|
|
OVERVIEW | OPPORTUNITIES
Banking &
Financial Services
OVERVIEW
SIZE
- India has a rapidly growing Banking and Financial Services sector based on sound fundamentals (low NPAs, Basel I compliance)
- Total banking assets of about US$16 billion in 2007: CAGR of 24% over last year
- Liquid and well regulated equity markets
- Market capitalisation (NSE) of over US$1.6 billion on December 2007
- Turnover has grown at a CAGR of 24% in 2007
- Mutual funds assets under management of US$130 billion in CY 2007; growth of 70% over previous year
- 44 Venture Capital and over 100 Private Equity Funds are in India
STRUCTURE
- Public sector (government-owned) banks account for 75% of the assets; however, Indian private banks and foreign banks are growing rapidly and gaining a larger share
- Standard Chartered Bank, Citibank and HSBC are the 3 largest foreign banks in India with more than 65% of the total assets of foreign banks
- Most global players in Banking & Financial Services – including Goldman Sachs, Morgan Stanley, Merrill Lynch, JP Morgan, Deutsche Bank, UBS, Lehman Brothers, ABN Amro, Barclays, Calyon etc. are active in India
- The Mutual Funds industry has both domestic and foreign companies - UTI Mutual Fund, Prudential ICICI, HDFC, Franklin Templeton, Birla Sun Life Mutual Fund, Tata Mutual Fund
POLICY
- Reserve Bank of India (RBI), India’s central bank is the regulator for the Banking and Financial Services industry
- Has issued guidelines for adoption of Basel II by March 2008
- RBI approval is required for all foreign investment in this sector
- Foreign banks can do business in India either by setting up branches or through a wholly owned subsidiary, after approval by RBI
- Indian private banks can be 74% foreign owned, with a 5% cap on ownership by any one entity
Structure of the Indian Banking Industry
| Classification
of Banks (2007) |
Number of Banks |
Total Assets
(US$ billion) |
| Public Sector Banks |
28 |
575 |
| Indian Private Banks |
25 |
175 |
| Foreign Banks |
29 |
48 |
| Total |
82 |
65 |
Source:RBI
OPPORTUNITY
 |
 |
Foreign banks gaining prominence
and popularity
in India
|
India has a highly developed Financial
Services sector |
OUTLOOK
- Total banking assets expected to grow to US$1 trillion by 2010 – a CAGR of 11%
- Over US$70 billion additional equity needed for growth plus Basel II compliance
- Consolidation in the banking space likely to be driven by private players
- Mutual funds: Assets Under Management (AUM) are expected to grow by 15% till 2010
- Retail finance is expected to grow at an annual rate of 18%, from US$27.6 billion in 2003-04 to over US$75 billion by 2010
- Demand for credit likely to grow at 25% p.a. with rapid GDP growth
POTENTIAL
- Several factors favour high growth
- Demographic profile favours higher retail offtake - 54% of the population is in the 15-35 years age group
- Capital expenditure by the government and private industry expected to grow at a high rate
- Economic growth of about 14% p.a. in nominal terms
- SME lending, a largely untapped market, presents a significant opportunity - SMEs account for 40% of the industrial output and 35% of direct exports
- Regulatory and technological enablers leading to high growth
- The banking system is technologically enabled with RTGS and cheque truncation in place
- Improved asset management practices - Gross NPAs to Advances ratio reduced from 24-25% in 1993 to 2.5% in 2006-07
- Investment opportunity across all segments in the banking and financial services sector
- Low penetration in the pension market makes it a lucrative business segment
- Foreign banks likely to be allowed to acquire local banks after March 2009 when the next stage of banking reforms is proposed
For additional information:
Ministry of Finance (http://finmin.nic.in),
Indian Banks’ Association (http://www.indianbanksassociation.org), AMFI
|
TOP