financial sector of india

8/4/2019 Financial Sector of India

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Financial Sector of India

Financial Sector of India is intrinsically strong, operationally sundry and exhibitscompetence and flexibility besides being sensitive to India’s economic aims of developing a market oriented, industrious and viable economy.

An established financial sector assists greater standards of endowments andendorses expansion in the economy with its intensity and exposure. The fiscalsector in India entails banks, financial organization, markets and services. Thesector is classified as organized and conventional sector that is also recognized asunofficial finance market.

Fiscal transactions in an organized industry are executed by a number of financial

organizations which are commercial in nature and offer monetary services to thesociety. Further classification includes banking and non-banking enterprises, oftenrecognized as activities that are client specific.

The chief controller of the finance in India is the Reserve Bank of India (RBI) and isregarded as the supreme organization in the fiscal structure. Other significant fiscalorganizations are business banks, domestic rural banks, cooperative banks anddevelopment banks. Non-banking fiscal organizations entail credit and charter firmsand other organizations like Unit Trust of India, Provident Funds, Life InsuranceCorporation, Mutual funds, GIC, etc.

Financial Sector of India – Eligibility for government autonomy

Mentioned below are certain criterions that are required to be fulfilled for acquiringgovernment autonomy in India:

Availability of sufficient fund of up to 8% Accessibility of total non-performing wealth of below 9% Minimum net possessed funds of more than USD 2.5 million and net revenues of minimum past three years. Financial institutions that satisfy the abovementioned requirements will be authorized functional independence in almost all managerial

areas.

Financial Sector of India – RBI guidelines for NBFC's

The Reserve Bank of India has relaxed i ts guidelines for the operation of non-bank finance companies (NBFCs) in India considering thevarious investments from the investors. It has also permitted leasing of machinery and rent-buying credit firms with endowment level rankingsto avail public savings increase the maximum limit on the amount of public investments on these NBFCs that may allow and expand theclosing date for observance on its norms by two years.

The fiscal competitiveness of several NBFCs persists to be of importance to the administration and reserve bank of India controllers. There isa significant merging activity in this industry as NBFCs are regulated by stringent yardsticks that are obligatory to fulfill.



In addition, India has entered into new agreements with WTO in the area of fiscal services in Geneva on December 1997.

Financial Sector of India – Chief Characteristics

Some of the major characteristics of Financial Sector of India are:

•

The financial sector of India allows Most Favored Nation (MFN) reputation to all international banks and firms offering financialfacilities.• The sector has relaxed previous MFN tax exemption on banking activities.• Allows 12 new financial bank division authorizations every year to international banks, that is higher as compared to theexisting 8 every year.• Raises the 10% limit of reinsurance by insurance firms in India.• Permits 51% foreign endowment in fiscal advisory, issuing, hiring, business enterprise capital, business banking and non-banking credit firms.

Analysis of Indian Financial SectorAnalysis of Indian Financial Sector reveals that it is at present going through a phase of stable growth rate which is experiencing a upwardswing. The rise can be maintained over a long period by keeping the inflation down.

The financial sector in India has experienced a growth rate of 8.5% per annum. The rise in the growth rate suggests the growth of theeconomy. The financial policies and the monetary policies are able to sustain a stable growth rate. The reforms pertaining to the monetarypolicies and the macro economic policies over the last few years has influenced the Indian economy to the core.

The major step towards opening up of the financial market further was the nullification of the regulations restricting the growth in the financialsector. To maintain such a growth for a long term the inflation has to come down further. The analysis of Indian financial sector shows thegrowth of the sector was the result of the individual development of the divisions under the sector.

The analysis of Indian financial sector

Analysis of the Indian Capital market

• The ratio of the transaction was increased with the share ratio and deposit system• The removal of the pliable but ill-used forward trading mechanism• The introduction of infotech systems in the National Stock Exchange (NSE) in order to cater to the various investors indifferent locations• Privatization of stock exchanges

Analysis of the Indian Venture Capital market

• The venture capital sector in India is one of the most active in the financial sector inspite of the hindrances by the external setup.

• Presently in India there are around 34 national and 2 international SEBI registered venture capital funds.



Analysis of the Indian Banking sector

• The banking system in India is the most extensive. The total asset value of the entire banking sector in India is nearly US$ 270billion. The total deposits is nearly US$ 220 billion. Banking sector in India has been transformed completely. Presently the latestinclusions such as Internet banking and Core banking have made banking operations more user friendly and easy.

Analysis of the Indian Insurance sector

• With the opening of the market, foreign and private Indian players are keen to convert untapped market potential intoopportunities by providing tailor-made products.

• The insurance market is filled up with new players which has led to the introduction of several innovative insurance basedproducts, value add-ons, and services. Many foreign companies have also entered the arena such as Tokio Marine, Aviva, Allianz,Lombard General, AMP, New York Life, Standard Life, AIG, and Sun Life.

•

The competition among the companies has led to aggressive marketing, and distribution techniques.

• The active part of the Insurance Regulatory and Development Authority (IRDA) as a regulatory body has provided to thedevelopment of the sector.

Opportunities for the financial sector of India

• The distributed financial gain of the venture capital funds is not taxed. The financial gains are taxed after the investors receiveas income.

• The have more insurance and banking products introduced into the market to broaden the spectrum which in turn would boost

the growth of the sector.

• Further nullification of the regulations have to take place in order to increase the competition and boost the growth of thefinancial sector to reach the US$ 51 billion mark.

Find below detailed information on Financial Sector in India:

Growth of Financial Sector in IndiaThe growth of financial sector in India at present is nearly 8.5% per year. The rise in the growth rate suggests the growth of the economy.The financial policies and the monetary policies are able to sustain a stable growth rate.

The reforms pertaining to the monetary policies and the macro economic policies over the last few years has influenced the Indian economyto the core. The major step towards opening up of the financial market further was the nullification of the regulations restricting the growth of the financial sector in India. To maintain such a growth for a long term the inflation has to come down further.

The financial sector in India had an overall growth of 15%, which has exhibited stability over the last few years although several other markets across the Asian region were going through a turmoil. The development of the system pertaining to the financial sector was the key



to the growth of the same. With the opening of the financial market variety of products and services were introduced to suit the need of thecustomer. The Reserve Bank of India (RBI) played a dynamic role in the growth of the financial sector of India.

