Importance of financial services sector
Financial services sector is one of the vital organs of the Indian economy given its sizeable contributions to economic growth and equality. With a contribution of 5.8% to Gross Value Added (GVA), the sector engages a significant chunk of working population in the country. It is also one of the major contributors to the external sector revenue as the share of financial services trade printed at 9.2% of the total services trade of the country in 2016-17 (financial services exports to total services exports at 3.1%; financial services imports to total service import at 6.1%).
The financial services sector comprises of organisations such as commercial banks, investment banks, development finance institutions, non-banking financial companies, insurance companies, hedge funds, credit-card companies, consumer finance firms, accounting agencies, brokerage firms, cooperatives, mutual funds, new payment banks and small finance banks etc. The sector is dominated by banks in terms of operations, but when it comes to employment, it is the financial intermediary segment that contributes nearly 65% to the total employment pie of the financial services sector, followed by the banking sector which shares nearly 25% of the pie. As of March 2016, 13.01 lakh employees were employed by All Scheduled Commercial Banks. The third contributor to the employment pie is insurance sector, which employs nearly 2 lakh population in the country.
Foreign investment in the sector
Gradual opening up of these sectors (banking, insurance, pension, commodity exchanges, stock exchanges, depositories, clearing corporations etc.) to the foreign investors have amassed huge inflow of foreign direct investment (FDI) in recent years. The ‘zero-bound’ interest rate in most of the advanced economies coincided with the strong economic performance of the Indian economy, have further intensified the flow of hot money to the economy in the form of institutional investments in both debt and capital markets. This has resulted into further strengthening of our capital markets and ample availability of capital for the corporates at competitive rate.
Technological disruptions in the sector
Recent technological disruptions have made it inevitable for the implementation of artificial intelligence and robotics. This in turn has centralised the operations in financial sector and pushed the finance services sector to a platform where Internet is the epicenter. Today’s banking has now become technology driven with immense need of analytics and artificial intelligence. Moreover, the financial inclusion initiatives have also led to expansion of the network of the existing players as well as entry of new players is expected to penetrate the market further. New entrants including financial technology firms, payments banks and non-banking financial companies are in favour of using more and more technology, supported by fintech partners. This is posing stiff competition to the existing players. To retain competitive edge, existing players are left with no choice but to invest heavily in digital technologies in delivering an enhanced customer experience at low operational costs.
Job opportunities in banking
As banking is a financial intermediation process and is based on trust, increasing per capita income level has enhanced the need for banking services. This has resulted into a higher demand for transactional banking services. Given cent percent financial inclusion in the country, the scope of business for the financial institutions have increased tremendously in recent years. Apart from opening bank accounts, there are numerous other services these newly boarded customers deserve from the financial institutions. To meet the requirements of this vast customer base, the financial institutions need to well equip themselves with skilled manpower to serve the needs of those un-banked as well as under banked segment.
Job opportunities in other financial services
India has a vibrant capital market. The market capitalisation of the Indian stock market in proportion of the Gross Domestic Product (GDP) have grown from 12.2% in 1990-91 to 99.9% in 2016-17 (BSE:99.9%, NSE: 98.5%, MSEI:97.3%). Similarly, the Indian mutual fund industry is one of the best investment destinations worldwide. The Asset Under Management (AUM) of the Indian MF industry has grown from Rs. 3.26 lakh crore as on 31st March 2007 to Rs.20.59 lakh crore as on 31st August 2017 (16.9% of GDP), more than six-fold increase in a span of about 10 years. India’s life insurance sector is the biggest in the world with about 360 million policies. Insurance sector has been a notable employment generator including associated professionals such as brokers, insurance advisors, agents, underwriters, claims managers and actuaries. The Indian insurance market has huge business opportunity as currently it accounts for less than 1.51% of the world’s total insurance premiums and about 2% of the world’s life insurance premiums despite being the second most densely inhabited nation. Increased risk of lifestyle diseases, rising middle class population and growing awareness of the need for protection and retirement planning is expected to support the growth of Indian insurance industry which would create the requirement for more and more skilled labour in coming days.
The customer pie in India is ever expanding for financial services sector. With rise in per capita income, the need for financial services is growing. Technology adoption by the industry either by compulsion or by competition is by no way going to hamper the job creation capacity of the sector in coming days. Rather to work on improved technology and digital platform, the demand for new skills would boom in financial service sector in the coming days.
Mr. Prashant Kumar, Deputy MD (Corporate Development Officer) SBI, writes this piece for the latest edition of FICCI’s Financial Foresights. Post continues on Page 2.