments/Developments
The Financial Services Industry has seen major achievements in the recent past:
- In November 2024, Unified Payments Interface (UPI) recorded 13.41 billion transactions worth Rs. 18.53 lakh crore (US$ 222.66 billion).
- The number of transactions through immediate payment service (IMPS) reached 351.5 million (by volume) and amounted to Rs. 4.70 trillion (US$ 58.26 billion) in November 2024.
- India’s PE/VC investment recorded US$ 4.7 billion in October 2024.
- In 2021, Prosus acquired Indian payments giant BillDesk for US$ 4.7 billion.
- In September 2021, eight Indian banks announced that they are rolling out—or about to roll out—a system called ‘Account Aggregator’ to enable consumers to consolidate all their financial data in one place.
- In September 2021, Piramal Group concluded a payment of Rs. 34,250 crore (US$ 4.7 billion) to acquire Dewan Housing Finance Corporation (DHFL).
Government Initiatives
Some of the major Government Initiatives are
- In 2023, the government revamped the credit guarantee scheme. The inflow of Rs. 9,000 crore (US$ 1,080.97 million) into the corpus of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) will give MSMEs more access to collateral-free loans.
- In September 2021, the international branch of the National Payments Corporation of India (NPCI), NPCI International Payments (NIPL), has teamed with Liquid Group, a cross-border digital payments provider, to enable QR-based UPI payments to be accepted in 10 countries in north and southeast Asia.
- On September 30, 2021, the Reserve Bank of India communicated that the applicable average base rate to be charged by Non-Banking Financial Companies – Micro-Finance Institutions (NBFC-MFIs) to their borrowers for the quarter beginning October 1, 2021, will be 7.95%.
- On September 30, 2021, the IFSC Authority constituted an expert committee to recommend an approach towards the development of a sustainable finance hub and provide a road map for the same.
- In August 2021, Prime Minister Mr. Narendra Modi launched e-RUPI, a person and purpose-specific digital payment solution. e-RUPI is a QR code or SMS string-based e-voucher that is sent to the beneficiary’s cell phone. Users of this one-time payment mechanism will be able to redeem the voucher at the service provider without the usage of a card, digital payments app, or Internet banking access.
Road Ahead
India’s financial services industry has experienced huge growth in the past few years. This momentum is expected to continue. India’s private wealth management Industry shows huge potential. India is expected to have 16.57 lakh HNWIs in 2027. This will indeed lead India to be the fourth-largest private wealth market globally by 2028. India’s insurance market is also expected to reach US$ 250 billion by 2025. This will further offer India an opportunity of US$ 78 billion in additional life insurance premiums from 2020-30.
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 a nearly five-fold growth in AUM to Rs. 95 lakh crore (US$ 1.15 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 CAGR of 23.9% between 2023 and 2027 to reach US$ 5.7 trillion.
According to Goldman Sachs, investors have been pouring money into India’s stock market, which is likely to reach >US$ 5 trillion, surpassing the UK, and become the fifth-largest stock market worldwide by 2024.
Note: The conversion rate used for October 2024 is Rs. 1 = US$ 0.012
References: Media Reports, Press Releases, IRDAI, General Insurance Council, Reserve Bank of India, Union Budget 2023-24
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