The growth of financial sector in India was due to the development in sectors

Growth of the banking sector in India

The banking system in India is the most extensive. The total asset value of the entire banking sector in India is nearly US$ 270 billion. Thetotal deposits is nearly US$ 220 billion. Banking sector in India has been transformed completely. Presently the latest inclusions such asInternet banking and Core banking have made banking operations more user friendly and easy.

Growth of the Capital Market in India

• The ratio of the transaction was increased with the share ratio and deposit system• The removal of the pliable but ill-used forward trading mechanism• The introduction of infotech systems in the National Stock Exchange (NSE) in order to cater to the various investors indifferent locations• Privatization of stock exchanges

Growth in the Insurance sector in India

• With the opening of the market, foreign and private Indian players are keen to convert untapped market potential intoopportunities by providing tailor-made products.

• The insurance market is filled up with new players which has led to the introduction of several innovative insurance basedproducts, value add-ons, and services. Many foreign companies have also entered the arena such as Tokio Marine, Aviva, Allianz,Lombard General, AMP, New York Life, Standard Life, AIG, and Sun Life.

• The competition among the companies has led to aggressive marketing, and distribution techniques.

• The active part of the Insurance Regulatory and Development Authority (IRDA) as a regulatory body has provided to thedevelopment of the sector.

Growth of the Venture Capital market in India

• The venture capital sector in India is one of the most active in the financial sector inspite of the hindrances by the external setup.

• Presently in India there are around 34 national and 2 international SEBI registered venture capital funds



http://indiacurrentaffairs.org/enhance-relevancy-of-financial-services-to-rural-india/ENHANCE RELEVANCY OF FINANCIAL SERVICES TO RURAL INDIAOnly 30% of the bank branches operate in the rural areas that house 72.2% of thecountry’s population. Further, rural India accounts for just 9% of total deposits, 7%of total credit, 10% of life insurance and 0.6% of non-life business. There istherefore an urgent need to fast-track financial inclusion, he said, adding that thevarious technological and financial services and initiatives need to be dovetailed forthis.

Even as FMCGs have penetrated rural markets in a major way and there are over600 mobile subscribers around the country, only 40% of the population still hasholds bank accounts. So, financial inclusion remains a study in contrast to theadvancements that have taken place in many business sectors.

The situation calls for a shift in the mindset of the large segment of society towardaccessing banking services, especially in rural India. the priority sector lending thatis mandated on banks has somehow not delivered the expected results in terms of financial inclusion. The big change, would come about with the adoption of tailormade solutions, such as, use of regional languages in banking transactions.

panchayats across the country being connected with broadband services,technology can be better used to further financial inclusion in the rural areas. At thesame time, due attention is required to ensure that the banking services are safe,secure and affordable. Importantly, the benefits need to be visible to the largerpopulace.

The effort for financial inclusion should go beyond creating no-frills accounts thatlargely remain “dead accounts” and instead link up the financial inclusion initiativewith the economic activities of the stakeholders.

2.5 lakh common service centres are being set up across the country through whichpeople would be able to access various financial services.

Only 30% of the bank branches operate in the rural areas that house 72.2% of thecountry’s population. Further, rural India accounts for just 9% of total deposits, 7%of total credit, 10% of life insurance and 0.6% of non-life business. There istherefore an urgent need to fast-track financial inclusion. the various technologicaland financial services and initiatives need to be dovetailed for this.

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http://indiacurrentaffairs.org/power-to-rural-india-%E2%80%93-empowerment-of-panchayats-%E2%80%93-sudhir-tiwari/

POWER TO RURAL INDIA – EMPOWERMENT OF

PANCHAYATS –SUDHIR TIWARIPanchayati Raj Institutions in India are the backbone of our democracy. To promote a decentralized, participative &holistic planning process for the local elected bodies and make then more meaningful a number of initiatives havebeen taken by the Ministry of Panchayati Raj.

The Backward Region Grant Fund

This Scheme promotes decentralized, participative & holistic planning process, as an essential condition for gettingBRGF grant. It bridges the critical gaps in development and builds capacity of PRIs & official functionaries. Theevaluation study done recently shows that BRGF is extremely useful in meeting the local needs and PRIs and Stateshave acquired good experience in planning and implementing the Scheme. Out of the plan outlay of Rs.4670 Cr. for 2009-10 for BRGF, Rs. 3240 Cr has already been released to States by 31 st December 2009.

e-Governance Project

e-PRI is identified as one of the Mission Mode Projects (MMPs) under NeGP. It proposes to provide a whole range of IT related services such as Decentralized Database & Planning, PRI Budgeting & Accounting, Implementation &monitoring of Central and State sector schemes, Citizen-centric Services, Unique codes to Panchayats andIndividuals, Essential GIS based applications, On-line Self-learning medium for elected representatives and officialfunctionaries. e-PRI has the potential to revolutionize PRIs as the symbol of modernit y & efficiency and induce massICT culture.

e-PRI envisages providing computing facilities along with connectivity to all the 2.36 lac Panchayats at a tentativecost of Rs. 4500 cr. over 3 years. Panchayats being the basic unit for planning and implementation of Cenral/Statesprogrammes & schemes, e-PRI would, in a way, be the umbrella MMP. Government would, therefore, give high

priority to e-PRI under NeGP. Information and Service Needs Assessment, Business Process Engineering andDetailed Budget Reports for 27 States has already been done and the Project is ready for roll out.

50% Reservation for Women

The President in her Address to the Parliament on 4.6.09 had mentioned the intent to provide fifty percent reservationfor women in Panchayats as women suffer multiple deprivations of class, caste and gender and enhancingreservation in Panchayats will lead to more women entering the public sphere.

Accordingly, on 27.08.2009, the Cabinet approved the proposal to amend Articles 243 D to provide 50% reservationfor women in seats and also offices of Chairpersons in all 3 tiers of Panchayats. Minister of Panchayati Rajintroduced the Constitutional (One Hundred and Tenth) Amendment Bill, 2009 in the Lok Sabha on 26.11.2009.

