Financial Services

Financial Services Last Updated: June 2009

With market sentiment turning positive due to the formation of a stable newly elected government, the ripple effect is likely to felt across all the financial services in India. The sectors, including banking and insurance, and mutual funds are all beginning to reap the benefits of a good closure for 2008-09. In 2008-09, the Indian economy is estimated to have grown by 6.7 per cent. According to the latest Central Statistical Organisation (CSO) data, financial services and real estate sector rose by 9.5 per cent in the first quarter of 2009-10. The government has taken a number of steps in recent months to revive the economy, including slashing interest rates, lowering factory levies and more than doubling the limit on foreign investment in corporate bonds. The financial services space is a rapidly growing one in India. The country received US$ 45 billion in foreign currency remittances from non-resident Indians in 2008, the highest in the world. April-May 2009 saw increased inflow in to equity with investors steadily turning positive on equity according to mutual fund analysts. As per the Securities and Exchange Board of India (SEBI), on May 15, net investment of mutual funds in equity was around US$ 83.3 million lowering to US$ 20.5 million on May 21. As against this, net investment of mutual funds in debt has more than tripled from US$ 42.9 million on May 15 to US$ 134.2 million on May 31, 2009. There is optimism in the economy as funds are investing in corporate bonds, making liquidity available to enterprises. The total amount traded in corporate bonds tripled from US$ 17.8 million to US$ 55.7 million during May 15 to May 21, 2009. The largest fund house, Reliance Mutual Fund, registered 16 per cent growth in its average assets under management (AUM) to US$ 21.6 billion in May 2009 compared to April’s figure of US$ 18.6 billion. The secondlargest fund house, HDFC Mutual Fund, grew 18 per cent to US$ 16 billion, compared with the previous month’s figure of US$ 13.4 billion. The Spice Group is now looking for a US$ 1-billion valuation in financial services business in the next three to five years. It has put US$ 105.2 million as seed money for the financial services business and is roping in a Singaporebased firm as a partner for the asset reconstruction business. India has increased its exposure to American debt securities by over three-fold to US$ 38.2 billion till March 2009 as against US$ 11.8 billion in March 2008, according to the data from the US Treasury Department. Stock markets India’s market capitalisation (m-cap) has touched US$ 1.04 trillion making it the ninth largest in the world. India’s share in the total world m-cap has risen to 2.79 per cent currently. The Indian stock market has currently responded to the optimism of reforms by the new stable government and its continuity in policies. Further, according to global consultancy firm, Deloitte Haskins & Sells, the Indian economy and capital markets are expected to witness a turnaround within six to nine months. Fund raising by India Inc through initial public offers (IPOs) rose by a whopping 62 per cent since the beginning of 2008 to May 29, 2008 to US$ 4.2 billion, against US$ 2.6 billion during the same period in 2006, according to global deal data provider, Dealogic. According to Goldman Sachs, Indian companies may raise US$ 4 billion-6 billion from IPOs in the fiscal year ending March 31, 2010. Insurance India is the fifth largest life insurance market in the emerging insurance economies globally and the segment is growing at a healthy 32–34 per cent annually. The insurance industry’s sales rose the fastest in two years since April 2007. The country’s 22 life insurance companies saw 29.5 per cent rise in premium collected through sale of new policies to US$ 758 million in April 2009, as against US$ 585 million in the corresponding period last year. In case of LIC, which recorded 69.33 per cent growth in first-year premium during April 2009, a bulk of the growth came from the group single premium segment and individual single premium rose to US$ 89.8 million from US$ 77 million in the corresponding period of last year. According to a report by research firm RNCOS—'Booming Insurance Market in India (2008–2011)'—the total life insurance premium in India is projected to grow to US$ 259.72 billion by 2010–11. Life Insurance Corporation (LIC) is bullish on growth and is targetting business in excess of US$ 59.14 billion by 2011–12. The government is planning to ease restrictions on foreign investments in insurance, banking and pensions, and allow foreign direct investment (FDI) of 49 per cent from the present 26 per cent. The ‘Mallassurance’ delivery channel is first of its kind in India's insurance sector, selling life and general insurance policies through all Future Group retail outlets across the country. For Future Generali Insurance, a sizeable chunk of

their customers now comes through the Mallassurance route. Online sales take place through two major channels through direct sales by the insurers and through online insurance portals which offer a range of products from various insurers. The most active insurers online are ICICI Lombard, Bajaj Allianz etc. Banking services During 2008-09, State Bank of India (SBI) and associate banks advanced US$ 16.8 billion for infrastructure projects such as power plants and petroleum refineries. The big-sized credits have made SBI and group one of the largest project financiers in the country. IDFC Mutual Fund and Bank of India have entered into a strategic alliance to distribute and market mutual fund products of IDFC through Bank of India's branches. Government Initiatives The Central Board of Direct Taxes (CBDT) has changed the investment pattern for recognised provident funds and superannuation trusts managed by the private sector under the income-tax rules to take a greater exposure in the stock market from April 1, 2009. Exchange rate used: 1 USD = 47.52 INR (as on May 2009)