Financial Sector in India – A Report

Introduction

India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of
existing financial services firms and new entities entering the market. The sector comprises commercial
banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual
funds and other smaller financial entities. The banking regulator has allowed new entities such as
payments banks to be created recently thereby adding to the types of entities operating in the sector.
However, the financial sector in India is predominantly a banking sector with commercial banks
accounting for more than 64 per cent of the total assets held by the financial system.

The Government of India has introduced several reforms to liberalise, regulate and enhance this
industry. The Government and Reserve Bank of India (RBI) have taken various measures to facilitate
easy access to finance for Micro, Small and Medium Enterprises (MSMEs). These measures include
launching Credit Guarantee Fund Scheme for Micro and Small Enterprises, issuing guideline to banks
regarding collateral requirements and setting up a Micro Units Development and Refinance Agency
(MUDRA). With a combined push by both government and private sector, India is undoubtedly one of
the world's most vibrant capital markets. In 2017,a new portal named 'Udyami Mitra' has been launched
by the Small Industries Development Bank of India (SIDBI) with the aim of improving credit
availability to Micro, Small and Medium Enterprises' (MSMEs) in the country. India has scored a
perfect 10 in protecting shareholders' rights on the back of reforms implemented by Securities and
Exchange Board of India (SEBI).

Market Size

The Mutual Fund (MF) industry in India has seen rapid growth in Assets Under Management (AUM).
Total AUM of the industry stood at Rs 2.52 trillion (US$ 375.9 billion) between April - August 2018.
At the same time the number of Mutual fund (MF) equity portfolios reached a high of 74.6 million as
of June 2018.

Another crucial component of India’s financial industry is the insurance industry. The insurance
industry has been expanding at a fast pace. The total first year premium of life insurance companies
reached Rs 193,866.23 crore (US$ 30.10 billion) during FY18.

Along with the secondary market, the market for Initial Public Offers (IPOs) has also witnessed rapid
expansion. The total amount of Initial Public Offerings (IPO) increased to US$ 1.2 billion raised from
37 between April – June 2018.

Over the past few years India has witnessed a huge increase in Mergers and Acquisition (M&A) activity.
In H12018, 74 deals of acquisition took place in financial sector. The total value of such transactions
was US$ 4.166 billion. *

Furthermore, India’s leading bourse Bombay Stock Exchange (BSE) will set up a joint venture with
Ebix Inc to build a robust insurance distribution network in the country through a new distribution
exchange platform.
Investments/Developments

 In August 2018, a maiden fund called ‘Franklin India Long Short Equity AIF’ was launched by
Franklin Templeton Alternative Investments (India) Pvt. Ltd (FTAIIPL). It aims to diversify
investor’s investment portfolio.
 To support fintech startups a Financial Inclusion Lab will be set up by IIM-Ahmedabad, Dell
and Bill Gates foundations for which JP Morgan will create a US$ 7 – 9.5 million fund.
 Private equity (PE) investments in India reached US$ 304 million with a volume of 8 deals,
between January – June 2018. *
 In May 2018, 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). ^

Government Initiatives

 In September 2018, SEBI asked for recommendations to strengthen rules which will enhance
the overall governance standards for issuers, intermediaries or infrastructure providers in the
financial market.
 The Government of India launched India Post Payments Bank (IPPB), to provide every district
with one branch which will help increase rural penetration. As of August 2018, two branches
out of 650 branches are already operational.

 The Government of India 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.
 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’.

Road Ahead

 India is today one of the most vibrant global economies, on the back of robust banking and
insurance sectors. The relaxation of foreign investment rules has received a positive response
from the insurance sector, with many companies announcing plans to increase their stakes in
joint ventures with Indian companies. Over the coming quarters there could be a series of joint
venture deals between global insurance giants and local players.
 The Association of Mutual Funds in India (AMFI) is targeting nearly five fold growth in assets
under management (AUM) to Rs 95 lakh crore (US$ 1.47 trillion) and a more than three times
growth in investor accounts to 130 million by 2025.
 India's mobile wallet industry is estimated to grow at a Compound Annual Growth Rate
(CAGR) of 150 per cent to reach US$ 4.4 billion by 2022 while mobile wallet transactions to
touch Rs 32 trillion (USD $ 492.6 billion) by 2022.

Exchange Rate Used: INR 1 = US$ 0.0149 as of Q1 FY19.

