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Passport to the New India: India’s Financial Sector Sees Windfall in Reforms

Reform’s will spur growth and investment opportunities

India’s non state-owned financial companies are moving quickly to capitalize on changes in the economy, spurred by new government policies and powerful demographic forces. Waves of new business-friendly legislation, and a highly-educated workforce mean that India offers advantages when investing the emerging world that you cannot get elsewhere/

One of the most attractive investment markets in the world

“India is probably one of the most attractive banking markets in the world, with strong growth potential and rich margins in most segments today,” said Sanjay Mallik Head of Investor Relations and Strategy at IndusInd Bank which serves about 7 million customers. “IndusInd aims to double in size over the next three years by rolling out new electronic services and linking to the country’s new ‘payment banks’ that are giving accounts to tens of millions of individuals previously shut out of the banking system,” Mr. Mallik said. He was speaking on December 1, 2015 in Mumbai to Canadian financial advisors on the second day of a due diligence tour hosted by Birla Sun Life and Excel Funds. IndusInd has earned about 1 percent market share since its founding in 1994. Now the bank sees Prime Minister Narendra Modi’s economic reforms, which include fostering more competition in the state-owned banking sector, as presenting an opportunity to expand its own business. “The government has allowed the creation of 23 new private banks over the last year, 11 of which are ‘payment banks’. These are essentially transaction firms that need to find a revenue model,” Mr. Mallik said, and IndusInd will look to partner with some of them to cross-sell its services.

A view toward the future of finance

To give an idea of how quickly India’s financial services market is changing, Mr. Mallik pointed to IndusInd’s initiative to begin offering a variety of products online, including personal loans. Already, 15 percent of its personal loans are now done electronically, enabling the bank to further trim costs. IndusInd boasted a return on equity of approximately 20 percent before its latest capital raise this year. That compares with an average of 15.5 percent for Canada’s big six banks and about 7.5 percent for banks on a global scale, according to a February 2015 report by Ernst & Young. “Other financial players are also moving quickly in response to the changing government policies and economic forces. Housing Development Finance Corp. Ltd. (HDFC), the nation’s largest mortgage finance company, has secured approval from regulators to issue rupee-denominated bonds abroad and is considering a listing in the U.S.,” said Conrad D'Souza, a member of the executive team. “The business is raising funds to support its revenue growth that is running in excess of 20 percent a year, driven by demand for housing across the country as declining interest rates make home ownership more affordable. At the same time, HDFC has managed to keep its percentage of nonperforming retail loans at around 0.53 percent,” Mr. D’Souza said.

Big housing investment opportunities

Mortgages represent just 9 percent of India’s nominal GDP, compared with 62 percent in the U.S., creating huge opportunity for providers. Rising incomes for many households have helped make housing more affordable. On average, it costs 4.4 times annual income to buy a home in India today, down from 22 times in 1995. Homebuyers on average are borrowing the equivalent of US$35,900 for a home, with the best borrowing rates now just below 10 percent. However, “Tax incentives can bring the cost of borrowing down to as little as 4 percent for many families,” Mr. D’Souza said. If you are looking to take advantage of the growing market in India, then look to our Excel India Investment Fund. Excel Funds is the global leader in emerging markets. Put your money in good hands and watch your investment grow.

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