The financial services sector has been dynamically developing as a result of changing regulations, the structure of the industry, etc. This increases the industry’s volatility, but it also gives businesses a chance to succeed in the market. Contact us right away to take advantage of BFSI-related services.
- BFSI advisory; Compliance assessment; Audit; coordination with regulatory bodies like the RBI, SEBI, and IRDA;
- Tips on how to launch services based on banking, finance, and insurance.
Banking Financial Services and Insurance (BFSI): An Overview
BFSI, which stands for banking, financial services, and insurance, is a phrase that industry professionals use interchangeably. It refers to businesses that offer a range of financial goods and/or services. BFSI includes, among other things, insurance firms, commercial banks, non-banking financial institutions, cooperatives, and mutual funds. Core banking, private banking, retail banking, and investment are all parts of BFSI’s banking division, whereas financial services include stock brokerage, payment gateways, mutual funds, etc. In India, the BFSI industry is expanding quickly. This is a result of the nation’s efficient regulation, acceptability, and technological advancement. BFSI goods are now included in the services and products offered by fin-tech enterprises. The BFSI business has undergone impressive reforms over the past 20 years and will continue to be a primary focus for India’s economy.
Growth of Banking Financial Services and Insurance Sector
This industry has advanced ever since market openings and globalisation in the 1990s. According to study, this industry is worth several billions of dollars and is constantly expanding. The BFSI industry saw new firms enter in 2010 thanks to the tech boom. These participants include fin-tech firms, data analytics firms, and AI firms.
The key driver of this sector’s expansion is cooperation. Fintech firms work with financial institutions like NBFCs (Non-Banking Financial Companies). Fintech firms and NBFCs gain economies of scale and economies of scope as a result of collaboration. Collaboration has advantages for both NBFCs and fin-tech enterprises.
Adaptability, advancement, digitization, and collaboration are some important characteristics that contributed to the growth of this industry. According to projections, this industry will keep growing over the next ten years. Banks and financial organisations will adapt more and incorporate technology into their offerings.
Banking and Financial Services Insurance Sector- Market Size
In addition to cooperative credit institutions, the Indian banking ecosystem includes 12 public sector banks, 22 private sector banks, 46 foreign banks, 1485 urban cooperative banks, and 96000 rural cooperative banks. In India, there were 213,145 ATMs installed overall in 2021. Bank assets expanded further from FY-18 to FY21, with total assets in the banking sector rising to US$ 2.48 trillion in FY21.
Both the public and private banking sectors have total assets of US$ 1,602,65 billion and US$ 878,56 billion in FY2021. Bank credit increased at a CAGR of 0.2% between FY16 and FY21. The total amount of loan extended reached US$ 1,487.60 billion by 2021. Deposits climbed at a CAGR of 12.3% between FY16 and FY21, reaching US$ 2.06 trillion by FY21. According to the RBI, bank credit totaled Rs. 110.46 trillion as of 2021, while credit to non-food businesses was at Rs. 109.82 trillion.
In terms of the financial services industry, it consists of the capital markets, the insurance industry, and NBFCs, all of which have seen significant growth in recent years. To reform the financial services industry, specifically the capital market, numerous efforts have been made. The cumbersome IPO process has been streamlined which has allowed eligible international investors to access Indian bond market. Foreign portfolio investors’ purchases of Indian shares reached a five-year high of Rs. 101,122 crore (US$ 14.47 billion). From FY02 and FY21, FPIs invested Rs. 12.52 lakh crore (US$ 177.73 billion) in the Indian capital market (till August 10, 2020).
Main Regulatory Body for BFSI
Reserve Bank of India: Banking Sector; Payments; Digital Payments.
Reserve Bank of India’s foreign exchange management division.
Reserve Bank of India, the Registrar of Companies, and the Ministry of Corporate Affairs all work in the NBFC sector.
Sector of Insurance: India’s Insurance Regulation and Development Authority (IRDAI).
Key statutes and Regulations applicable to Banking Financial Services and Insurance Sector
The regulations governing the banking and financial services industry includes the following:
Banking Regulation Act of 1949, Foreign Exchange Management Act of 1999, and RBI Act of 1934.
The Insolvency and Bankruptcy Code of 2016, Payment and Settlement Systems Act of 2007, and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002.
There are many rules controlling the insurance industry, but some of the more important ones are as follows:
Insurance Act of 1938, Life Insurance Corporation Act of 1956, General Insurance Business (Nationalization) Act of 1982, Insurance Regulatory and Development Authority of India (Insurance Web Aggregators) Regulations, Insurance Regulatory and Development Authority of India (Insurance Brokers) Regulations, and IRDAI (Re-Insurance) Regulations are just a few of the laws that apply to the insurance industry.
