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BFSI Sector

  1. 1. Banking, financial services and insurance sectors Submitted by- Yashika Gupta
  2. 2. ABOUT BFSI INDUSTRY  The term BFSI stands for Banking, Financial Services & Insurance sectors. These sectors are described in-depth as below:  Banking  Holding financial assets for customers  Investing those financial assets so as to create more wealth  Regulating activities of Government agencies under RBI’s guidance
  3. 3. continued  Financial Services  Stock Broker: A registered representative, investment advisor or broker is associated with a brokerage firm. Such a representative executes buying and selling orders for stocks, other securities. These orders are executed through Stock Market/ over the counter.  The Stock Traders handle all transactions for retail and institutional customers  Mutual funds and Housing finance are other services offered in the Financial Services sector
  4. 4. continued  Insurance  Insurance is a contract, represented by a policy  An individual or entity receives the financial protection or reimbursement against losses from an insurance company  The company pools clients' risks to make payments affordable for insured entities  The insurance policies hedge against risk of financial losses (big and small) resulting from damage to the insured or property/ from liability for damage/ injury caused to the third party
  5. 5. Banking sector
  6. 6. BANKING  Crowther defines a bank as, "one that collects money from those who have it to spare or who are saving it out of their income and lends the money so collected to those who require it".  Section 5(b) defines bank as accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, and order or otherwise.  Section 49A of the Act prohibits any institution other than a banking company to accept deposit money from public withdrawal by cheque. Students may note that the essence of banking business is the function of accepting deposits from public with the facility of withdrawal of money by cheque.  In other words, the combination of the functions of acceptance of public deposits and withdrawal of the money by cheques by any institution cannot be performed without the approval of Reserve Bank.
  7. 7. Introduction  Today, the banking industry in our country is stronger and capable of withstanding the pressures of competition. It withstood Global Financial Crisis (2008). In the era of Globalization  Banking Sector in India is rapidly changing since 1990s due to technological innovation, financial liberalization with entry of new private and foreign banks, and regulatory changes in the corporate sector.  Indian banking industry is gradually moving towards adopting the best practices in accounting, internationally accepted prudential norms, with higher disclosures and transparency, corporate governance and risk management, interest rates have been deregulated, while the rigour of directed lending is being progressively reduced.
  8. 8. continued  In our country, currently we are having a fairly well developed banking system with different classes of banks – public sector banks, foreign banks, private sector banks – both old and new generation, regional rural banks and co-operative banks with the Reserve Bank of India as the leader of the system.  In the banking field, there has been an unprecedented growth and diversification of banking industry and our banks are now utilizing the latest technologies like internet and mobile devices to carry out transactions and communicate with the masses
  9. 9. Classification of Banks  Today is the age of specialization and we can find specialization in all fields including banking. The banks have specialized in a particular line of finance. Various types of banks have developed to suit the economic development and requirements of the country. The principal banking institutions of a country may be classified into following types:-
  10. 10. Classification (1) Central Banks (2) Commercial Banks (3) Industrial Or Development Banks (4) Exchange Banks (authorized dealers in foreign exchange) (5) Co-operative Banks (6) Land-mortgage Banks (7) Indigenous Banks (8) Savings Banks (9) Supranational Banks (10) International Banks
  11. 11. Functions of bank Primary Functions of Banks A) Accepting deposits • Saving deposits • Fixed deposits • Current deposits • Recurring deposits B) Granting advances • Overdraft • Cash credit • Loans • Discounting of bills
  12. 12. continued Secondary functions A) Agency functions  Transfer of funds  Periodic payments  Collection of cheques  Portfolio management  Other agency functions B) Utility functions  Drafts  Lockers  Underwriting  Project reports  Social welfare programmes  Other utility functions
  13. 13. Banking System  The structure of banking system differs from country to country depending upon their economic conditions, political structure and financial system. Banks can be classified on the basis of volume of operations, business pattern and areas of operations. They are termed as system of banking. The commonly identified systems are
  14. 14. Banking system  1. Unit banking  2. Branch Banking  3. Correspondent Banking System  4. Group Banking  5. Chain Banking  6. Pure Banking  7. Mixed Banking  8. Relationship banking  9. Narrow Banking  10. Universal Banking  11. Retail Banking  12. Wholesale Banking  13. Private Banking
  15. 15. Structure of Banking Sector in India:  The Indian banking system has emerged as a sluggish business institution to a highly proactive and dynamic entity.  The existing banking structure in India evolved over several decades, is elaborate and has been serving the credit and banking services needs of the economy. There are multiple layers in today’s banking structure to cater to the specific and varied requirements of different customers and borrowers.  The structure of banking in India played a major role in the mobilization of savings and promoting economic development. In the post-financial sector reforms (1991) phase, the performance and strength of the banking structure improved perceptibly.
