Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Securitization wikipedia , lookup
Financial economics wikipedia , lookup
Systemic risk wikipedia , lookup
Private equity secondary market wikipedia , lookup
Private equity in the 2000s wikipedia , lookup
Interest rate ceiling wikipedia , lookup
Interbank lending market wikipedia , lookup
Shadow banking system wikipedia , lookup
• Financial Sector has been incrementally deregulated and exposed to international financial markets in the last 15 years; • Consequently, elements of the Indian financial sector are close to international standards. • Global financial market conditions are favourable • Are we seizing the opportunity for urgent reforms and greater integration? • How do we decide what is an optimal rate to integrate with global financial markets? OBJECTIVES • Increase competition and thereby enhance the efficiency of financial intermediation and promote overall savings; • Widen and deepen the reach of the formal financial sector; • Ensure that the country’s savings are utilized most productively; and • Manage the risks stemming from disturbances in global markets to insulate the financial sector and the Indian economy. CRITERIA FOR COMPETITIVE MARKETS • There should be an adequate number of buyers and sellers such that all market participants are pricetakers • The primary market (for all issuance) should have a large number of participants • Valuations in the secondary market should be transparent and liquid enough to allow easy exit • The bid-ask spreads in the secondary markets should be narrow. ISSUES • The depth of the financial sector is relatively low • About two-thirds of private savings are mobilized by the financial sector. • Productivity of investments should be given greater weightage in allocation of credit. Table 1 Stock of Financial Assets as % of GDP (2004) Country Financial Assets India 160 Japan 420 Malaysia 400 South Korea 235 China 220 • A gradualist approach to “Fuller Capital Account Convertibility” is in order. The risks stemming from potential demand for investments in foreign assets (including real-estate) are not quantifiable and may be unmanageable in times of domesticinternational stress • Domestic interest rates are not adequately market determined i.e. there is need for further deregulation of interest rates Table 3 Financial Sector Regulators Country Regulators of Financial Services UK Financial Service Authority (FSA) Japan Financial Service Agency (FSA) Germany The Federal Financial Supervisory Authority (BaFin) India Banking – RBI Capital Markets – SEBI Insurance – IRDA Pension – PFRDA China Banking – China Banking Regulatory Commission (CBRC) Capital Markets – State Council Securities Commission (SCSC) Insurance – The China Insurance Regulatory Commission (CIR) USA Banking – Federal Reserve Bank Capital Markets – Securities and Exchange Commission (SEC) Derivatives – Commodities and Futures Trading Commission (CFTC) • The banking sector has reformed considerably since the early 1990s but is excessively dominated by the public sector which receives 78% of the deposits and makes about 73% of the loans Table 4 Indian Banks – Market shares (in percent) Deposits Loans Mar 2000 Mar 2005 Mar 2000 Mar 2005 Public Sector New Private Old Private Foreign 81.9 78 79.3 73.2 5.2 10.9 5.0 13.8 7.4 6.4 7.6 6.2 5.5 4.7 8.0 6.8 Table 5 Bank Lending as percentage of Deposits (2004) Country Lending as percent of Deposits China 130 UK 114 Malaysia 101 USA 92 India 61 • Efficiency in the banking sector lags international comparators in terms of intermediation costs • Just two domestic private banks have entered this sector in the last ten years • A coordinated effort is needed to hasten consolidation among and international listings of public sector banks and entry of new private sector banks • Separate regulator for banking • We should not mix up insolvency with illiquidity • Indian equity and related exchange traded derivatives markets and to some extent the mutual fund industry compare well with international markets • The over the counter (OTC) interest rate and currency swap markets cannot grow without better market determination of domestic interest rates and further capital account convertibility (FCAC) • The corporate debt market is miniscule and needs a series of reforms including stamp duty rationalization, repos in corporate bonds, settlement and clearing of corporate bonds through the same clearing system as government securities, introduction of credit derivatives, lifting of limits for FII purchases of corporate bonds • Exchange traded interest rate derivatives should be encouraged since this will improve