Financial Services

Types

Insurance

A contract in which one party agrees to pay for another party's financial loss
resulting from a specified event (for example, a collision, theft, or storm
damage). Lease agreements generally require that you maintain vehicle collision
and comprehensive insurance as well as liability insurance for bodily injury and
property damage.

Mutual Fund

A mutual fund enables investors to pool their money and place it under
professional investment management. The portfolio manager trades the fund's
underlying securities, realizing a gain or loss, and collects the dividend or
interest income. The investment proceeds are then passed along to the individual
investors. There are more mutual funds than there are individual stocks.

Banking

Financial intermediary Institutions for receiving, lending, and safeguarding

money as well as conduction other financial transactions. There are several types
of banks: central banks, commercial banks, corporate banks, credit unions,
savings banks, trust companies, finance companies, life insurers, investment
banks, etc. Banks have drastically evolved throughout time, increasing their
services but also becoming institutions that cater to greater numbers of people.

Shares and Stocks

Shares are a term referred to the units of ownership interest provided to the
stockholder or owner of a company. The term is often used in connection with
the number of units issued to an owner of Common Stock or Preferred Stock. A
stock is a certificate of ownership in a corporation. It is the same as a share

Industry Overview

The financial sector is in a process of rapid transformation. Reforms are

continuing as part of the overall structural reforms aimed at improving the
productivity and efficiency of the economy. The role of an integrated financial
infrastructure is to stimulate and sustain economic growth. The growth rate of
the financial sector is 15 percent.

The financial sector consists of Institutions, markets, financial instruments,

specialized and non-specialized financial institutions of organized and
unorganized financial markets, financial instruments and services. The common
thing between all is that they facilitate transfer of funds. These parts are not
always mutually exclusive; Inter-relationships between these are a part of the
system e.g.. Financial Institutions operate in financial markets and are,
therefore, a part of such markets.

Indian Financial sector, with Ministry of Finance at the helm as policy making
body, with two regulators RBI and SEBI consists of three principal segments i.e.

Financial Institutions

Banking Segment

Markets: Debt/Equity/Securities

Trends and Strategies in the Financial Sector

Information technology, deregulation and liberalization have dramatically

affected the financial services industry, contributing to two trends: consolidation
and increased competition at both national and international levels.

Consolidation

Consolidation means that financial services worldwide are increasingly

concentrated in the hands of a few corporations. Consolidation is seen as the
single most important factor transforming the financial services industry since
almost a decade. Many experts predict that consolidation will continue and
within 5 to 10 years there will be only five to ten top financial conglomerates in
the world.

In the search for more profitable opportunities, most consolidated financial

firms grew through mergers and acquisitions or takeovers that were either
friendly or hostile. Such process took place at national and international levels
with cross-border consolidation, by trading and investing in financial services in
many countries around the world. Many financial services categories, such as
retail banking and insurance, were increasingly being brought under one
corporate roof, which is called "cross-category consolidation".

The strategies behind consolidation are:

a. Increasing the number of customers and beating competitors by selling

various

b. Financial products through one distribution channel.

c. Diversifying products and customers to avoid the risk and to finance a loss-
making part of the business with the profits of another one.

d. Maintaining a large capital base as a sponge to absorb losses and the growing
cost of technology.

e. Increasing the quality of service and products to gain the trust of the
customers.
f. Increasing profitability in the battle against competitors

Competition

Consolidation is the financial industry's way of dealing with increasing

competition. Governments, regulators and supervisors worldwide try to create
and maintain a free market with many competitors, for the sake of efficiency and
lower prices. Competition remains fierce. The struggle is always for quicker and
short-term profit which leads to strategies for more efficiency, lowering costs,
expansion of profit-making clients and markets while outpacing competitors.
This often means an increasing effort to standardize and automate services, to
differentiate them according to the wealth of the client and to shift the focus on
financial portfolios. One should also notice the importance of cross selling and
cross branding (some financial companies have started to distribute products for
their competitors without operating them).

are those services that are commonly associated with the supply of financial
instruments such as debt securities, equity securities and insurance policies.
Generally, any person involved in the provision of, arranging for, or the agreeing to
provide an exempt financial service is not eligible to claim input tax credits in respect
of tax paid on the inputs used in the making of that exempt supply.

Financial Services
Last Updated: January 2011

The financial services sector contributed 15 per cent to India's GDP in FY09, and is the second-largest component
after trade, hotels, transport and communication all combined together, as per the Banking & Finance Journal,
released by an industry body in August 2010.