Presently, out of approx 28.18 Lakhs elected representatives of Panchayats, 36.87% are women. With the proposedConstitutional Amendment, the number of elected women representatives is expected to rise to more than 14 lakhs.

Devolution of Functions, Finance and Functionaries to PRIs

Panchayats are the grassroot democratic institutions and need to be further empowered through effective devolutionof functions, finances and functionaries (3Fs) following the principles of subsidiarity and centrality of Panchayats. Thiswould also ensure convergence of plethora of schemes and pooling of resources through holistic planning byPanchayats. Panchayat Empowerment and Accountability Incentive Scheme, which aims at incentivising States to







devolve 3Fs to Panchayats and Panchayats to be more transparent and accountable, would be given higher allocation based on a devolution index.

‘Year of the Gram Sabha’

50 years of Panchayati Raj was commemorated on 2 nd Oct.09. Given the criticality of Gram Sabhas in self-governance and transparent and accountable functioning of the Gram Panchayats. 2.10.2009 to 2.10.2010 is beingobserved as ‘Year of the Gram Sabha’. Apart from making all efforts to ensure effective functioning of the GramSabhas, following action are being taken; legal, policy and programme changes required for empowering thePanchayats particularly the Gram Sabhas; building systems & processes for ensuring greater efficiency, transparency& accountability of the Panchayats, and launching mass awareness of and specific activities by the Gram Sabhas &Panchayats.

Nyaya Panchayat Bill, 2009

The current justice delivery system is perceived as expensive, time-consuming, procedure-ridden, technical anddifficult to comprehend, which prevents the poor from approaching the legal system with their grievances. To mitigatesuch hardships, the Ministry has proposed a Nyaya Panchayats Bill. The Nyaya Panchayats will ensure participatoryand people-oriented system of justice with greater scope for mediation, conciliation and compromise. Being closer to

the people geographically and psychologically, the Nyaya Panchayats would be the ideal forum to save time, troubleand expenses of parties and witnesses. It would also reduce the workload of judiciary.

Panchayat Mahila Shakti Abhiyan

It is a scheme for the Elected Women Representatives (EWRs) to build their confidence and capacity so that they getover the institutional, societal and political constraints that prevent them from active participation in rural local self government. 22 States have formed the Core Committee and organized the State Level Sammelans. 9 State SupportCentres have been established under the scheme. (Andhra Pradesh, Chhattisgarh, Goa, Himachal Pradesh, MadhyaPradesh, Sikkim, Kerala, West Bengal and Andaman & Nicobar Island). 11 States have been conducted trainingsensitization programme under the scheme. (Andhra Pradesh, Arunachal Pradesh, Chhattisgarh, Goa, HimachalPradesh, Madhya Pradesh, Manipur, Kerala, Assam, Andaman & Nicobar Island and Sikkim)

47 Divisional Level Sammelans have been organized in 11 States. (Chhattisgarh, Goa, Haryana, Andhra Pradesh,Himachal Pradesh, Rajasthan, Sikkim, Manipur, Uttarakhand, West Bengal and Andaman & Nicobar Island). StateLevel Association of EWRs/EYRs has been formed in the States of Goa and Sikkim.

Rural Business Hubs (RBH) Scheme

The RBH scheme has been started in 2007, to spread the benefits of India’s rapid economic development to therural areas through the medium of Panchayati Raj Institutions (PRIs). RBH is a participatory development model for the rural areas of the country that is built on the platform of 4 P, i.e. Public-Private-Panchayat-Partnership. The RBHinitiative is aimed at moving from mere livelihood support to promoting rural prosperity, increasing rural non-farmincomes and augmenting rural employment.

35 districts have been identified for focused RBH intervention in consultation with State Governments. Services of reputed organizations have been enlisted as Gateway Agencies for supporting Panchayats in identification of potential RBHs and their development. Financial assistance to 49 projects has been extended for establishment of RBH. Also,RBH is being evaluated for possible upscaling in the future



http://finance.indiamart.com/investment_in_india/regional_rural_banks_india.htmlRegional Rural Banks in IndiaRural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focussed upon the agrosector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of thecountry.

SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of SBI is spread in 13 states extending from Kashmir toKarnataka and Himachal Pradesh to North East. The total number of SBIs Regional Rural Banks in India branches is 2349 (16%). Till date inrural banking in India, there are 14,475 rural banks in the country of which 2126 (91%) are located in remote rural areas.

Andhra Pradesh Bihar

• Andhra Pradesh Grameena Vikas Bank• Andhra Pragathi Grameena Bank• Deccan Grameena Bank• Chaitanya Godavari Grameena Bank• Saptagiri Grameena Bank

Chhattisgarh

• Chhattisgarh Gramin Bank• Surguja Kshetriya Gramin Bank• Durg-Rajnandgaon Gramin Bank

Haryana

• Harayana Gramin Bank• Gurgaon Gramin Bank

Jammu & Kashmir

• Jammu Rural Bank• Ellaquai Dehati Bank• Kamraz Rural Bank

Assam

• Assam Gramin Vikash Bank• Langpi Dehangi Rural Bank

Jharkhand

• Jharkhand Gramin Bank• Vananchal Gramin Bank

Madhya Pradesh

• Narmada Malwa Gramin Bank• Satpura Kshetriya Gramin Bank

• Madhya Bihar Gramin Bank• Bihar Kshetriya Gramin Bank• Uttar Bihar Kshetriya Gramin Bank• Kosi Kshetriya Gramin Bank• Samastipur Kshetriya Gramin Bank

Gujarat

• Dena Gujarat Gramin Bank• Baroda Gujarat Gramin Bank• Saurashtra Gramin Bank

Himachal Pradesh

• Himachal Gramin Bank• Parvatiya Gramin Bank

Punjab

• Punjab Gramin Bank• Faridkot-Bhatinda Kshetriya Gramin Bank• Malwa Gramin Bank

Kerala

• Narmada Malwa Gramin Bank• North Malabar Gramin Bank

Tamil Nadu

• Pandyan Grama Bank• Pallavan Grama Bank

Maharashtra

• Marathwada Gramin Bank• Aurangabad -Jalna Gramin Bank

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• Madhya Bharath Gramin Bank• Chambal-Gwalior Kshetriya Gramin Bank• Rewa-Sidhi Gramin Bank• Sharda Gramin Bank• Ratlam- Mandsaur Kshetriya Gramin Bank• Vidisha Bhopal Kshetriya Gramin Bank• Mahakaushal Kshetriya Gramin Bank

