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FINANCIAL SECTOR
The Indian financial
sector is in for an overhaul. Financial sector
reforms have long been regarded as an integral
part of the overall policy reforms in India. India
has recognized that these reforms are imperative
for increasing the efficiency of resource mobilization
and allocation in the real economy and for the
overall macroeconomic stability. The reforms have
been driven by a thrust towards liberalization
and several initiatives such as liberalization
in the interest rate and reserve requirements
have been taken on this front. At the same time,
the government has emphasized on stronger regulation
aimed at strengthening prudential norms, transparency
and supervision to mitigate the prospects of systemic
risks. Today the Indian financial structure is
inherently strong, functionally diverse, efficient
and globally competitive. During the last fifteen
years, the Indian financial system has been incrementally
deregulated and exposed to international financial
markets along with the introduction of new instruments
and products.
Banking Sector
The banking sector is the most
dominant sector of the financial system in India.
Significant progress has been made with respect
to the banking sector in the post liberalization
period. The financial health of the commercial
banks has improved manifolds with respect to capital
adequacy, profitability, asset quality and risk
management. Further, deregulation has opened new
opportunities for banks to increase revenue by
diversifying into investment banking, insurance,
credit cards, depository services, mortgage, securitization,
etc. Liberalization has created a more competitive
environment in the banking sector.The competition
has increased within the banking sector (with
the emergence of new private banks and foreign
banks) as well as from other segments of the financial
sector such as mutual funds, Non Banking Finance
Companies, post offices and capital markets.
Capital Market
India has a long tradition of
functioning capital markets. The Bombay stock
exchange is over a hundred years old and the volume
of activity has increased in the recent years.
The process of reform of capital markets started
in 1992 and aimed at removing direct government
control and replacing it by a regulatory framework
based on transparency and disclosure. The first
step was taken in 1992 when SEBI was elevated
to a full-fledged capital market regulator.
An important policy initiative
in 1993 was the opening of capital markets for
foreign institutional investors and allowing Indian
companies to raise capital abroad. FII registrations
in the country have gone up significantly over
the years. The number of registered FIIs has gone
up significantly. The FIIs have been rewarded
well by attractive valuations and increasing returns.
The depository and share dematerialization systems
have been introduced to enhance the efficiency
of the transaction cycle.
A number of significant reforms
have been implemented in the spot equity and related
exchange traded derivatives markets since the
early 1990s. For instance, spot prices are mostly
market-determined, trading volumes in the derivatives
market exceed those in spot markets and market
practices such as speed of settlement and dematerialization
are close to international best practices.
Insurance Sector
There exists huge scope of investment
in the insurance sector in India. India has an
enormous middle-class that can afford to buy life,
health and disability and pension plan products.
Further, insurance is one of the most important
tax saving instrument in the country.
Insurance sector has been opened
up for competition from Indian private insurance
companies with the enactment of Insurance Regulatory
and Development Authority Act, 1999 (IRDA Act).
As per the provisions of IRDA Act, 1999, Insurance
Regulatory and Development Authority (IRDA) was
established on 19th April 2000 to protect the
interests of holder of insurance policy and to
regulate, promote and ensure orderly growth of
the insurance industry. IRDA Act 1999 paved the
way for the entry of private players into the
insurance market, which was hitherto the exclusive
privilege of public sector insurance companies/
corporations. Under the new dispensation Indian
insurance companies in private sector were permitted
to operate in India on the fulfillment of certain
prerequisites. A large number of public and private
players are competing today in both life and general
insurance segments. The FDI cap/ Equity in the
insurance sector is 26 percent under the automatic
route subject to licensing by the insurance regulatory
and development authority.
Some of the major private players
in the sector are:
In Life insurance Sector:
- Bajaj Allianz Life Insurance
Corporation
- Birla Sun Life Insurance Co.
Ltd. (BSLI)
- HDFC Standard Life Insurance
Co. Ltd. (HDFC STD LIFE)
- ICICI Prudential Life Insurance
Co. Ltd. (ICICI PRU)
- ING Vysya Life Insurance Co.
Pvt. Ltd. (ING VYSYA)
- Max New York Life Insurance
Co. Ltd. (MNYL)
- MetLife India Insurance Co.
Pvt. Ltd. (METLIFE)
- Kotak Mahindra Old Mutual Life
Insurance Co. Ltd. SBI Life Insurance Co. Ltd.
(SBI LIFE)
- TATA AIG Life Insurance Co.
Ltd. (TATA AIG)
- AMP Sanmar Assurance Co. Ltd.
(AMP SANMAR)
- Aviva Life Insurance Co. Pvt.
Ltd. (AVIVA)
- Sahara India Life Insurance
Co. Ltd. (SAHARA LIFE)
- Shriram Life Insurance Co.
Ltd
In General Insurance sector:
- Bajaj
Allianz General Insurance Co. Ltd. (BAJAJ ALLIANZ)
- ICICI Lombard General Insurance
Co. Ltd. (ICICI LOMBARD)
- IFFCO Tokyo General Insurance
Co. Ltd. (IFFCO TOKIO)
- Reliance General Insurance
Co. Ltd. (RELIANCE)
- Royal Sundaram Alliance Insurance
Co. Ltd.
- TATA AIG General Insurance
Co. Ltd. (TATA AIG)
- Cholamandalam MS General Insurance
Co. Ltd.
- HDFC Chubb General Insurance
Co. Ltd. (HDFC CHUBB)
Venture Capital
India is prime target for venture
capital and private equity today, owing to various
factors such as fast growing knowledge based industries,
favourable investment opportunities, cost competitive
workforce, booming stock markets and supportive
regulatory environment among others. The sectors
where the country attracts venture capital are
IT and ITES, software products, banking, PSU disinvestments,
entertainment and media, biotechnology, pharmaceuticals,
contract manufacturing and retail. An offshore
venture capital company may contribute upto 100
percent of the capital of a domestic venture capital
fund and may also set up a domestic asset management
company to manage the fund. Venture capital funds
(VCFs) and venture capital companies (VCC) are
permitted upto 40 percent of the paid up corpus
of the domestic unlisted companies. This ceiling
would be subject to relevant equity investment
limit in force in relation to areas reserved for
SSI. Investment in a single company by a VCF/VCC
shall not exceed 5 percent of the paid up corpus
of a domestic VCF/VCC. The automatic route is
not available.
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