The financial system of Indian economy is a crucial element for its economic development. It facilitates the flow of funds from the households (savers) to business organisations (investors), thereby assisting in creation of wealth for the nation.
Mainly,
the financial system of India is concerned with the following:
(a)
Allocation and mobilization of savings.
(b)
Provision of funds.
(c)
Facilitating the financial transactions.
(d)
Developing financial markets.
(e)
Provision of legal financial structure.
(f) Provision of financial and advisory
services.
The important features of India’s financial
ecosystem are:
(i) It plays an important role in economic
development of the country.
(ii) It encourages both savings and investment
(iii) It links savers and investors.
(iv)
It assists in capital formation.
(v)
It facilitates expansion of financial markets.
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.
In other words, financial services
sector consists of the capital markets, insurance sector and nonbanking
financial companies (NBFCs). India’s gross national savings (GDS) as a
percentage of Gross Domestic Product (GDP) stood at 30.50 per cent in 2019. The
total amount of Initial Public Offerings increased to Rs 84,357 crore (US$
13,089 million) by the end of FY18. IPO’s reached to US$ 1.94 billion in FY19
(up to Feb 2019). Ultra High Net Worth Individual (UHNWI) increased to 2,697 in
2018 and the population of UHNWI has grew by 118 per cent from 2013 to 2018.
Developments in Indian
Financial Ecosystem
—
Rising incomes are driving the demand for financial services across
income brackets.
—
Financial inclusion drive from RBI has expanded the target market to
semi-urban and rural areas.
—
Investment corpus in Indian insurance sector can rise to US$ 1 trillion
by 2025.
—
Credit, insurance and investment penetration is rising in rural areas.
—
HNWI (High Networth Individual) participation is growing in the wealth
management segment.
—
Lower mutual fund penetration of 5-6 per cent reflects latent growth
opportunities.
—
The Government of India launched India Post Payments Bank (IPPB), to
provide every district with one branch which will help increase rural
penetration.
—
India benefits from a large cross-utilisation of channels to expand
reach of financial services.
—
Maharashtra has launched its mobile wallet facility allowing
transferring of funds from other mobile wallets. Maharashtra is the first state
to launch it.
—
As of October 2018, the Financial Inclusion Lab has selected 11 fintech
innovators with an investment of US$ 9.5 million promoted by the
IIM-Ahmedabad’s Bharat Inclusion Initiative (BII) along with JP Morgan, Michael
and Susan Dell Foundation, and the Bill and Melinda Gates Foundation.
—
Government has approved new banking licenses and increased the FDI limit
in the insurance sector.
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