  16. 16. continued  Financial soundness of the Indian commercial banking system compares favorably with most of the advanced and emerging countries.  A bank is a financial institution that provides banking and other financial services to their customers. A bank is generally understood as an institution which provides fundamental banking services such as accepting deposits and providing loans. There are also nonbanking institutions that provide certain banking services without meeting the legal definition of a bank. Banks are a subset of the financial services industry.
  17. 17. Market Size  The Indian banking system consists of 18 public sector banks, 22 private sector banks, 46 foreign banks, 53 regional rural banks, 1,542 urban cooperative banks and 94,384 rural cooperative banks as of September 2019. During FY07–19, deposits grew at a CAGR of 11.11 per cent and reached US$ 1.86 trillion by FY19. Deposits as of Feb 2020, stood at Rs 132.35 lakh crore (US$ 1,893.77 billion).  The total equity funding of microfinance sector grew at the rate of 42 year-on-year to Rs 14,206 crore (US$ 2.03 billion) in 2018-19.
  18. 18. Financial services sector
  19. 19. Financial services  According to the Finance and Development department of the International Monetary Fund (IMF), a financial service is best described as the process by which a consumer or business acquires a financial good. For example, a payment system provider is providing a financial service when it is able to accept and transfer funds from a payer to a recipient. This includes accounts that are settled through credit and debit cards, checks and electronic funds transfers.  Financial services can be defined as the products and services offered by institutions like banks of various kinds for the facilitation of various financial transactions and other related activities in the world of finance like loans, insurance, credit cards, investment opportunities and money management as well as providing information on the stock market and other issues like market trends
  20. 20. Introduction  Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and some government sponsored enterprises.  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.
  21. 21. continued  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. However, the financial sector in India is predominantly a banking sector with commercial banks accounting for more than 64 per cent of the total assets held by the financial system.  As per section 65(10) of the Finance Act, 1994, “banking and financial services” means the following services provided by a banking company or a financial institution including a non banking financial company, namely; 1. financial leasing services including equipment leasing and hire-purchase by a body corporate. 2. credit card services. 3. merchant banking services.
  22. 22. continued 4. securities and foreign exchange (forex) broking. 5. asset management including portfolio management, all forms of fund management, pension fund management, A custodial depository and trust services, but does not include cash management. 6. advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisition and advice on corporate restructuring and strategy. 7. provision and transfer of information and data processing.
  23. 23. Types of financial services  Capital market services- it consists of term lending institutions which mainly provides long term funds  Money market services- it consists of commercial banks, financial institutions, co-operative banks which provide short term funds agencies.  Retail services- services provided to corporate institutions for direct consumption.  Wholesale services- services provided to corporate institutions which may be directly or indirectly converted into retail services.  Fund based services- it refers to services that are used to acquire assets or funds for a customer. It consists of- Primary market activities Secondary market activities Foreign exchange activities Specialized financial services
  24. 24. continued  Fee based services- when financial institutions operate in specialized fields to earn income in form of fees, commission, brokerage or dividends it is called a fee based service. They include- Issue management Portfolio management Corporate counselling Merchant banking Credit rating Stock broking Capital restructuring Bank guarantee Letter of credit Debt reconstructing
  25. 25. Functions of Financial Services  Facilitating transactions (exchange of goods and services) in the economy.  Mobilizing savings (for which the outlets would otherwise be much more limited).  Allocating capital funds (notably to finance productive investment).  Monitoring managers (so that the funds allocated will be spent as envisaged).  Transforming risk (reducing it through aggregation and enabling it to be carried by those more willing to bear it).
  26. 26. Structure of Financial services  The Financial Services Sector includes thousands of depository institutions, providers of investment products, insurance companies, other credit and financing organizations, and the providers of the critical financial utilities and services that support these functions. Financial institutions vary widely in size and presence, ranging from some of the world’s largest global companies with thousands of employees and many billions of dollars in assets, to community banks and credit unions with a small number of employees serving individual communities. Whether an individual savings account, financial derivatives, credit extended to a large organization, or investments made to a foreign country, these products allow customers to:  Deposit funds and make payments to other parties  Provide credit and liquidity to customers  Invest funds for both long and short periods  Transfer financial risks between customers
  27. 27. Market Size  The MF industry’s AUM has grown from Rs 10.96 trillion (US$ 156.82 billion) in October 2014 to Rs 26.33 trillion (US$ 376.73 billion) in October 2019.  Another crucial component of India’s financial industry is the insurance industry. The insurance industry has been expanding at a fast pace. The total first year premium of life insurance companies reached Rs 214,673 crore (US$ 30.72 billion) during FY19.  Along with the secondary market, the market for Initial Public Offers (IPOs) has also witnessed rapid expansion. In FY19, Rs 14,674 crore (US$ 2.10 billion) has been raised from Initial Public Offerings (IPOs).  Furthermore, India’s leading bourse Bombay Stock Exchange (BSE) will set up a joint venture with Ebix Inc to build a robust insurance distribution network in the country through a new distribution exchange platform.