• Jhabua Dhar Kshetriya Gramin Bank

• Wainganga Kshetriya Gramin Bank• Vidharbha Kshetriya Gramin Bank• Solapur Gramin Bank• Thane Gramin Bank

• Ratnagiri-Sindhudurg Gramin Bank

Karnataka

• Karnataka Vikas Grameena Bank• Pragathi Gramin Bank• Cauvery Kalpatharu Grameena Bank• Krishna Grameena Bank• Chikmagalur-Kodagu Grameena Bank

• Visveshvaraya Gramin Bank

Rajasthan

• Baroda Rajasthan Gramin Bank• Marwar Ganganagar Bikaner Gramin Bank• Rajasthan Gramin Bank• Jaipur Thar Gramin Bank• Hodoti Kshetriya Gramin Bank

• Mewar Anchalik Gramin Bank

Orissa

• Kalinga Gramya Bank• Utkal Gramya Bank• Baitarani Gramya Bank• Neelachal Gramya Bank

• Rushikulya Gramya Bank

West Bengal

• Bangiya Gramin Vikash Bank• Paschim Banga Gramin Bank

• Uttar Banga Kshetriya Gramin Bank

Meghalaya

• Ka Bank Nogkyndong Ri Khasi- Jaintia

Arunachal Pradesh

• Arunachal Pradesh Rural Bank

Manipur

• Manipur Rural Bank

Mizoram

• Mizoram Rural Bank

Nagaland

• Nagaland Rural BankTripura

• Tripura Gramin BankUttar Pradesh

• Purvanchal Gramin Bank• Kashi Gomti Samyut Gramin Bank•

Uttar Pradesh Gramin Bank• Shreyas Gramin Bank• Lucknow Kshetriya Gramin Bank• Ballia Kshetriya Gramin Bank• Triveni Kshetriya Gramin Bank• Aryavart Gramin Bank• Kisan Gramin Bank• Kshetriya Kisan Gramin Bank• Etawah Kshetriya Gramin Bank

Uttaranchal

• Uttaranchal Gramin Bank

• Nainital Almora Kshetriya Gramin Bank



• Rani Laxmi Bai Kshetriya Gramin Bank• Baroda Western Uttar Pradesh Gramin Bank• Devipatan Kshetriya Gramin Bank• Prathama Bank

http://www.rediff.com/money/2005/dec/01guest3.htmRural banking without rootsGiven the abysmal spread of formal credit facilities in the country, and more so in village India, it's hardly surprising that both the governmentas well as the Reserve Bank of India [ Get Quote ] are both talking of universal financial access or "financial inclusion" nowadays.

That's perhaps why, a south India-based PSU bank is planning to adopt the union territory of Pondicherry for "financial inclusion".

The problem, however, is that unless this goes hand-in-hand with the overall development of village India, it's akin to growing grass without

roots.

Since financial inclusion means access to financial services, the best indicator is the proportion of families with a bank account.

In the United Kingdom, about 5 per cent of the population do not have bank accounts. In Australia [ Images ], about 7-8 per cent of the

population do not do banking.

In India, there are a total of 31 crore (Rs 310 million) savings bank accounts, but given the number of multiple accounts, the number of

people having savings bank accounts cannot be more than 20 crore (Rs 200 million).

This means around 85 per cent of India's population does not have access to financial services in a cost-effective, transparent and fair

manner.

Pondicherry, by the way, is better off than many other places in India. It has an adult population of about 10 lakh and there are 6.67 lakh

bank accounts even though the actual account holders are about three lakh, once you remove the multiple accounts. The literacy rate in this

Union Territory is 87 per cent.

There are 85 bank branches spread across 264 villages. The PSU bank plans to use technology to spread the message of banking. It wants

to rope in BSNL in its endeavour to achieve the mission of including the entire adult population of Pondicherry for financial services.

"If mobile telephony can reach remote villages, why can't banks go there?" asks the CEO of the bank.

A relevant question. Of the 6,34,321 villages in India, only 9,000 villages have more than one bank branch. This is despite the fact that there

are 32,227 rural branches and they account of about 45 per cent of the total branch network.

Close to 60 per cent of rural households do not have a bank account and only 21 per cent have access to credit from a formal source.

Over 70 per cent of marginal farmers have no deposit account and 87 per cent have no formal credit. Less than 2 per cent of rural

households can access loans from a financial intermediary to meet unforeseen financial expenses and the approval for such loans takes

between three and six months, and that too after bribing officials.

ICICI Bank [ Get Quote ] has been trying to reach out to the rural masses in Tamil Nadu, Andhra Pradesh, Orissa and Uttar Pradesh

[ Images ] by setting up Internet kiosks and automated teller machines.

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Developed jointly by n-Logue Communications, promoted by IIT Madras professor Ashok Jhunjhunwala, thousands of ICICI's low-cost ATMs

dot rural Tamil Nadu. ICICI has plans for mobile banking, of a different sort - in this case, vans will go around to villages collecting deposits.

Now, PSU banks will join the mission as both the RBI and the finance ministry are keen that banking services must be available to the entire

population. However, technology alone cannot solve the problem as financial inclusion cannot happen in isolation while vast stretches of

rural India are suffering from social and infrastructural exclusion.

The latest report of the National Sample Survey Organisation on village facilities -- conducted in July-December 2002 - revealed that there

were no post offices in over 78 per cent of India's villages and only one-third of all villages were within two km of a telegraph office/ PCO/ e-

mail facility. The situation has not dramatically changed since then.

Look at some other parameters of social infrastructure. One-fourth of the villages do not have access to electricity; non-conventional forms of

energy are available in less than 12 per cent of villages; tap water is used for drinking in about 18 per cent of villages and 55 per cent of

them get their drinking water mainly from tube-wells or hand-pumps.

What's more, 54 per cent of the villages are more than five km away from the nearest primary health centre and 27 per cent are more than

10 km away from it. Only 10 per cent of the villages have a medicine shop and 20 per cent a private clinic or doctor.

