Recent Trends in Indian Financial Services Industry
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Transcript of Recent Trends in Indian Financial Services Industry
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1.3 Cross Selling
Recently, in retail banking business, the
concept of cross selling has been introduced. If a
bank sells an asset product (housing/car/
educational loan) to its account holder, it is cross
selling. The cross selling enhances customer's
loyalty. Banks have entered into the field of
housing loan. Housing loan rates are being
slashed. The aggression by the banks in this field
is noticeable. The rate war triggered by SBI has
prompted other banks to lower their rates.SBI,
UBI, PSB along with LIC and HFC have special
offer of loan at 8% to 8.5%
1.4 Educational Loan
Asalient feature in recent trend in bank
finance is education loan. Education loans
amounting to Rs24,000 crore had been disbursed
to 16 lakh students across the country till march,
2009; and it is expected that the education loan
may touch Rs50,000 crore by 2015. The Central
Government has decided not to charge interest on
education loan granted to those whose family
income is less than Rs4.5 lakh per annum. This
will come into force during the current academic
year.197
2. REGIONAL RURAL BANKS (RRBS)
Ours is an agricultural economy .The
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Father of the Nation rightly said that India lives in
villages. Still there are lakhs of villages where 60
crore people live. Against this backdrop, the
establishment of Regional Rural Bank in India is
a landmark in the Indian Banking History. The
main objective of RRB is to provide credit
especially to small and marginal farmers,
agricultural labourers, small entrepreneurs and
artisans in rural areas who need funds. At the
beginning, in 1975, five RRBS were setup. Today, we have 104 RRBS Sponsored by 29 banks.
These RRBS function in 484 districts with more
than 14,400 branches and employing about
70,200 persons. Realizing the importance of the
RRBS, Government of India has recently said
that it intends to strengthen the financial
resources of RRBS.
3. INSURANCE SECTOR
The life insurance business has come a
long way since independence, and Indian
consumers till recently had been dealing with one
life insurance player, i.e., the LIC in the public
sector. After the liberalization of the insurance
sector, a dozen companies have entered the
insurance business. The insurance sector had the
reforms with the passing of IRDA bill in
December, 1999. The privatization process
commenced by forming the Insurance Reforms
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Committee. The 12 private life insurers have
already grabbed 9% of the market in terms of
premium income. The insurance premiums of
these 12 players have crossed Rs 1000 crore over
the last year. Innovative products, smart
marketing and aggressive distributition, that is,
the triple whammy combination has enabled
fledgling private insurers to sign up Indian
consumers. While the state owned companies
still dominate segments like endowment and
money back policies, the private companies have
a virtual monopoly in the unit linked insurance
schemes.
3.1 Detariffing
Recently, the IRDA has requested the
general insurance companies to initiate steps to
ensure transition from tariff regime to detariff
regime from January, 2007; accordingly, there is
full detariffing of the general insurance business
from April 1, 2008. Tariff means rigidity. It
means that not only rates are fixed, but also the
terms and conditions of policies are to be laid
down in tariff. Detariffing makes insurers free to
decide the premium rates based on their own
guidelines of pricing.
3.2 Bancassurance
The concept bancassurance is French
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origin. It is an emerging concept in India .Life
assurance companies need immense distribution
strength. This distribution will undergo a vast
change when the insurance policies are available
from local bank branch through bancassurance
In India, the sign of initial success is already.
there and the success of the scheme depends on
banks ensuring excellent customer relationship.
3.3 Micro Insurance
LIC launched its first micro insurance
product, captioned Jeevan Madhur in
September, 2006. It launched its second micro
insurance product, under the caption Jeevan
Mangal in September, 2009. The policy is
targeted at factory workers, self help group
members, domestic servants, rickshaw pullers
and other low income people. The salient feature
is a low minimum premium of Rs15 per week and
the risk cover ranged from Rs 15, 000 to a
Maximum of Rs 50, 000.
4. MUTUAL FUND
In India, mutual funds play a dominant
role by mobilizing savings and investing them in
the capital market, thus establishing a link
between savings and capital market. The main
objective of investing in mutual fund scheme is to
diversify risk. Mutual funds made an opening in
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1963 under the enactment of Unit Trust of India
R.Neelamegam - Recent Trends in Indian Financial Services Industry198
which launched its first scheme named US 1964,
which is continuing even to-day. In1986, the
Government amended the Banking Regulation
Act and permitted public sector commercial
banks like SBI, PNB, Canara bank and so forth to
set up mutual funds. Government allowed
insurance companies in the public sector- GIC in
1989 and LIC in 1991, to set up mutual funds. In
1993, under its New Economic policy of
liberalization opened the gates to the private
sector to set up mutual funds. In March 1991, the
government entrusted the function of regulating
mutual funds to Securities and Exchange Board
of India (SEBI) which issued guidelines in
October, 1991 for regulating the Indian capital
market.
4.1 Sectorwise Mobilization of Funds by
Mutual Funds
Mutual funds have become an important
segment of institutional investors. The total
mobilization of funds by private sector MFs
during 2007-2008 was Rs.37, 80,753 crores,
followed by UTI MFs Rs.3, 46,126 crores, and
public sector MFs Rs.3, 37,498 crores. As in the
preceding years, the private sector MFs
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continued to dominate resource mobilization in
2007-2008
Now there is SIP (systematic investment
plan) method of investing in the mutual fund.
Before starting a SIP, an investor has to decide on
which fund scheme he wants to invest in dividend
or growth option? How much one wants to
invest? How long one wants SIP to go on? and so
forth.
Interest rate future was launched in
National Stock Exchange on 31st August, 2009.
It is a contract to buy or sell a debt security (10
year government bond bearing interest rate of 7%
payable half yearly) at a price decided in advance
for delivery at a future date .The contract helps to
eliminate the interest rate risk.
5. CONCLUSION
It is clear that many aspects of financial
services industry in India have changed since the
1990's. With the reforms of financial services
industry, the economy has been opened up and
several significant developments have been
taking place in all the segments of the financial
services sector. As per the survey of Central
Statistical Organization, the Indian economy has
grown at 6.1% in the first quarter of 2009-2010
against 5.8% growth in the previous quarter
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despite the global financial crisis impacting
manufacturing and services sectors like trade,
hotels and communication. It is heartening to
note that finance, insurance and real estate
expanded by 8.1% against 6.9% in the previous