References: Media Reports, Press Releases, IRDAI, General Insurance Council, Reserve Bank of India,
Union Budget 2017-18
 IPO market heats up; 3 dozen cos line up Rs 35,000-cr public offers
PTI: May 28, 2018

New Delhi: The IPO lane seems to get busier as three dozen companies have lined up initial share sale
plans worth Rs 35,000 crore in the coming months, largely to fund their expansion projects and working
capital requirement.

These include six state-run entities -- Indian Renewable Energy Development Agency, Rail Vikas
Nigam, IRCON International, RITES, Garden Reach Shipbuilders and Engineers and Mazagon Dock -
- as the government intends to unlock the real value of such PSUs and bring in greater accountability.

Of these three dozen firms, most of these companies plan to utilise initial public offer (IPO) proceeds
for business expansion as well as working capital requirements, as per the draft papers filed with the
Securities and Exchange Board of India.

Besides, some of the firms believe the listing of equity shares on bourses will enhance their brand name
and provide liquidity to existing shareholders.

"After raising record funds through IPOs in 2017, the primary markets in this year will also witness
healthy fund raising activity driven by improving utilisation levels across industries and tightening of
credit availability on account of poor state of affairs in banking industry," Equirus Capital ?Director
Capital Market Munish Aggarwal? said.

In this year, Barbeque-Nation Hospitality, TCNS Clothing Company, Nazara Technologies and Devi
Seafoods are among the 12 companies that have secured Sebi's nod to float their public offers.

In addition, 24 companies including Route Mobile, CreditAccess Grameen, Sembcorp Energy India,
Flemingo Travel Retail and Lodha Developers are awaiting the regulator's approval to float IPOs.

Together, these companies are expected to raise about Rs 35,000 crore, merchant banking sources said.

Moreover, 15 companies including ICICI Securities, Bandhan Bank, Hindustan Aeronautics and Mishra
Dhatu Nigam have already hit the capital markets so far this year.

According to experts, the IPO market will continue to see hectic activity as over a dozen firms are
awaiting Sebi's nod to launch their public issues.

"The IPO market is buoyant for good quality company issues which are priced cautiously. There is
investor appetite for companies which price their IPOs keeping money-on-table for investors," J
Kalyaniwala, vice president of investment banking at Prabhudas Lilladher said.

The year 2017 saw 36 companies collectively raising a record over Rs 67,000 crore trough their
respective initial share-sales. The previous high being in 2010 when Rs 37,535 crore was garnered,
almost half the amount.

Experts said that proactive regulatory environment coupled with uplifted investor sentiment has helped
the IPO market.
 PE investment deal tally touches USD 12.84 bn in Jan-Aug: Report
PTI: September 20, 2018

New Delhi: Private equity investments worth USD 1.33 billion were announced in August, taking the
year-to-date deal value to USD 12.84 billion, says a report.

According to Grant Thornton's PE Dealtracker, 67 PE investments worth USD 1.33 billion were
announced in August, registering a decline of 73 per cent in terms of value over the year ago period
even as there was an increase in the number of deals.

"PE transactions in August 2018 witnessed 43 per cent improvement in volumes, however, fell short on
the deal value by 73 per cent as compared to August 2017," Grant Thornton India LLP Director Pankaj
Chopda said.

For the January-August period, there were 552 PE investment deals worth USD 12.8 billion, down 12
per cent over the same period last year when USD 14.57 million worth of investments were announced.

Going ahead, the deal outlook for PE investments looks bullish, the report said.

"Bearing in mind the drive for consolidation for strengthening market position, competition for
acquiring IBC impacted assets and increasing role of PE in supporting IBC transactions, deal activity
is expected to again gain momentum in the coming months," Chopda said.

Moreover, successful subsequent round of fund raises and debut of new funds will also drive deal
activity in the PE space, he added.

In terms of sector, the month of August was dominated by investments in start ups, which accounted
for 67 per cent of total investment volumes.

The sector also saw the biggest ever fund raise by an Indian healthcare start up, with Chiratae Ventures,
Oaktree Capital, IDG Ventures, Accel Partners and Kalaari Capital investing USD 120 million in
Curefit.

August also witnessed KKR's investment in Ramky Enviro Engineers, marking one of the largest
buyouts in India, in addition to being the first private equity buyout in the country's environmental
services sector.

According to the report, real estate, consumer and retail, BFSI, IT&ITES and startups are expected to
be the focus sectors for PEs.

"Sectors with high concentration of unorganised players and having appetite for scalability will attract
significant demand from PEs," Chopda said.