One-third of the villages do not have pre-primary schools and 28 per cent do not have primary schools. Finally, co-operative societies exist

only in 30 per cent of Indian villages.

Financial inclusion alone cannot do the trick for the rural masses until social exclusion is taken care of. Access to health, education

and pucca roads is as important as access to a bank account and credit.

However, urban India presents a different picture. Even in Mumbai [ Images ], millions of people are financially excluded, although they have

access to social infrastructure.

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http://www.iimb.ernet.in/newsletter/issues/120Can rural India get access to financial services?

Newspapers are replete with advertisements from public sector banks proudly proclaiming the

number of branches and savings accounts they have opened in far flung districts of rural India. In fact, government authorities present such

statistics as success stories for India's initiative for financial inclusion.

Impressive as these achievements and numbers are, do they really provide the real picture? Are rural households really benefiting from the

presence of bank branches in their area? How many of them are able to tap into the financial services offered by these branches? Who are

the real beneficiaries of financial inclusion across rural India?

Professor Rajalaxmi Kamath and Professor Arnab Mukherji of the Indian Institute of Management Bangalore and Professor Maria Sandstrom

of Stockholm School of Economics, Sweden studied the spread of financial institutions in rural India to answer these and other questions.

State of financial inclusion in India

According to the United Nations one of the main objectives of Inclusive Finance i s "access at a reasonable cost of all households and

enterprises to the range of financial services for which they are “bankable,” including savings, short and long-term credit, leasing and

factoring, mortgages, insurance, pensions, payments, local money t ransfers and international remittances"*. A bank account is a necessary

condition for financial inclusion. Meaningful and real financial inclusion implies not just a bank account but access to services such as credit

and insurance as well. (*Source: Wikipedia ( http://en.wikipedia.org/wiki/Financial_inclusion )

Much progress has been made on the supply side of financial inclusion, namely availability of financial institutions in rural India. Several

districts in the country have been declared to be 100% financially included. A survey of 14 leading states reveals that states such as

Maharashtra, West Bengal, Punjab and Gujarat have reasonably high number of financial institutions, banks and primary agricultural credit

societies (PAC), in rural areas. For instance, Maharashtra has 46 banks and PACs per 100,000 persons, while West Bengal has 38.

However, a look at state-wise outstanding institutional debt in rural areas, reveals serious flaws in the supply focused policy of financial

inclusion. States that have the highest outstanding institutional debt rates - Kerala, Maharashtra, Orissa and Karnataka - are not the ones

that have higher number of financial institutions. In fact, analysis shows that there is a very poor correlation between the number of financial

institutions and outstanding institutional debt. In fact, there is no correlation if one were to consider total outstanding debt and not just

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institutional debt. Rural households in some states also seem to prefer non-institutional sources for accessing debt. Clearly, presence of

financial institutions alone is not delivering the results for financial inclusion that one had hoped for.

Determinants of financial inclusion

The level of a state's indebtedness in rural areas, amongst many factors, could be driven by the growth of state gross domestic product

(GDP), per capita income in rural areas, and extent of commercialization of agriculture.

The poor coupling between presence of financial institutions and outstanding debt in rural India begs the question - given a certain level of

indebtedness in a state, what factors could possibly determine the extent of financial inclusion in rural India? The authors considered 14

states and analysed them for financial inclusion with respect to social and economic indicators. Table 1 below shows the variables used for

regression analsysis.

Table 1: Variables for analysing financial inclusion in rural India

Financial Inclusion

% of rural households in the state withoutstanding institutional debt

Social Indicators

% of population belonging to ScheduledCaste, Scheduled Tribe and Other Backward Classes

These groups are considered economically backward and most prone tofinancial exclusion. Low levels of financial inclusion might be seen in stateswith higher percentage of population belonging to these groups.

% of population that are Hindus,Muslims, Christians or Others

Religious composition of population varies widely in India and it might provide patterns of financial inclusion or otherwise.

Economic Indicators

% of operated agricultural landOperating agricultural land leads to increased financial requirements. Stateswith higher % of operated agricultural land should ideally have higher levelsof outstanding debt.

% of population that is self-employed inagriculture and non-agriculture sectors

In the past, rural occupation was equated with agriculture. But that has

changed in recent times. Today, households that are self-employed in non-agriculture have high financial needs just as those in the agriculture sector.

% of population that provides labour toagriculture and non-agriculture sectors

Monthly per capita expenditure(MPCE) Higher levels of MPCE should be correlated with higher financial needs and possibly higher levels of outstanding debt.

Findings

A state-wise regression analysis of access to institutional debt against the variables in Table 1 above revealed interesting insights.

Self-employment in agriculture / non-agriculture sectors In majority of states, households that are self-employed in agriculture are more

likely to access institutional debt compared to those that are self-employed in non-agriculture activities. These states have lower number of

financial institutions in rural areas. States such as Madhya Pradesh, Maharashtra and Kerala where the reverse holds, have a relatively

higher number of financial institutions in the rural areas.

Land ownership Higher the land ownership, more l ikely is the access to institutional debt. In states such as Orissa, Andhra Pradesh and

Maharashtra, every hectare of land ownership increases the probability of accessing institutional debt by a staggering 10%. The figure is

even more impressive at 14.6% for Madhya Pradesh.



Economically backward castes In general, populations belonging to the Scheduled Caste, Scheduled tribe and Other Backward Classes

have lower chances of accessing institutional debt. The exceptions are states such as a Rajasthan and Maharashtra where members

belonging to the Scheduled Tribe and Scheduled Caste respectively, are more likely to access institutional debt.

MPCE Monthly per capita expenditure has no impact on the likelihood of accessing institutional debt.

Religion No pattern emerges so far as correlation between religion and access to institutional debt is considered. In 7 of the states studied,

Muslims were less likely to have access to debt, whereas in 2 states - Haryana and Bihar, Muslim households have a higher probability of

accessing institutional debt.