Different Institutions under Banking Financial Services and Insurance
The BFSI sector comprises of the following institutions:
India’s financial system is composed of the Central Bank, which is subordinate to both private and public sector banks. The Reserve Bank of India (RBI) is the nation’s main monetary regulator for banking activities. Its central bank is regarded as the nation’s banking system’s protector. All banking products are governed by the RBI. They oversee microfinance, fintech, and software-based financial product regulation. They oversee India’s management of foreign exchange as well. The RBI must give its consent before a licence may be obtained to operate a bank in India. A bank must have at least Rs. 300 crore in capital to get started. Private sector banks and public sector banks are further divisions of banks.
- Public Sector Banks (PSB)
Banks classified as public sector banks are those in which the government holds a controlling ownership, or more than 50%, and whose shares are traded on open markets. Fewer PSBs have amalgamated under a single existing bank than in the past, which has resulted in a decrease in the number of operational public sector banks.
- Private Sector Banks
Private sector banks are those whose majority ownership or equity is controlled by private shareholders. Several Private Sector Banks, like HDFC Bank, ICICI Bank, Axis Bank, and others, are present in the Indian economy.
Microfinance organisations and businesses that offer loans and take consumer deposits are two different types of financial institutions. To operate in the nation, financial institutions would also need to receive prior clearance from the RBI. The public can access short-term financing through microfinance institutions. The Securities and Exchange Board of India and other relevant organisations must approve some financial institutions (SEBI).
The Insurance Sector is also covered by BFSI consulting services. The Insurance Regulatory and Development Authority of India oversees the regulation of insurance firms in India (IRDAI). The insurance industry, insurance providers, and the policies they issue are all governed by this authority. In India, there are various types of insurance firms that can be categorised as follows:
Company of Insurance; and Company of Reinsurance.
Insurance companies are further divided into categories such as:
Business Insurance Providers
This will encompass other insurance companies, business insurance, property insurance, and cyber insurance.
Businesses Offering Noncommercial Insurance
This covers health insurance, life insurance, and general insurance.
Insurance businesses must offer products that adhere to the IRDAI-mandated requirements. This would entail adhering to standards for minimum capital needs as well as other elements.
Fin-tech is a phrase made up of the words “finance” and “technology,” respectively. Technology has changed how people and businesses function. Any type of fintech is acceptable. Users may be able to input information and carry out transactions using their smartphones thanks to a software programme. It has taken a long time for fin-tech to be disrupted by events. The RBI does, however, regulate payment and fintech businesses. In addition, additional nodal organisations also approve fin-tech firms.
Non-Banking Financial Companies
Non-Banking Financial Companies, are also known as NBFCs. NBFCs provide different forms of financial services; however, they do not have a banking license issued by the RBI. NBFCs are also regulated by the RBI. NBFCs are permitted to carry out some of the activities. Specific activities are not allowed to be carried out by an NBFC, which includes acceptance of deposits or savings bank funds from the public.
Typically the services which can be offered by an NBFC are the following:
Lending services, underwriting services, general finance consultation services, and transaction-specific consultation services.
Due to greater cooperation with Indian fintech companies, NBFCs in India have developed. NBFCs are permitted to sell their goods to both private and institutional customers thanks to partnership. Starting an NBFC has particular capital requirements, according to BFSI consultancy services. In addition, the business must be registered as a public limited company with the Registrar of Companies. An NBFC cannot function if the aforementioned conditions are not met.
These banks offer their clients services like giving loans and cards. The services provided by payments bank are mostly focused on mobile apps and mobile wallet platforms. Payment banks enable people to make payments. The operation of the payments bank requires the individual to present independent credentials. PayTM and Amazon Pay are typical examples of payment banks.
Licenses applicable under Banking Financial Services and Insurance sector
Various institutions in India are eligible for different kinds of licences. The kind of licence or registration required depends on the kind of work that the company in question does.
A banking licence is necessary to operate a bank in India. The Reserve Bank of India grants permission for banks to operate throughout the nation.
NBFC Registration: An organisation must obtain NBFC Registration in order to offer NBFC services. The RBI also approves of this.
Account Aggregator License: This is necessary for an organisation to serve as a consent broker, facilitating the sharing of financial data between various financial institutions in the financial sector.
Peer to peer, or P2P, lending is a type of borrowing in which anyone can lend or borrow money. One needs to apply for a licence from the RBI in order to operate a P2P lending business.
Payment Aggregator License: An e-commerce company’s website or application must have a payment gateway in order to receive payments.
Payments Bank License: A payment bank licence is a requirement for any organisation that wants to act as a payments bank in the nation. This licence is granted by the Reserve Bank of India in accordance with Section 22 of the Banking Regulation Act of 1949.
