Financial Services in India- Brief Overview Indian financial services industry has been through the toughest of the

times and yet stands strong and robust among the world economies. Having a deep impact of the far-reaching changes in the Indian economy since liberalization, the new face of this industry is evolving in a strong, transparent and resilient system. Over the last few years, financial markets have witnessed a significant broadening and deepening of service baskets with the introduction of several new instruments and products in banking, insurance and capital markets space. The sector was opened up to new private players including foreign companies who embraced international best practices and modern technology to offer a more sophisticated range of financial services to corporate, retail and institutional customers. Financial sector regulators too have been visionaries to ensure that new regulations and guidelines are in tandem with global norms. These developments have given a robust boost to the development and modernisation of the financial services sector in India. Insurance Sector

Indian life insurance sector collected new business premiums worth Rs 11,742.7 crore (US$ 1.92 billion) for April-May 2013, according to data from the Insurance Regulatory and Development Authority (IRDA). Life insurers collected Rs 1, 07, 010.7 crore (US$ 17.47 billion) worth of new premiums for the financial year ended March 31, 2013. Meanwhile, the general insurance industry grew by 19.6 per cent in April-May period of FY14, wherein the non-life insurers collected premium worth Rs 13,552.46 crore (US$ 2.21 billion).

Banking Services

According to the Reserve Bank of India (RBI)s Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, March 2013, Nationalised Banks accounted for 52.4 per cent of the aggregate deposits, while the State Bank of India (SBI) and its Associates accounted for 22 per cent. The share of New Private Sector Banks, Old Private Sector Banks, Foreign Banks, and Regional Rural Banks in aggregate deposits was 13.6 per cent, 5.1 per cent, 4 per cent and 2.9 per cent, respectively. Nationalised Banks accounted for the highest share of 51 per cent in gross bank credit followed by State Bank of India and its Associates (22.7 per cent) and New Private Sector Banks (14 per cent). Foreign Banks, Old Private Sector Banks and Regional Rural Banks had shares of around 4.9 per cent, 5 per cent and 2.5 per cent, respectively. Banks credit (loan) growth increased to 18 per cent for the fortnight ended September 6, 2013, while deposits grew by 13.37 per cent showed the data by RBI. India's foreign exchange reserves increased to US$ 277.73 billion as of October 4, 2013.

Mutual Funds Industry in India

Indias asset management companies (AMCs) have witnessed growth of 0.7 per cent in August 2013 wherein their average assets under management (AUM) stood at Rs 7.66 lakh crore (US$ 125.10 billion). Private Equity, Mergers & Acquisitions in India

Private equity (PE) and venture capital (VC) firms remained bullish about Indias consumer goods and services sector. PE and VC investments increased by more than 46 per cent in the first half of FY14, with consumer companies in retail, e-commerce, consumer packaged goods and quick service restaurants raising US$ 609.39 million through 51 deals. Meanwhile, Indian merger and acquisition (M&A) space witnessed substantial levels of deal activity in the first nine months of 2013. There happened 377 deals amounting to US$ 23.9 billion, according to a survey by tax advisory firm Grant Thornton.

Foreign Institutional Investors (FIIs) in India

Investments in Indian markets (equity, debt and derivatives) through participatory notes (P-Notes) increased to US$ 23.74 billion by the end of July 2013, according to the data released by Securities and Exchange Board of India (SEBI). P-Notes allow high net-worth individuals (HNI), hedge funds and other foreign institutions to invest in Indian markets through registered FIIs. The FIIs investments through P-Notes registered a growth of 11.45 per cent in July 2013 as compared to 10.93 per cent in June 2013. Overseas investors infused more than US$ 2 billion in the Indian stock market in the month of September 2013. Since the beginning of 2013, they have pumped a net US$ 13.7 billion in equities. Moreover, given the higher yields offered by Government and corporate debt, the FIIs have been aggressively buying bonds since the beginning of 2013. The debt market attracted a net inflow of about Rs 25,000 crore (US$ 4.08 billion) in January-May 2013. As of October 4, the number of registered FIIs in the country stood at 1, 744 and the total number of sub-accounts at 6, 358.

Financial Services in India: Recent Developments

Bangalore-based online retailer Flipkart has raised US$ 200 million from its existing investors including South African technology company Naspers Group and private equity (PE) firms Accel Partners and Tiger Global. The investors have already placed investments to the tune of US$ 181 million in the Indian e-commerce company and this fifth round of funding has marked the single-largest round of investment infusion. The funds would be used to build technology and will help the company strengthen its supply chain and human resource base.

Private lender HDFC Bank is planning to launch 500 mini branches, to be handled by one to three people, across India by the end of FY14. The bank has added about 219 mini branches pan-India since 2012. The basic motive behind such a initiative by the bank is to take the formal banking experience to people in unbanked and under-banked areas. A mini branch, manned by one, two or three persons, offers the entire range of products and services including savings and current accounts, fixed deposits, recurring deposits, credit card, instant debit card and also ATM facility. Products such as two wheeler loan, tractor loan, commercial vehicle loan, agricultural and commodities loan among others are also offered.

