Banking & Financial Services

The economic reforms undertaken since 1991 have brought about a considerable improvement in the health of banks and financial institutions in India. Deregulation has opened new doors for banks to increase revenues by entering into investment banking, insurance, credit cards, depository services, mortgage, securitization, etc. The limit for foreign direct investment in private banks has been increased from 49% to 74%. In addition, the limit for foreign institutional investment in private banks is 49%.

The insurance business is one of the most rapidly growing areas in the financial sector. The IRDA (Insurance Regulatory and Development Authority of India) is the licensing authority in the sector. The IRDA Act of 1999 has given new opportunities to private players to enter into the market on the fulfillment of certain prerequisites. These include New York Life, Aviva, Tokio Marine, Allianz, Standard Life, Lombard General, AIG, AMP, and Sun Life among others. The current FDI cap/Equity in the sector stands at 26%

The Indian banking system is financially stable and resilient to the shocks that may arise due to higher non-performing assets (NPAs) and the global economic crisis, according to a stress test done by the Reserve Bank of India (RBI).

As of 2009, the RBI has the tenth largest gold reserves in the world after spending US$ 6.7 billion towards the purchase of 200 metric tons of gold from the International Monetary Fund. The purchase has increased the country’s share of gold holdings in its foreign exchange reserves from approximately 4 percent to about 6 percent.

Following the financial crisis of 2008, new deposits have gravitated towards public sector banks. Nationalized banks accounted for 50.5 percent of the aggregate deposits, while State Bank of India (SBI) alone accounted for 23.8 percent. The share of other scheduled commercial banks, foreign banks and regional rural banks in aggregate deposits were 17.8 percent, 5.6 percent and 3.0 percent, respectively.

With respect to gross bank credit also, nationalized banks hold the highest share of 50.5 percent in the total bank credit, with SBI at 23.7 percent and other scheduled commercial banks at 17.8 percent. Foreign banks and regional rural banks had a share of 5.5 percent and 2.5 percent respectively in the total bank credit. Commercial banks served 34,709 branches in 2009.

The confidence of non-resident Indians (NRIs) in the Indian economy is high again. NRI fund inflows increased since April 2009 and touched US$ 45.5 billion on July 2009. Most of this has come through Foreign Currency Non-resident (FCNR) accounts and Non-resident External Rupee Accounts. India’s foreign exchange reserves rose to US$ 284 billion as in January, 2010.