Small Finance Bank License: Small finance banks were established to help the country’s underprivileged population, who frequently does not receive assistance from major banks. According to Section 22 of the Banking Regulation Act of 1949, small financing banks are granted licences.
Registration of credit rating agencies: A credit rating agency is a legal entity that conducts ratings of securities that are made available through rights or public offerings. Before beginning the credit rating activity, an entity must register with SEBI.
Types of Licenses and Registrations in the Insurance Sector Insurance Company License: In India, obtaining an insurance company licence from the Insurance Regulatory and Development Authority is a requirement in order to start an insurance company.
License for Insurance Brokers: Insurance brokers ensure that clients obtain the finest insurance coverage possible for their needs. For a person or business to serve as a middleman between insurance providers and potential customers, they must have an insurance broker licence.
License for Insurance Web Aggregators – Insurance Web Aggregators gather data on various insurance policies provided by various insurance firms. For commercial entities who want to maintain a website that offers information on insurance policies, an Insurance Web Aggregator License is a must.
License for Insurance Marketing Firms: These businesses promote insurance policies on behalf of insurance providers. An insurance marketing firm licence should be required of any entity that want to conduct business as one.
Those who want to work as insurance surveyors and loss assessors must receive an insurance surveyors and loss assessors licence, either individually or through an organisation. The insurance companies assign surveyors and loss assessors who aid in calculating the extent of actual loss in situations where there is no one party’s control.
Compliances under Banking Financial Services and Insurance Sector
An entity must comply with some complicated compliance obligations in the banking, financial services, and insurance sectors. Failing to comply with the regulatory authority’s compliance requirements may result in negative outcomes like the termination of a registration or licence. Regarding minimum capital requirements, the creation of policies and loan papers, the filing of statutory returns, the disclosure requirements, etc., this compliance need may differ from one organisation to the next. So, an entity’s ability to operate efficiently depends on its adherence to the compliance standards that are occasionally established by the regulatory authority.
While organisations offering insurance services should assure reporting of compliance to the RBI, banks and other financial institutions are obligated to follow the rules set forth by the RBI.
One of India’s top NBFC service providers is Enterslice. We are proud to handle NBFC, banking, and financial concerns in India;
Offerings from Enterslice include NBFC registration, licences for payment institutions, insurance business registration, and related advisory services;
Some of the top banks in the commercial, foreign, and public sectors are among Enterslice’s clients;
Our team of professionals includes Chartered Accountants, Company Secretaries, Lawyers, and Financial Executives. We have extensive experience in catering to legal and financial matters that cover BFSI services across geographies. Constant monitoring and 24*7 customer service. Experts at KRA have conducted BFSI consulting services with the primary objective of adding value to your organisation.
Frequently Asked Questions
What does BFSI stand for?
Banking, Financial Services, and Insurance is referred to as BFSI. It is a term for those companies that expand a range of financial products or services.
What are the major services covered by KRA under BFSI?
We at KRA offer services to both people and businesses. NBFC is one of our primary emphasis areas within the BFSI industry. Nonetheless, we cover a variety of topics, including:
insurance, payments banks, retail banks, and banking.
What services can be offered by an NBFC?
NBFCs offer standard banking services. An NBFC, however, is not permitted to provide some services. NBFCs are often categorised according to the services they provide. The several categories of NBFCs are as follows:
Loan Company, Core Investment Company, Infrastructure Finance Company, Asset Finance Company, and Housing Finance Company.
The NBFC will provide business services in accordance with the aforementioned based on their classification.
How is a Fintech Company different from a payments bank?
Finance and technology are combined in a fintech company. The word “fintech” is used to describe innovative technology that streamlines and enhances the provision of financial services. A fintech company must register as a private company with the Registrar of Companies. A payment bank can be created by any company. A current business can also launch a payments bank. Mobile-based applications are mostly used in payment bank services.
Are the governance guidelines for insurance companies the same as that of banks?
No, the governance guidelines for insurance companies are different from banks. The governance for insurance companies is based on the governance framework introduced in the year 2016. The first governance framework was introduced in the year 2009. The governance framework for a bank shall be according to the provisions of the Banking Regulation Act, 1949. This framework keeps on changing according to the requirements of the RBI.
\How can banks offer fin-tech services?
Absolutely, banks can grow their fintech business by providing services. The act of doing something has benefits. The bank wouldn’t have to rely on an outside supplier. In addition, the bank would be aware of the obvious hazards the fin-tech industry faces. In addition to this approach, the bank can offer fin-tech services by working with a fin-tech business.
What are the challenges associated with BFSI services?
The BFSI sector is clearly facing a number of difficulties. Some of the difficulties include the following:
What is the future prospect of financial sector in India?
The demand for financial services is expected to rise dramatically as citizens’ incomes rise. Moreover, a trillion dollars in additional investments are anticipated in the Indian insurance industry by 2025.