  28. 28. Insurance sector
  29. 29. Insurance sector  The insurance sector is made up of companies that offer risk management in the form of insurance contracts. The basic concept of insurance is that one party, the insurer, will guarantee payment for an uncertain future event.  Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.
  30. 30. introduction  The insurance sector is made up of companies that offer risk management in the form of insurance contracts. The basic concept of insurance is that one party, the insurer, will guarantee payment for an uncertain future event. Meanwhile, another party, the insured or the policyholder, pays a smaller premium to the insurer in exchange for that protection on that uncertain future occurrence.  Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies and/or perils.  There many types of insurance policies. Life, health, homeowners, and auto are the most common forms of insurance.  The core components that make up most insurance policies are the deductible, policy limit, and premium.
  31. 31. continued  The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries.  Today Insurance Companies in India have grown manifold. The insurance sector in India has shown immense growth potential. Even today a giant share of Indian population nearly 80% is not under life insurance coverage, let alone health and non-life insurance policies. This clearly indicates the potential for insurance companies to grow their market in India.
  32. 32. continued  In simple terms it is a contract between the person who buys Insurance and an Insurance company who sold the Policy. By entering into contract the Insurance company agrees to pay the Policy holder or his family members a predetermined sum of money in case of any unfortunate event for a predetermined fixed sum payable which is in normal term called Insurance Premiums.  Insurance is basically a protection against a financial loss which can arise on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. By paying a very small sum of money a person can safeguard himself and his family financially from an unfortunate event.
  33. 33. Types of insurance services  Life Insurance or Personal Insurance.  Property Insurance.  Marine Insurance.  Fire Insurance.  Liability Insurance.  Guarantee Insurance.  Social Insurance.
  34. 34. Functions of insurance sector A) Primary Functions:  Insurance provides certainty.  Insurance provides protection.  Risk sharing. B) Secondary functions  Prevention of losses.  It Provides Capital.  It Improves Efficiency.  It helps Economic Progress.
  35. 35. STRUCTURE OF INSURANCE SECTOR  In the history of the Indian insurance sector, a decade back LIC was the only life insurance provider. Other public sector companies like the National Insurance, United India Insurance, Oriental Insurance and New India Assurance provided non-life insurance or say general insurance in India.  However, with the introduction of new private sector companies, the insurance sector in India gained a momentum in the year 2000. Currently, 24 life insurance companies and 30 non-life insurance companies have been aggressive enough to rule the insurance sector in India.  But, there are yet many more insurers who are awaiting for IRDAI approvals to start both life insurance and non-life insurance sectors in India.
  36. 36. continued  So far as the industry goes, LIC, New India, National Insurance, United insurance and Oriental are the only government ruled entity that stands high both in the market share as well as their contribution to the Insurance sector in India.  There are two specialized insurers – Agriculture Insurance Company Ltd catering to Crop Insurance and Export Credit Guarantee of India catering to Credit Insurance. Whereas, others are the private insurers (both life and general) who have done a joint venture with foreign insurance companies to start their insurance businesses in India.
  37. 37. Market Size  Government's policy of insuring the uninsured has gradually pushed insurance penetration in the country and proliferation of insurance schemes.  Gross direct premiums of non-life insurers in India reached US$ 13.66 billion in FY20 (up to September 2019), gross direct premiums reached Rs 410.71 billion (US$ 5.87 billion), showing a year-on-year growth rate of 14.47 per cent. Overall insurance penetration (premiums as per cent of GDP) in India reached 3.69 per cent in 2017 from 2.71 per cent in 2001.  In FY19, premium from new life insurance business increased 10.73 per cent year-on-year to Rs 2.15 trillion (US$ 30.7 billion). In FY20 (till July 2019), gross direct premiums of non-life insurers reached US$ 5.7 billion, showing a year-on-year growth rate of 16.65 per cent.  The market share of private sector companies in the non-life insurance market rose from 13.12 per cent in FY03 to 55.70 per cent in FY20 (up to April 2019).