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Financial services

The country’s financial services sector consists of the Capital Markets, Insurance sector, and Non-Banking Financial Companies (NBFCs). India’s gross national savings (GDS) as a percentage of Gross Domestic Product (GDP) stood at 30 per cent in 2017. The total amount of Initial Public Offerings increased to Rs 84,357 crore (US$ 13,089 million) by the end of FY18. In FY17, individual wealth in India expanded to Rs 344 lakh crore (US$ 5,337.47 billion) from Rs 310 lakh crore (US$ 4,620.66 billion) in FY16.

The asset management industry in India is among the fastest growing in the world. Corporate investors accounted for around 43.44 per cent of total AUM in India, while High Net Worth Individuals (HNWI) and retail investors account for 30.09 per cent and 24.79 per cent, respectively. In the Asia-Pacific, India is among the top five countries in terms of HNWIs. The Government of India has launched the ‘Bharat 22’ exchange traded fund (ETF), which will be managed by ICICI Prudential Mutual Fund, and is looking to raise Rs 8,000 crore (US$ 1.22 billion) initially. The Securities and Exchange Board of India (SEBI) has allowed exchanges in India to operate in equity and commodity segments simultaneously, starting from October 2018.

During the month of June 2018, equity mutual funds have registered a record net inflow of Rs 8,794 crore (US$ 1.13 billion). Total equity funding’s of microfinance sector grew at the rate of 39.88 to Rs 96.31 billion (Rs 4.49 billion) in 2017-18 from Rs 68.85 billion (US$ 1.03 billion) in 2016-17.^The public deposit of NBFCs increased from US$ 293.78 million in FY09 to Rs 409.15 billion (US$ 6,089.52 million) in FY17, registering a compound annual growth rate (CAGR) of 46.10 per cent.

In April 2018, the Government of India issued minimum FDI capital requirement of US$ 20 million for unregistered /exempt financial entities engaged in ‘fund based activities’ and threshold of US$ 2 million for unregistered financial entities engaged in ‘non-fund based activities’.

The Government of India has taken various steps to deepen the reforms in the capital markets, including simplification of the Initial Public Offer (IPO) process which allows qualified foreign investors (QFIs) to access the Indian bond markets. In FY18 the total amount of Initial Public Offerings increased to Rs 84,357 crore (US$ 13,089 million).

Major Player in Indian Financial services Industry

In the financial markets, there is a flow of funds from one group of parties (funds-surplus units) known as investors to another group (funds-deficit units) which require funds. However, often these groups do not have direct link. The link is provided by market intermediaries such as brokers, mutual funds, leasing and finance companies, etc. In all, there is a very large number of players and participants in the financial market. These can be grouped as follows:-

The Firms or Corporates:

The corporates are net borrowers. They require funds for different projects from time to time. They offer different types of securities to suit the risk preferences of investors. Sometimes, the corporates invest excess funds, as individuals do. The funds raised by issue of securities funds raised by issue of securities are invested in real assets like plant and machinery. The income generated by these real assets is distributed as interest or dividends to the investors who own the securities.

Government:

Government may borrow funds to take care of the budget deficit or as a measure of controlling the liquidity, etc. Government may require funds for long terms (which are raised by issue of Government loans) or for short-terms (for maintaining liquidity) in the money market. Government makes initial investments in public sector enterprises by subscribing to the shares, however, these investments (shares) may be sold to public through the process of disinvestments.

Regulators:

Financial system is regulated by different government agencies. The relationships among other participants, the trading mechanism and the overall flow of funds are managed, supervised and controlled by these statutory agencies. In India, two basic agencies regulating the financial market are the Reserve Bank of India (RBI ) and Securities and Exchange Board of India (SEBI). Reserve Bank of India, being the Central Bank, has the primary responsibility of maintaining liquidity in the money market. It undertakes the sale and purchase of T-Bills on behalf of the Government of India. SEBI has a primary responsibility of regulating and supervising the capital market. It has issued a number of Guidelines and Rules for the control and supervision of capital market and investors’ protection. Besides, there is an array of legislation’s and government departments also to regulate the operations in the financial system.

Market Intermediaries

There are a number of market intermediaries known as financial intermediaries or merchant bankers, operating in financial system. These are also known as investment managers or investment bankers. The objective of these intermediaries is to smoothen the process of investment and to establish a link between the investors and the users of funds. Corporations and Governments do not market their securities directly to the investors. Instead, they hire the services of the market intermediaries to represent them to the investors. Investors, particularly small investors, find it difficult to make direct investment. A small investor desiring to invest may not find a willing and desirable borrower. He may not be able to diversify across borrowers to reduce risk. He may not be equipped to assess and monitor the credit risk of borrowers. Market intermediaries help investors to select investments by providing investment consultancy, market analysis and credit rating of investment instruments. In order to operate in secondary market, the investors have to transact through share brokers. Mutual funds and investment companies pool the funds(savings) of investors and invest the corpus in different investment alternatives. Some of the market intermediaries are:

Lead Managers
Bankers to the Issue
Registrar and Share Transfer Agents
Depositories

Custodians
Portfolio Managers
Mutual Funds
Investment Companies.

These market intermediaries provide different types of financial services to the investors. They provide expertise to the securities issuers. They are constantly operating in the financial market. Small investors in particular and other investors too, rely on them.

Rules & Regulation:-
⦁ The SARFAESI (Central Registry) Amendment Rules, 2013
⦁ The Recovery of Debts due to Banks and Financial Institutions Act, 1993
⦁ The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions(Amendment) Act, 2016
⦁ Negotiable Instruments (Amendment) Act, 2015
⦁ Payment and Settlement Systems (Amendment) Act, 2015
⦁ Banking Law Amendment Act to come into force, 2013
⦁ Debts Recovery Appellate Tribunal (Procedure for appointment as Chairperson of the Appellate Tribunal Amendment Rules), 2011
⦁ Debts Recovery Tribunals (Procedure for Investigation of Misbehavior or Incapacity of PO) Rules, 2012
⦁ The Reserve Bank of India Act, 1934
⦁ The Bankers’ Books Evidence Act, 1891
⦁ Shipping Development Fund Committee (Abolition) Act, 1985
⦁ Chit Fund Act 1982
⦁ Factoring Act Rules, 2011
⦁ The National Housing Bank Act, 1987
⦁ Banking Companies (Regulation) Rules, 1949
⦁ The Banking Regulation(Companies) Rules, 1949
⦁ Security Interest (Enforcement) Rules, 2002
⦁ NABARD Bonds Regulations 1988
⦁ SIDBI General Regulations, 1990
⦁ The Banking Ombudsman Scheme, 2006
⦁ Credit Information Companies (Rules & Regulation), 2005

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