Performance of Financial Service Sector In India: Past and Future

The financial service sector in India has a great impact on the Indian Economy. It is doubtless to say that this sector is dominating the economy of India. The Indian Brand and Equity Foundation (IBEF) has recently published in its report the growth and future perspectives of the Indian Financial Service sector. In this post, we have summarized the extracts of this report.

Financial Service

Highlights of the Financial Service Sector

The following are the highlights of the Indian financial service sector:-

  • Gross National Savings (GNS): The Gross National Savings (GNS) of the country is 30% of the Gross Domestic Product (GDP). The GNS denotes the sum of all savings by people, companies, and the government. 
  • High Net Worth Individuals (HNWI): The High Net Worth Individuals (HNWIs) are expected to grow at a CAGR of 19.7% The HNWI means the individuals with US$ 1 million or more liquid asset. In India, the number of HNWIs is expected to be doubled by the year 2020.
  • Growth in AUM: The Asset Under Management (AUM) of the mutual fund industry has grown at a rate of 15.51% in last 10 years. 
  • Funds Raised by IPOs: There were 37 Initial Public Offerings (IPOs) in the financial year (by June 2018) and they have raised a sum of US$ 1.2 billion.

(Read: Mutual Funds Industry Trends in 2018 – Investor’s Assets Report)

Growth Drivers of Financial Service Sector

According to the IBEF report, there are following factors which are working as growth drivers for the Indian Financial Service Sector:-

  • Increased Demand: The rise of incomes of individuals, as well as corporates, demands the financial services to manage their wealth and meet the goals.
  • Financial Innovation: The launch and growth fintech companies making it easier for both financial service providers and financial service consumers to provide and avail the financial services.
  • Expansion of Services: The service providers are expanding their reach to investors through various mediums.
  • Government Support: The government is supporting this sector by various policies and initiatives which work as a booster for their growth. 

(Read: People in the Security Market – Retail and Institutional Participants)

Structure of Financial Service Sector in India

The following figure represents the structure of the financial service sector in India:-

Growth in Assets Under Management (AUM)

According to the report, the total Assets Under Management (AUM) of the mutual fund industry was Rs 22.86 trillion in December 2018 (or, US$ 316.84 billion). It was US$ 125.40 billion in the financial year 2008.

(Read: Types of Investment Funds – A Classification of Alternative Investment)

The composition of Investors in Mutual Funds Industry

This report shows that the major asset holders in the mutual fund industry are the corporates which are followed by HNWIs and retail investors.

Top 5 Asset Management Companies (AMCs), according to the report are:-

Company AUM (US$ Billion)
ICICI Prudential Asset Management Company Ltd. 44.21
HDFC Asset Management Company Ltd. 43.65
Aditya Birla Sun Life Asset Management Company Ltd. 36.22
SBI Funds Management Pvt. Ltd. 36.17
Reliance Nippon Life Asset Management Ltd. 34.89

(Read: Top 10 Finance (Investment) Companies in India)

The growth of the Life/Non-Life Insurance Sector

The report shows the performance life insurance sector as given in the below figure:-

The report shows the performance non-life insurance sector as given in the below figure:-

Performance of Non-Banking Financial Companies (NBFCs)

The NBFCs have shown rapid growth in this space where they have been established as intermediaries in the retail financial sector. The public deposits at NBFCs are increased to US$ 4.95 billion in the financial year 2018 from US$ 0.29 billion in the financial year 2009.

Future Scope

There are following future scope in the financial services sector in India:-

  • Expansion of Indian Equity Market and increased listing of companies.
  • Increasing retail penetration with growing awareness among investors.
  • Growth in Domestic Institutional as well as Foreign Institutional Investments.
  • Innovation and Development of Fintech companies and increased use of technology.
  • Support from the government through new policies and initiatives.

 

Disclaimer: This post is based on the data and information privded in the IBEF report., January 2019.

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