Published: Dec 9, 2021, 5:22pm
The ongoing pandemic has forced all sub-sectors within the banking and financial services industry to innovate. The true potential kicked off with digital transformation. Today, every Indian owns a smartphone and can digitally apply for a loan, complete e-KYC, open a bank account, order food, groceries and other essentials.
The Indian financial sector currently comprises several segments: commercial banks, new-age fintech startups, non-banking financial companies (NBFCs), co-operatives, pension funds, mutual funds, small and medium financial entities and recently established payment banks. These varied financial services provide solutions to a wide range of customers based on their requirements and accessibility. These customers can be individuals, public organizations or private enterprises.
Here’s an overview of how the Indian financial industry will look like in 2022.
The lion’s share of the Indian financial industry in India belongs to the banking sector with commercial banks accounting for more than 64% of the total assets held by the financial system.
The Indian banking system has transformed from a physical to a digital banking model. It has successfully defeated the challenges wired around the diverse Indian population with innovative technology solutions. The banks are making products that go the distance and have reformed themselves from being a conventional money-dealing enterprise.
Earlier, under-represented populations living in rural areas were deprived of banking facilities. Today, banks are expanding their coverage towards the rural heartland of the country. Also, the measures taken by the Government of India to help SMEs and MSMEs tackle the pandemic crisis has swayed banks to focus on previously underserved demographics and regions.
In response to the pandemic banks are busy re-assessing their operations and strategies so that they can reach out to customers better. These steps are resolving the regional banking barriers between urban and rural areas across the country.
Earlier this year, a report highlighted that India’s fintech market is the fastest growing in the world. A study conducted by Boston Consulting Group (BCG) in association with the Federation of Indian Chambers of Commerce and Industry (FICCI) stated that India’s fintech industry is estimated to reach $150-160 billion by 2025. In fact, 33 fintech investment deals worth $647.5 million were closed in the Indian market in the quarter ending June 2020.
The most exciting thing about fintech is that even when every other sector was going through financial bumps, it continued to thrive. This was predominantly due to Covid-led restrictions and government-imposed physical movement barriers.
A 2020 insurtech report stated that India’s global share in the insurance market is roughly 1.7% (expected to reach close to 2.3% by 2030). The onset of the global pandemic disrupted the existing dynamics of the Indian insurance industry. However, the Insurance Regulatory and Development Authority of India (IRDAI) left no stone unturned to make the entire insurance process seamless and convenient to aid customers during these trying times.
Needless to say, digitalization played a pivotal role in strengthening the growth of the insurance ecosystem. As the country reported a vast number of deaths every day, there was fear and anxiety among people as they were uncertain if deaths caused by Covid-19 would be covered under their life insurance policy. But, setting a monumental example, the IRDAI clarified that these deaths would be classified under general deaths, given the diagnosis was made after the policy was issued. Furthermore, to ease customer approval, the IRDAI also also adopted e-KYC and video-KYC instead of physical documentation.
According to Statista, 9,507 NBFCs were registered with the Reserve Bank of India (RBI) since January 31, 2021. NBFCs are playing an integral role in promoting financial inclusion and their primary objective is to provide financial assistance to one and all. These financial intermediaries have recently grabbed the attention of the Indian population, especially the economically weaker sections that find conventional banking institutions comparatively inaccessible and uneconomical.
NBFCs are also proving crucial for small and medium enterprises (SMEs), which are the backbone of the Indian economy. Due to their diverse and broader client base, NBFC credit growth is comparatively more significant than traditional banks and lending institutions.
A large chunk of the Indian population finds it difficult to get loan approval from banks due to low credit scores or incomplete documentation. NBFCs have emerged as a quintessential financial solution for more people to have access to financial services. As we move into the next year, NBFCs can continue to become prime loan facilitators apart from traditional lending institutions.
The Indian Cooperative credit system has the most extensive network in the world. Since the first Cooperatives Society Act in 1904, the movement has spread across the country with an estimated 230 million members.
Cooperative societies are offering much-needed strategic inputs and value to aid the growth of the agricultural sector. India is an agricultural economy and 72% of the total population who live in rural areas depend on agriculture for their livelihood.
Consumer cooperative societies are trying to meet consumption requirements at concessional prices. And finally, marketing societies are aiding farmers to achieve fair rates. In addition, these societies also play a pivotal role in assisting irrigation facilities, fulfilling electricity requirements, and transportation mediums.
The primary objective of pension funds is to ensure that an individual saves a portion of their income in a systematic manner so that they can have a regular post-retirement income. There are various pension schemes like National Pension Scheme, deferred annuity, immediate annuity, guaranteed period annuity, life annuity, and annuity certain.
Pension funds allow users to make long-term savings without going through a tremendous amount of effort. It also enables them to invest in safe government securities or non-government debt and equity investments.
The Securities and Exchange Board of India (SEBI), in a report, stated that the Indian mutual fund industry is emerging as one of the fastest growing and most-competitive segments of the present-day financial sector in India.
Over the last few decades, the mutual funds industry has witnessed many developments and transformations. It has allowed users to make seamless investment decisions quickly and easily with technology and platforms provided by many companies.
The lack of adequate financial literacy in India gave rise to innovative payment banks. Before initiating and setting payments banks, the RBI went through several policy considerations to promote financial inclusion.
The RBI promoted the idea of payment banks by endorsing the cashless digital banking campaign to address the constraints that exclude people from full participation in the financial sector. Despite many advances in banking technology, the rural areas remained unregulated. To undo such exclusion, the RBI introduced payments banks in India to promote financial inclusion and literacy among SMEs and MSMEs, low-income groups, rural areas and migrant workers.
According to a statement by the RBI, the extant ‘Guidelines for Licensing of Payments Banks’ issued on November 27, 2014 allow payments banks to hold a maximum balance of INR 1 lakh per individual customer.
Based on a review of performance of payments banks and with a view to encourage their efforts for financial inclusion and to expand their ability to cater to the needs of their customers, including MSMEs, small traders and merchants, it has been decided to enhance the limit of maximum balance at end of the day from INR 1 lakh to INR 2 lakh per individual customer.
Here are a few initiatives implemented by the RBI:
According to the India Brand Equity Foundation (IBEF), by 2028, India is expected to be the fourth largest private wealth market globally. Furthermore, the leading financial service institution, the Association of Mutual Funds in India (AMFI), targets three-fold growth in the number of investor accounts, reaching up to 130 million by 2025.
To cater to the ever growing demands of the steadily increasing population, the government also took steps and designed strategies to simplify payments, banking, insurance and other financial services. The industry has demonstrated resilience and adaptability and the effects are very positive.
The Indian financial industry is expected to evolve rapidly in 2022 helped by the financial innovation has taken centerstage and opportunities for consumers to invest, save and grow their wealth are set to soar.
Bala Parthasarthy is the co-founder and CEO of MoneyTap, an app-based lending company in India. He has over 16 years of experience working with start-ups in various capacities. He has built three companies, one of them was bought by Hewlett Packard in 2005.
Armaan is the India Lead Editor for Forbes Advisor. He has more than a decade’s experience working with media and publishing companies to help them build expert-led content and establish editorial teams. At Forbes Advisor, he is determined to help readers declutter complex financial jargons and do his bit for India’s financial literacy.
Published: Dec 9, 2021, 5:22pm