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Oct, 06 2014

‘Financial Services Centres’ count will reach 19,000 by 2017’

Indian Government takes initiatives to introduce reforms to liberalise, regulate and enhance the country's financial services industry.

Presently, the country can claim to be one of the world's most vibrant capital markets. In spite of the challenges that are still there, the sector's future looks good.

The financial services segment is an important pillar for the growth of Indian economy, as it comes under the services sector,  accounting for nearly 57 per cent of the gross domestic product (GDP).

The financial services sector in India is dominated by commercial banks which have more than 60 per cent share of the total assets; other segments include mutual funds, insurance firms, non-banking institutions, cooperatives and pension funds.

Market size

The size of banking assets in India reached US$ 1.8 trillion in FY 13 and is projected to touch US$ 28.5 trillion by FY 25.

Investments

During FY 14, foreign institutional investors (FIIs) invested a net amount of about Rs 80,000 crore (US$ 13.31 billion) in India's equity market, according to data by Securities and Exchange Board of India (SEBI).

The following are some of the key developments and investments in the Indian financial services sector:

= About 75 per cent of the insurance policies sold by 2020 would be in one way or another influenced by digital channels during the pre-purchase, purchase or renewal stages, according to a report by Boston Consulting Group (BCG) and Google India. This report, Digital@Insurance-20X By 2020, predicts that insurance sales from online channels will increase 20 times from present-day sales by 2020, and overall internet influenced sales will reach Rs 300,000-400,000 crore (US$ 49.9-66.54 billion).

= Export-Import Bank of India (Exim Bank) will focus more on supporting project exports from India to South Asia, Africa and Latin America, as per YaduvendraMathur, Chairman and MD, Exim Bank. “The bank has moved up the value chain by lending support to project exports so that India earns foreign exchange. In 2012-13, Exim Bank had supported 85 project export contracts valued at Rs 24,255 crore (US$ 4.03 billion) secured by 47 companies in 23 countries.”

= Private-sector lender IndusInd Bank will soon begin its asset reconstruction business. It plans to partner asset reconstruction companies (ARCs) for this venture. "I think our new initiative, which is going to launch in the next two months, is about asset reconstruction. We will do asset reconstruction within the bank but in tie-ups with ARCs. The business plan is ready. We believe a huge stock of assets is coming into the ARCs as a business area that we need to look at and we will exploit," said Romesh Sobti, CEO and MD, IndusInd Bank.

= Association of Mutual Funds in India (AMFI) has reported that the mutual fund industry's assets under management (AUM) have gone past the Rs 10 trillion (US$ 166.37 billion) mark in May, 2014. The AUM of the Indian mutual fund industry rose to Rs 10.11 trillion (US$ 168.19 billion) in May from Rs 9.45 trillion (US$ 157.21 billion) in April.

Financial services franchise

The franchise business in India is increasingly getting popular among domestic and international players across various sectors. Several major industries credit successful franchisees for their rapid progress.

As per KPMG India estimates, in India under financial services their  were 5200 outlets in 2012 which will reach to 19000 outlets by 2017.

However as its earlier mention than financial services come under consumer services, KPMG India estimates that a total of around 50,000 franchisee establishment (Contributing USD 4 Billion) may be required by 2017 to meet the growing demand in the service sector. Currently it is estimated that franchising in service sector contributes to almost USD 1billion revenue from around 15000 outlets.

Many big financial companies understand the importance of franchising and started across India such as Muthoot, M G George Muthoot, Group Chairman, said: “With our network of over 4,400 branches in 21 states and four Union Territories, we will strategically set up WLAs in semi-urban and rural areas.”

Future prospects

As the financial services sector in India has witnessed an elementary transformation since the country was liberalised. The increased savings of middle class people with the increase in their purchasing power capacity has broadened the scope of financial service providers. The financial services market is mounting rapidly, and there is noteworthy potential for further growth. Henceforth financial sector has good business opportunity for franchising. However, few challenges also exist in the Indian market such as high price of real estate, resistance on fees and royalty payments, financial services has various legal formalities which makes it little complex but we should still say that there is steady growth in franchise penetration in financial services fuelled by rising income and expenditure level of young population along with economic and socio-culture development.

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