Financial Services Conditions

However, we expect margins to sustain as loans get reprised faster than deposits. Thus
sustainable margins with upward bias, healthy credit demand and containment in the slippages
and provisions will make Indian banking system stronger going forward.
Non-banking financial companies (NBFCs) are fast emerging as an important segment of the
Indian financial system. It is an heterogeneous group of institutions (other than commercial and
co-operative banks) performing financial intermediation in a variety of ways, like accepting
deposits, making loans and advances, leasing, hire purchase, etc. They raise funds from the
public, directly or indirectly, and lend them to ultimate spenders. They advance loans to the
various wholesale and retail traders, small-scale industries and self-employed persons.
NBFC are present in all competitive fields such as, vehicle financing, housing loans, leasing, hire
purchase and personal loans financing etc. NBFC's are not required to maintain cash reserve ratio
(CRR) and statutory liquid ratio (SLR). Priority sector lending norm of 40% (of total advances)
is not applicable to them. While this is at their advantage, they do not have access to low cost
demand deposits. As a result their cost of funds is always high, resulting in thinner interest
spread. But currently with surplus liquidity in the system, the cost of funds for NBFC's has
substantially eased thus improving their margins. Gradually, they are being recognised as
complementary to the banking sector due to their customer-oriented services; simplified
procedures; attractive rates of return on deposits; flexibility and timeliness in meeting the credit
needs of specified sectors; etc.
On regulatory front, NBFCs have been classified into 3 categories: (a) those accepting public
deposits, (b) those not accepting public deposits but engaged in financial business and (c) core
investment companies with 90 per cent of their total assets as investments in the securities of
their group/ holding/subsidiary companies. The focus of regulatory attention is on NBFCs
accepting public deposits.
India is the 5th largest market in Asia by premium following Japan, Korea, China and Taiwan. In
life insurance segment, India stands at fifth position in the emerging insurance economies
globally and the segment is growing at a healthy 32-34 per cent annually, according to the Life
Insurance Council.
According to the Insurance Regulatory and Development Authority (IRDA), total first year
premium collected in 2009-10 was US$ 24.64 billion, an increase of 25.46 per cent over US$
19.64 billion collected in 2008-09.
Further, according to IRDA, in April 2010, life insurance companies collected first year premium
worth US$ 1.29 billion, as compared to US$ 810.9 million in the corresponding period of 2009.
The life insurance industry grew by around 60 per cent in new business in the first half of 201011 despite a slowdown in sales in September, according to data compiled by life insurance
companies.
In September, the industry grew by 20 per cent on a year-on-year basis collecting US$ 2.14
billion in new business premium. However, the new business in September was almost 48 per
cent lower than the previous month's collection.
The life insurance industry is expected to cross the US$ 66.8 billion total premium income mark
in 2010-11. "This year, we are expecting a growth of 18 per cent in total premium income. Total

premium income, at US$ 56.04 billion, rose 18 per cent during 2009-10, against US$ 47.6 billion
in the previous year.
In the fiscal year ending March 31, 2010, total premiums in India amounted to US$ 64.7 billion.
This included non-life premiums of US$ 7.77 billion and life premiums of US$ 56.9 billion. In
the fiscal year ending March 31, 2015, the corresponding figures should be US$ 105.4 billion,
US$ 14.6 billion and US$ 90.8 billion. In terms of the key drivers that underpin our forecasts, we
are looking for non-life penetration to rise from 0.59% of GDP in the fiscal year ending March
31, 2010 to 0.61% in the March 2015 fiscal year. We expect that life density will rise from US$
47 per capita to US$ 85 per capita. Taking the recent infrastructure related developments in
consideration and the booming automobile industry in India as a parameter; we foresee the
potential of the insurance sector in India.
Capital market is one of the most important segments of the Indian financial system. It is the
market available to the companies for meeting their requirements of the long-term funds. It refers
to all the facilities and the institutional arrangements for borrowing and lending funds. In other
words, it is concerned with the raising of money capital for purposes of making long-term
investments. The market consists of a number of individuals and institutions (including the
Government) that canalize the supply and demand for long -term capital and claims on it. The
demand for long term capital comes predominantly from private sector manufacturing industries,
agriculture sector, trade and the Government agencies, while the supply of funds for the capital
market comes largely from individual and corporate savings, banks, insurance companies,
specialized financing agencies and the surplus of Governments.
According to ICICI Securities, Indian companies are likely to raise up to US$ 42.43 billion from
the primary market over the next three years. According to Madhabi Puri-Buch, Managing
Director and CEO, ICICI Securities' nearly US$ 20 billion will be raised from the initial public
offer (IPO) market this fiscal (2010-11), of which around US$ 8.49 billion would be from the
public sector and an equal amount from private companies.
On the back of an increase in the participation of agriculture and other commodities, the 23
commodity exchanges posted 50 per cent year-on-year growth in turnover in the April-February
period of 2009-10, to touch US$ 1.53 trillion, according to the commodity markets regulator,
Forward Markets Commission (FMC).
The competitive and regulatory pressures for consolidation are leading to a rapid increase in
M&A activity, with more than $36.5 billion worth of deals announced till May 2010 end. Such
activity is likely to accelerate still further as international groups seek to establish foothold. The
deals have been pouring in India this year and the ones which help companies merge, acquire,
raise capital and restructure are naturally in great demand. Senior Indian deal-makers are being
snapped up by foreign investment banks with a speed and alacrity that is usually reserved for
actual corporate deals.
There is a dearth of qualified and trained personnel & it is an important impediment in the
growth of financial service sector. A proper and comprehensive training is needed to be given to
various financial intermediaries.

Many innovative financial products/instruments are coming in market but the investors are not
aware about their advantages. Hence, financial intermediaries need to educate investors about
various products.
Each financial intermediary is dealing in different financial service lines without specializing in
one or two areas as is the condition in foreign countries. Hence financial intermediaries have to
go for such specialization.
Most of the intermediaries do not spend more time on research and lack adequate data base
required for financial creativity.
With the opening up of economy to Multinationals and exposure of Indian companies to
international currency transactions exposing the client to exchange rate risk, interest rate risk,
economic and political risk. Hence it is essential that they should introduce futures, options,
swaps and other derivative products which are necessary for an effective risk management
system.