Financial Services: Government Initiatives In order to attract more of foreign capital to Indian markets, SEBI has eased norms for overseas investors in the debt category. As per the new rulings, FIIs will be allowed to buy Government securities (Gilts) directly from the market, rather than from the monthly auction conducted by the regulator to allocate these papers. The move is expected to facilitate more dollar inflows into the country besides making the cost of acquisition of gilts cheaper for foreign investors. In a similar initiative taken earlier in 2013, SEBI had allowed FIIs to buy corporate debt (which were also allocated through auction previously). Road Ahead A report prepared by KPMG prepared in association with the Confederation of Indian Industry (CII) states that the Indian banking sector is expected to become fifth largest in the world by 2020. The report highlights that India is one of the top 10 economies of the world and with relatively lower domestic credit to gross domestic product (GDP) percentage, their lies a huge scope of growth for the banking sector. Bank credit is expected to grow at a compounded annual growth rate (CAGR) of 17 per cent in the medium term, eventually leading to higher credit penetration in the economy. Meanwhile, IRDA estimates that the insurance business in India would touch Rs 4 lakh crore (US$ 65.32 billion) by the end of FY14. The regulator is considering bringing out norms for subbrokers of insurance products as well.

Top Challenges Facing Financial Services in 2013

more visible and fast-moving, others more fundamental and long-term -- in their recovery from the crisis of the past five years. Rather than isolate a small group of "top" issues, therefore, as if they were the only or most important challenges financial institutions should address next year, another perspective suggests that there are several dimensions in which one can present and discuss these interdependent challenges. An advantage of this perspective is that it reveals the relative degrees of urgency, breadth and impact among the numerous issues facing the industry. All need attention, but to different tenors and timeframes. The first and most visible dimension (though not necessarily the most important) includes the current or hot issues in the industry media and conferences. They typically revolve around the latest technology or political/regulatory trend, and while often urgent, are not always strategic. They tend to be the relatively fast-moving issues that change from year to year. The list for 2013 will include: -- incorporating mobile banking as a regular delivery channel -- developing a strategy around social media -- coming to permanent resolution with the regulatory issues of 2012, such as Dodd-Frank, Basel and the CFPB -- dealing with the economic aftermath of the fiscal cliff, whichever way it turns out A second dimension of issues is more complex and more regular, involving those recurring financial and competitive industry issues that financial institutions deal with every year. Now, however, they are in a new economic context as the industry emerges from the financial crisis: -- how to come to a new level of growth and sustainable profitability in an environment of low interest rates -- rebuilding asset quality and strengthening their capital adequacy -- where to develop new and reliable sources of revenue -- enriching and increasing the business value of customer relationships, at a time when customer behaviors and expectations are more demanding -- restoring public confidence in the industry -- how to deal with aggressive and innovative non-bank competitors -- embedding a risk management culture into the fabric and habit of daily operations A third dimension concerns the ever more critical need for financial institutions to transition their technology architectures to next-generation capabilities, putting in place the enablers for all the

issues listed above. Banks, thrifts and credit unions now need to approach technology no longer as an expense to be managed down, but more as an investment for future growth. By focusing less on specific systems and applications, and more on enterprise-wide capabilities, they need to address such challenges such as: -- implementing fully digital banking -- filling manual gaps and delivering straight-through, efficient business processes -- enterprise-level integration and management of data -- interactive customization of products and services to meet customer demands -- transparency in costs, compliance and prices While of course there are always going to be emerging technologies that capture our fancy and media attention (right now its probably mobile banking), these are really only the superficial toys that reflect the deeper and more significant trends in the financial services industrys reliance on technology. The emerging technologies of importance are therefore those that will enable the flexibility, adaptability, integration, standardization and efficiency that the transformation described above will demand. Which is what brings us to the fourth dimension, and the one that in many respects is the most important. It involves the fundamental and strategic "below the radar" transformation of the banking business model that is taking place in the industry, and how institutions need to respond to it. Technology is and has been changing the currency of exchange in financial services away from a pure focus on money, which is actually now just a blip on a computer, and toward information as the basis of products and services. Financial institutions will need to become datacentric organizations, revolving their assets and processes around the needs of customers no longer around the profitability of products and siloed business lines. This transformation will necessarily force institutions to address as well what their core markets and customer segments will be for the future. They will need to streamline to a smaller and more specialized market niche as it becomes unrealistic for them to expect to remain all things to all people. In effect, therefore, there will be only one overriding challenge for financial institutions in 2013 how to stay disciplined and remain attentive to all of the above issues simultaneously.