Summary

Supply side approach to financial inclusion, namely increasing the number of financial institutions in rural India, is a necessary element of

any strategy. However, it should not be considered an end in itself. Data shows that despite having a reasonably large number of financial

institutions, many states lag woefully behind in financial inclusion, as measured by percentage of households with outstanding debt. The

reasons for this vary from state to state, given the diverse socio-economic conditions in each of our states. What works in one state is

unlikely to have similar impact in another state. For instance, rural households in some states demonstrate a bias towards non-institutional

sources of credit. Increasing the number of financial institutions in such states is unlikely to have any significant impact on financial inclusion,

unless it is accompanied by other measures.

Land reforms for equitable land distribution and transparent landholding records can play a large role in increasing access to institutional

credit in rural India. Use of technology in public schemes such as the National Rural Employment Guarantee Act, wherein payments are

directly credited to the bank accounts of workers, is another way to accelerate financial inclusion. Finally, the definition of financial inclusion

as practiced in India - number of savings account opened - needs to be broadened to include other financial services such as access to

credit, insurance and remittances. Only then will financial inclusion deliver the impact it is meant to.



http://www.businesswire.com/news/home/20110503006265/en/Research-Markets-Rural-Banking-India-2011-EditionMay 03, 2011 07:45 AM Eastern Daylight Time

Research and Markets: Rural Banking in India 2011 Edition - Renewed Emphasis on Agriculturaland Rural Development by India's Government Leads To a Growing Demand for Financial

Services

DUBLIN--(BUSINESS WIRE )--Research and Markets (http://www.researchandmarkets.com/research/c7db37/rural_banking_in_i )has announced the addition of the " Rural Banking in India " report to their offering.

Agriculture and rural sectors play an important role in India?s overall development strategy in terms of income and employmentgeneration and poverty alleviation. Great significance has, therefore, been accorded to developing appropriate institutions andmechanisms for catering to the credit requirements of these sectors.

Government of India promoted Regional Rural Banks (RRBs) through the RRBs Act of 1976 to bridge the gap in the flow of credit tothe rural poor. The RRBs have a special place in the multi-agency approach adopted to provide agricultural and rural credit in India.These banks are state-sponsored, regionally-based and rural-oriented. Besides the RRBs, commercial and co-operative banks havebeen catering to the credit requirements of the rural sector.

The renewed emphasis on agricultural and rural development by the Government of India would lead to a growing demand for different types of financial services in the rural areas. The present structure of rural credit may not be able to cater to the same.RRBs would be called upon to play a greater role in providing such services due to their rural character and feel. RRBs have to takeover a larger share of credit disbursements calling for much larger resource mobilization, as also greater efforts for their institutionalstrengthening.

It was announced in the Union Budget for 2008-09 that the Central Government and the State Governments had reached anagreement on the content of the package for revival of the long-term cooperative credit structure. The cost of the package wasestimated at Rs. 3,074 crore, of which the Central Government's share would be Rs. 2,642 crore.

Key Topics Covered:

• History and Significance of Rural Banking in India - Rural Sector in the IndianEconomy; Post-Independence History of Banking in India; Rural FinancialInstitutions; Regional Rural Banks (RRBs); Review of Literature on RuralBanking.

• Development of Regional Rural Banks (RRBs) in India - The Genesis; BankingCommission (Chairman: R.G. Saraiya), 1972; New Economic Programme;Working Group (Chairman: M. Narasimham), 1975; Establishing a RRB: TheBasic Requirements; Special Concessions and Privileges allowed to RRBs;Steering Committee for Framing up Policies of the RRBs at National Level;Development of Regional Rural Banks in India; State-wise Distribution of theRRBs; Sponsoring Bank-wise Distribution of the RRBs.

• Conceptual Issues Related to Regional Rural Banks (RRBs) - Role of RRBs;Objectives of Setting up RRBs; Prominent Postulates of the RRBs; Business of RRBs; Capital Structure of the RRBs; Management and Staff Pattern of theRRBs; Board of Directors; RRBs versus Commercial Banks; RRBs versusCooperative Banks.

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• Institutional Financing for Rural Credit in India - Post-Independence RuralDevelopment; Rural Credit Requirements; Sources of Rural Finance; Need for Institutional Finance for Rural Credit; History of Institutional Arrangements for Rural Credit.

• Performance of RRBs: A Region-wise Analysis - Structural Growth; Mobilization

of Deposits; Loans and Advances; Profitability Performance; Non-performingAssets (NPAs); Summary and Recommendations• Appendix: Regional Rural Banks in West Bengal;• Bibliography;• Index

Author:

Dr. Manas Chakrabarti is presently an Assistant Professor in the Department of Commerce, Balurghat College, Balurghat, WestBengal. He received his M.Com and Ph.D. degrees from Calcutta University in 1993 and 2009 respectively. He is also a GuestFaculty (Commerce) at the Netaji Subash Open University (Balurghat College Centre).



http://www.ibef.org/industry/financialservices.aspxFinancial Services

Last Updated: July 2011

The financial services sector in India has witnessed a fundamental transformation since the country was liberalised. India, in the last few

years, has emerged as the one of the most rapidly growing economies across the globe. The financial services market is growing rapidly,and there is significant potential for further growth.

The financial services sector includes broking firms, investment services, national banks, private banks, mutual funds, car and home loans,and equity market

Financial Services in India - Key Drivers

• India’s high savings rate offers significant opportunity to put resources into the financial markets. The country has a favourabledemographic profile with a large segment of the population under 30 years. The Census 2011 shows that 56.9 per cent of India’stotal population comes in the age group 15-59 years. The country will witness a sharp decline in the dependency ratio over thenext thirty years – which will be a great dividend. As the dividend begins to pay off, with the working age-group population risingdisproportionately over the next two decades, the savings rate is likely to rise further, according to Mr Pranab Mukherjee, UnionFinance Minister

• A large, untapped domestic market, with a huge growth potential

• Presence of financial and capital market mechanisms• A large and continuously growing intellectual capital• Healthy rate of economic growth

Banking Services

The banking sector has undergone a lot of positive developments in the last decade. The policy makers, which comprise the Reserve Bankof India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made significant attempts to improveregulation, besides framing policies that are conducive to the growth of the sector.