Share of Financial services, banking, insurance and real estate sectors is expected to enhance by 9.7 per cent for
the year 2009-10 to 17.2 per cent of GDP (at factor cost).

Data sourced from SEBI shows that the number of registered FIIs stood at 1,738 and number of registered sub-
accounts rose to 5,592 as of November 10, 2010.

Overseas funds infused into Indian capital market in 2010 stood at US$ 39 billion. According to data released by
Securities and Exchange Board of India (SEBI), stocks and debt securities over worth US$ 17.28 billion were
purchased by the foreign institutional investors (FIIs) from the Indian capital market in January 2011.

According to data available with SEBI, FIIs have made investments worth US$ 4.11 billion in equities and
invested US$ 667.71 million into the debt market.

The average assets under management of the mutual fund industry stood at US$ 147.99 billion for the quarter
ended December 2010, according to the data released by Association of Mutual Funds in India (AMFI).

As on January 21, 2011, India's foreign exchange reserves totaled US$ 299.39 billion, according to the Reserve
Bank of India's (RBI) Weekly Statistical Supplement.

According to Venture Intelligence, a research firm, private equity firms invested US$ 7,974 million over 325 deals
in India during 2010, as against US$ 4,068 million (over 290 deals) in 2009. The largest investment reported
during the year was the US$ 425 million raised by power generation firm Asian Genco from investors including
General Atlantic, Goldman Sachs, Morgan Stanley, Everstone and Norwest.

According to a global consultancy firm Ernst & Young (E&Y), sectors such as power and transportation,
consumer and branded products, infrastructure ancillaries, education and financial services, and healthcare are
likely to witness increased PE activity in 2011.

Deals

India Inc announced merger and acquisition (M&A) deals worth a record US$ 55 billion in 2010, including a
record number of billion-dollar transactions.

The number of mergers and acquisitions (M&A), private equity (PE) transactions and Qualified Institutional
Placements (QIP) increased close to 40 per cent to US$ 3.23 billion in November 2010. Besides, there have been
US$ 9 billion plus deals in 2010, the highest seen in any year.

Fund-raising activity gained pace by almost 65 per cent in 2010 as compared to 2009. In real terms, 27 funds were
able to raise US$ 13 billion as PE as against US$ 8 billion by 22 funds in 2009. There has also been a more than
80 per cent growth in PE and VC investments in India: 2010 witnessed 348 deals worth $8 billion, against 317
deals worth $4.4 billion in 2009, according to VCCedge data.

Stock markets

Market capitalisation of India as a proportion of world market cap has risen to a record high. According to data
sourced from Bloomberg, the country's market capitalisation as a proportion of the world market cap is currently
3.34 per cent. India's current market-cap is US$ 1.55 trillion as compared with world market-cap of US$ 46.5
trillion. This is higher than 3.12 per cent share India enjoyed at the market peak of January 2008.

As analyzed by Venture Intelligence, private equity firms obtained exit routes for their investments in a record 121
companies during 2010, including 24 via IPOs. (2009 had witnessed 66 liquidity events including 7 via IPOs). PE-
backed companies raised about US$ 2.20 billion via IPOs during 2010.

Insurance

The Indian Life Insurance industry is one on the strongest growing sectors in the country. Currently a US$ 41-
billion industry, India is the fifth largest life insurance market and growing at a rapid pace of 32-34 per cent
annually. Currently, there are 22 life insurance companies operating in India, according to the Life Insurance
Council (LIC).

According to data released by the Insurance Regulatory and Development Authority (IRDA), insurance companies
garnered US$ 11.73 billion in new business premium during April-August 2010, against US$ 6.90 billion in the
corresponding period last year.

Further, according to IRDA, in October 2010, life insurance companies collected first year premium worth US$
542.19 million (individual single premium). For the period up to October 2010, total premium collected by life
insurance companies was US$ 4.66 billion, as compared to US$ 2.39 billion collected in the same period of 2009
(individual single premium).

The life insurance industry is expected to cross the US$ 66.8 billion total premium income mark in 2010-11. "This
year, we are expecting a growth of 18 per cent in total premium income. If achieved, it is expected to cross the
US$ 64.4 billion mark," said SB Mathur, Secretary General, Life Insurance Council. Total premium income, at
US$ 56.04 billion, rose 18 per cent during 2009-10, against US$ 47.6 billion in the previous year.

Banking services

Significantly, on a year-on-year basis, bank credit grew by 24.4 per cent in 2010 as against RBI’s projections of 20
per cent for the entire fiscal 2010-11.