Finance Sector: A crucial factor of stability of the Indian market

India bears a diversified financial sector that is on the verge of rapid expansion, in terms of strong growth of existing financial services firms comprising commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. India's economic progress, which is largely dependent on the financial sector, along with being a crucial factor of stability in the global economy, but also a source of immense economic opportunity for the world. A large portion of the financial sector extracts revenue from mortgages and loans, which is more valuable as interest rates drop. On a large basis, the health of the economy depends on the strength of its financial sector. The stronger it is, the healthier the economy. A weak financial sector typically means the economy is weakening.

Commercial Banks account for almost 64% of the total assets held by the Indian financial sector. The Indian banks have transformed from a physical to digital banking model. Banks have upgraded by reaching out to a diverse population and have introduced products that have made banking accessible for everyone. India only contributes 1.7% to the global insurance market, expected to bounce to 2.3% by 2030. The onset of the pandemic brought a significant change in how the Indian insurance industry operates. Most of the Fintech companies in India are still in the start-up phase. Market reports say that India bears one of the fastest-growing Fintech markets in the world and is predicted to reach $150-160 billion by 2025.

Outlook 

As of today, India stands to be one of the most vibrant global economies driven by robust banking and insurance sectors. The relaxation of foreign investment rules has received an optimistic inclination from the insurance sector, with many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the coming quarters, there could be a series of joint venture deals between global insurance giants and local players.

Temperance in venture capital activity, growing focus on banking institutions on climate change issues, and traditional financial services companies partnering more with fintech are a few of the major trends which will shape the industry going forward. In 2022, from banking and capital markets to insurance to investment management to commercial real estate, financial services firms are operating with a no-turning-back opportunity to shape their own as well as the industry’s future. Currently, the banking and financial services industry is turning its focus toward innovation to gear up for a future that will be increasingly led by technology. To meet the demands of the ever-growing demands of the gradually rising population, the government also took steps and defined strategies to ease payments, banking, insurance and other financial services. Showing resilience and adaptability, the financial industry is expected to evolve rapidly in 2022 fostered by financial innovation which has taken a centre position and a healthy chance for consumers to invest, save and grow their wealth.

Financial Highlights

In Q4FY22, the performance of banks was underpinned by a pickup in loan growth, improvement in asset quality as well as a rise in higher credit demand in retail and corporate segments. Non-banking financial companies (NBFCs) and housing finance firms recorded an improvement in their asset quality in Q4FY22 supported by the minimal impact of Omicron variant of COVID-19 and lower slippages from the restructured book.

The diversified non-bank finance companies (NBFC) reported 20% growth in net profit while insurance firms attracted a 68% year-on-year growth. Meanwhile, gross non-performing assets contracted 11.01% which led to a decline of 35.7% in provisioning. In totality, listed banks reported robust net profit growth of 87% on a YoY basis as the provisions went down due to a decrease in stressed loans.

Let’s have a look at the quarterly performance of the top companies in the financial sector.  

According to market capitalisation, the top companies comprise Housing Development Finance Corporation, Bajaj Finance, Bajaj Finserv, SBI Cards And Payment Services and Bajaj Holdings & Investment. Considering the three main parameters that are net sales, operating profit and PAT, on a YoY basis, in FY22, the largest dip in net sales was recorded by HDFC of 63.98% followed by Bajaj Finserv of 41.5% and Bajaj Holdings of 1.67%. Meanwhile, Bajaj Finance and SBI Cards and Payments recorded a rise of 14.89% and 8.84%.

As far as operating profit is concerned, Bajaj Finance and SBI Card and Payments were again the leaders reporting a jump of 23.99% and 34.44%. All five companies saw positive growth in the PAT numbers with SBI Cards and Payments reporting a growth of 63.74% followed by Bajaj Finance and HDFC posting a growth of 58.52% and 18.35%. In Q4FY22, SBI Cards and payments reported a jump of over three-fold in its net profit at Rs 580.86 crore as compared to Rs 175.42 crore reported in Q4FY21. On the other hand, its total income rose to Rs 3,016.10 crore against Rs 2,468.14 crore recorded in the same period of FY22.