The banking industry in India is expected to grow by 20 per cent a year, with return on equity being more than 18 per cent, according to asurvey by consulting firm, McKinsey, done for the Indian Banks' Association. The growth in the sector is specifically being driven by risingaspirations of corporate India , strong regulatory thrust, technological breakthrough, innovations, rising productivities and economies of scale.The sector carries a value creation opportunity of almost Rs 2.5 lakh crore (US$ 56.38 billion) in incremental revenue by 2015, according toRanjit Tinaikar, Partner at McKinsey.

In the financial year 2010-11, Public Sector Banks (PSBs) recorded a significant credit growth of 22.44 per cent. Net Profits of PSBs havegone up from approximately Rs 39,000 crore (US$ 8.8 billion) to approximately Rs 45,000 crore (US$ 10.15 billion) in the year 2010-11. Thebanks achieved 35 per cent growth in credit to Micro, Small and Medium Enterprises (SMEs) sector against the target of 20 per cent.

Nationalised banks accounted for 52.2 per cent of the aggregate deposits, with State Bank of India (SBI) and its Associates accounting for 22.1 per cent. The share of new private sector banks, foreign banks, old private sector banks, and regional rural banks in aggregate depositswas 13.3 per cent, 4.8 per cent, 4.6 per cent and 3.0 per cent, respectively, according to RBI’s Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, December 2010.

With respect to gross bank credit, nationalised banks had the highest share of 51.6 per cent in the total bank credit. They were followed bySBI and its associates at 22.7 per cent and new private sector banks at 13.7 per cent. Foreign banks, old private sector banks and regionalrural banks had shares in the total bank credit at 5.1 per cent, 4.5 per cent and 2.5 per cent, respectively.

India's foreign exchange reserves were US$ 314.6 billion as on July 8, 2011, according to the data in the weekly statistical supplement

(WSS) released by RBI.

Indian bank loans increased by 19.9 per cent year-on- year (y-o-y) as of July 1, 2011, according to the central bank's WSS. Deposits rose by18.4 per cent from a year earlier.

Mutual Funds in India

The Indian mutual fund industry has witnessed significant growth in the last few years. Besides the demographic factors, growth has beendriven by the increasing reach of Asset Management Companies (AMCs) and distributors. Further, relatively low penetration levels coupledwith rapid growth in the assets under management (AUM) in recent years signifies a high growth potential of the Indian mutual fund industry.

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India's mutual fund industry's average AUM increased by 6 per cent to Rs 7.43 trillion (US$ 167.57 billion) in the first quarter (April-June) of the current financial year (2011-12), from Rs 7 trillion (US$ 157.87 billion) in the fourth quarter (January-March) of the last financial year (2010-11), according to the data released by industry body Association of Mutual Fund Industry (AMFI). The mutual fund industry, whichcomprises 43 fund houses, witnessed an increase of 6.07 per cent to Rs 425.46 billion (US$ 9.6 billion) on average AUM.

The Indian mutual fund industry is expected to register robust growth, given the growing aspirations of retail customers. KPMG in India is of the view that the industry AUM is likely to continue to grow in the range of 15 to 25 per cent from the period 2010 to 2015 based on the paceof economic growth.

Indian Insurance Sector

The insurance industry in India has a big opportunity for national as well as foreign investors.

As Indians are getting richer, the desire to save for retirement is growing. India ranks at number 11, in terms of ranking by premium volume in2010, according to Swiss Re’s sigma study , “World insurance in 2010”. India has surpassed Spain to become the 11th largest insurancemarket in the world, according to the study. In the life insurance business itself, India has surpassed ten major markets in the last ten years.

The total gross premium of 23 players in the non-life insurance market increased by 27 per cent in May 2011, from Rs 3,151.41 crore (US$710.73 million) in May 2010, according to the Insurance Regulatory and Development Authority (IRDA). The four Public Sector Units (PSUs),which account for about 59 per cent of the total general insurance industry, had their gross premium collections rise by 23 per cent to Rs2,358.60 crore (US$ 531.9 million) in the same period.

Stock Markets

The Indian equity markets are among the most deep and active markets across the globe.

The country's market capitalisation (cap)-to-GDP ratio, an indicator of the total listed wealth of a country as a percentage of its GDP, reacheda record level of 132.47 per cent in financial year 2010-11 from 23.28 per cent in 2002-03, according to a report by SMC Global Securities.

The country's market capitalisation as a proportion of the world market cap was 2.8 per cent as on June 28, 2011.

Private Equity (PE Investments) in India

India offers a lucrative proposition to PE practitioners on the back of its young population, large domestic market, presence of structuredfinancial and capital market mechanisms, a large and growing number of intellectuals, and healthy rate of economic growth.

Total PE investment in India increased by 71.5 per cent - from US$ 1.83 billion in the second quarter of 2010 (July-September), to US$ 3.14billion in the second quarter of 2011. Volume of deals also increased by 52 per cent - from 90 to 137 during the same period. The mediandeal amount rose by 10 per cent - from US$ 10 million in the second quarter of 2010 to US$ 11 million in the second quarter of 2011. Theaverage deal value rose by 21 per cent from US$ 24 million to US$ 29 million during the same period.

Foreign Institutional Investors (FIIs)

FIIs remained upbeat on Indian companies during the quarter ended June 30, 2011. Net inflows during the period were Rs 5,171.20 crore(US$ 1.17 billion). In the current month (July 2011), net inflows in equities from FIIs have already reached around Rs 7,000 crore (US$ 1.58billion)

Recent Developments/Investments

The Government has approved 31 Proposals of Foreign Direct Investment (FDI) amounting to Rs 3844.70 crore (US$ 867.09 million)approximately, based on the recommendations of Foreign Investment Promotion Board (FIPB).

Daimler Financial Services India Pvt Ltd, a recently established local unit of German carmaker Daimler AG’s financial arm, is expecting tobreak even in four to f ive years and expects to have a loan book of US$ 500 million by 2016, according to Klaus Entenmann, globalChairman.

German luxury car maker Mercedes-Benz is preparing to start leasing vehicles to consumers in the Indian market by the end of 2011. Thecompany would start with leasing Mercedes cars to companies. Once the venture reaches a certain size, Mercedes-Benz India (MBI) wouldlook at offering vehicles on lease to individuals as well.

IDFC Private Equity, one of India's largest risk capital investors, has invested Rs 150 crore (US$ 33.83 million) to acquire a minority equitystake in Chennai based GVR Infra Projects Limited. GVR will utilise the funding for its projects in engineering and contracting space.



The L&T Group's financial services subsidiary L&T Finance Holdings has announced its plans to enter the capital markets togenerate up to Rs 1,245 crore (US$ 280.79 million) from the primary markets by diluting up to 17 per cent of its stake.

Government Initiatives

India has a strong financial regulatory system – controlled by RBI and supported by regulatory body such as Securities and Exchange Boardof India (SEBI), which govern capital markets and mutual funds.

The government has taken many steps to encourage investments in the financial sector.

India will allow qualified foreign investors to invest up to US$ 10 billion in domestic mutual funds from August 1, 2011, according to a senior finance ministry official. The government expects good inflows from qualified financial institutions into mutual funds in this fiscal year toMarch 2012, said Thomas Mathew, Joint Secretary, capital markets at the Finance Ministry.

In an effort to support hedging of currency risks for non-resident exporters and importers, the RBI has issued norms permitting them to either use overseas banks or those in the country to settle foreign trade transactions invoiced in the Indian rupee.

Further, the Finance Ministry is stepping up its efforts to widen the class of foreign investors in the Indian stock market. This is evident fromthe fact that first, the government gave the green signal for qualified foreign investors (QFIs) to invest in mutual funds, and now, individualinvestors from across the globe are expected to soon get the right to buy blue-chip Indian stocks

Financial Services - Road Ahead

Demand for financial services in India is taking off. Noteworthy is the fact that International financial institutions are playing an increasing rolein the expansion of India’s large corporations. Great opportunity lies in the SME segment, which remains largely untapped. On the retail side,India already has more middle-class people on a purchasing power parity basis than the entire population of the US, and a consumer creditmarket that is rising by more than 40 per cent per annum. The sector has huge growth potential, and with government considering steps toliberalise it further, the sector can be one of the most significant ones for the growth of the Indian economy.

Exchange Rate Used: INR 1 = US$ 0.0225530 [as of July 24, 2011]

References: RBI documents, report from PricewaterhouseCoopers, Press Releases, Press Information Bureau, report on Mutual Funds sector fromKPMG, AMFI



http://www.financialexpress.com/news/rural-india-ready-for-insurance-products/83556/Rural India Ready For Insurance ProductsPosted: Monday, May 19, 2003 at 0000 hrs IST

A key objective in the liberalisation of the insurance sector was deepening and widening of the rural market for its

products. To sell this vital element of social security, though, is no easy task — as the new entrants from the privatesector are discovering. It is not as if those participating in the insurance market are new to the Indian scenario. Eachof the Indian partners has a major presence in their respective areas of core competency — be it areas like bankingor non-banking financial services, consumer goods, healthcare, telecom or even fertilisers.Distribution of physical goods or disbursement of creditl required a minimum physical infrastructure to be put in place.Those with a strong rural presence have also learnt to read the psyche of their clientele. Yet, insurance being arelationship product first, especially in the rural areas, there are significant pointers that the new insurers can exploitto their advantage. These have been compiled in a paper on rural marketing and communications brought out byFicci recently.

According to the study, rural distribution is a nightmare because of the six-lakh-odd villages in the country. It hastherefore suggested a clos-er look at the purchasing patterns in these areas. It cites an IMRB study that found 90% of durables were being bought in the 2,300 towns with population of over 20,000. The paper has said that FMCGcompanies may face a slightly more complex problem in reaching out to the less-populated areas, but did not see thehurdles as insurmountable. Down-the-line distributor networks have been found sufficient to cater to these needswith, say, 100 or more supply outlets in 50-odd locations that can cover all villages upto the 2,000-plus category.These 85,000 larger- sized villages housing approximately 40% of the rural populace account for over 60% of ruralconsumption.

An earlier study commissioned by the Ficci-ING Foundation of Reserach Training and Education in Insuranceconcluded that a strong saving habit even in low-income households and a high awareness of insurance indicated afertile ground for a vibrant market. However, it also highlighted the challenges in marketing and delivery systems. Itrecommended the use of banks, cooperative institutions and self-help groups for selling insurance more effectively.Combined with the findings of the rural marketing study, there is a clear evidence that corporate entities only have totry genuinely and a whole new vista of rural purchasers is waiting to open up. For that, though, some essentialcharacteristics of marketing to a population that still believes in the personal touch must be kept in mind. This may bea positive factor for insurers, but they must also pay heed to other critical behavioural patterns displayed by the ruralclientele.

“Rural consumers are fundamentally different from their urban counterparts, and different rural geographies displayconsiderable heterogeneity, calling for rural-specific and region-specific strategies. A farmer in rural Punjab is muchmore progressive than his counterpart in Bihar”, it has observed. Simi-larly, unlike urban families where buyingdecisions may be taken collectively, lack of mobility and distant markets gives men the decisive role in purchases.Low literacy levels at time contribute to community decision-making as well.

The study has cited the success stories of Arvind Mills’ cheaper Ruf & Tuf brand that made jean-clad farmers acommon sight, Britannia’s Tiger biscuits, LG’s ‘Sampoorna’ TV, as also Amir Khan’s rustic roles in Coke adcampaigns.

Also, information technology is no longer an urban phenomenon, as TV, radio and now computers pervade the ruralpanorama. ITC’s e-choupals, Amul’s dairy iformation system kiosk (DISK), etc., have promoted brand and productawareness and enhanced conscious decision-making and data analyses.

A market such as this is surely ripe for insurance products as well, though relative simpler ones at the grassroot level.The study noted that a significant percentage of res-pondents across all affluence levels tended to save. They tap

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avenues like chit funds, banks, post offices, cooperative banks and even informal channels. A fairly good number owned tractors, TVs, two-wheelers and telephones.

This a market ready for protection instruments, whether they are targeted at lives or at goods owned. Crop insuranceto personal accident or pension plans, the rural customer is now a mature entity waiting for the right marketing gambitthat will appeal to his sense of security and necessity at the same time. The pricing, identification of the right productand correct positioning of its brand will define the success or failure of any insurer game to take self-financed socialsecurity to the rural masses

financial sector of india

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