the market determination of domestic interest rates and help the corporate bond market to grow • Exchange traded currency derivatives can wait for next steps towards FCAC • Commodity derivatives markets should be regulated by SEBI • The Companies Act needs to be amended and SEBI strengthened to take over the regulatory responsibilities under this Act • The private equity market should be courted and exit valuation methodologies made transparent and predictable. • The asset backed securities market will not develop without considerable preparatory work particularly on the legal issues involved. Hence, special efforts need to be directed to this end. • In cross-country terms, the Indian insurance industry is small in depth and coverage and there is tremendous potential for growth. Premiums should be deregulated, the requirement to hold at least 50% of assets in government securities should be gradually relaxed as also the ceiling of 26% ceiling for foreign ownership • The pension sector is almost entirely in the public sector and covers only about 16% of the workforce. Progress is hindered by a multiplicity of Acts, administered by several GoI Ministries, which have subdivided the sector. The pay-as-yougo government administered pension systems should be gradually replaced by defined contribution schemes in which pension assets are invested in securities, both debt and equity. The pension sector needs to be comprehensively reviewed, at a GoI wide level, in the light of the potential for it to help boost the equity and bond markets and thereby the entire financial sector • The complex web of legislation that applies to the financial sector needs to be simplified. Further, there are obvious anomalies in certain Acts e.g. those which provide for RBI representation on the boards of public sector banks such as State Bank of India (SBI), National Housing Bank (NHB). Table 6 Debit and Credit Card Penetration 2004 (percent of population) India 3 South Korea 174 Brazil 71 China 61 Thailand 54 Mexico 44 Table 7 Equity Market Capitalisation and Traded Values (2005) Country Market Capitalisation Value Added Listed Domestic Cos. India 71 57 4763 USA 136 172 5143 Japan 104 109 3279 UK 139 189 2759 Germany 44 63 648 China 26 1387 35 *Figures in percent Table 8 OTC and Exchange Traded Derivatives Country/ Region OTC Derivatives Markets Average daily turnover* India (2005) Not available Exchange-traded Derivatives Markets Annual turnover** 1 USA (2004) 355 819 EU (2004) 487 1001 *US$ billion; ** US$ trillion Table 9 Mutual Fund Assets Under Management (US$ billion end 2005) Country India USA France Switzerland UK Netherlands Germany Japan Mutual Fund Assets 64 8,905 1,363 117 547 94 297 470 % of GDP 8 71 65 32 25 15 11 10 Table 10 Issuance of Equity and Debt Year Equity GOI Issues Securities Rs. Crores Rs. Crores Debt Issues Publicly placed Privately placed 2004-05 28,200 (0.9) 1,06,501 (3.4) 4,094 55,408 (1.8) 2005-06 36,533 (1.0) 1,60,018 (4.5) -- 81,846 (2.3) 2006-07 (Apr-Sep) 8,205 BE 1,81,875 -- 47,945 Figures in () are percent of GDP Table 11 Corporate Bond Markets (2004) Country India USA Germany UK Malaysia Thailand South Africa China % of GDP 2 145 116 83 73 22 17 1 Table 12 Mortgage Balances Outstanding 2005 (Percent of GDP) India 3 USA 51 UK 54 South Korea 13 Thailand 9 Malaysia 23 Germany 48 Table 13 OTC and Exchange Traded Commodity Derivatives Country India OTC Commodity Derivatives Trading (Average daily turnover 2004 – US$ billion) -- Exchange Traded Commodity Derivatives (Annual turnover 2005 – US$ trillion) 0.33 USA 4.6 82 EU 13 49 Table 14 International Comparision of Insurance Penetration Country 2002 2003 2004 Total Life Non- Total life Life Non- Total life Life Nonlife USA 9.58 4.6 4.98 9.61 4.25 5.15 9.17 4.12 5.05 UK 14.75 10.19 4.56 13.37 8.62 4.75 12.6 8.92 3.68 Germany 6.76 3.06 3.7 6.99 3.17 3.82 6.97 3.11 3.86 Japan 10.86 8.64 2.22 10.81 8.61 2.2 9.52 6.75 2.77 India 3.26 2.59 0.67 2.88 2.26 0.62 3.17 2.53 0.65 China 2.98 2.03 0.96 3.33 2.3 1.03 3.06 2.21 1.05 World 8.14 4.76 3.38 8.06 4.59 3.48 7.99 4.55 3.43 Table 15 International Comparision of Insurance Density Country 2003 Total Life USA 3637.7 1657.5 UK 4058.5 Germany Japan 2004 Non-life Total Life Non-life 1980.2 3755.1 1692.5 2062.6 2617.1 1441.4 4508.4 3190.4 1318.0 2051.2 930.4 1120.8 2286.6 1021.3 1265.3 3770.9 3002.9 768 3874.8 3044 830.8 India 16.4 12.9 3.5 19.7 15.7 4.0 China 36.3 25.1 12.2 40.2 27.3 12.9 World 469.6 267.1 202.5 511.5 291.5 220 Table 16 Insurance Assets Under Management (US$ billion end 2005) Country Insurance Assets % of GDP India 22 3 USA 5,465 44 Japan 2,264 50 UK 1,907 87 France 1,527 72 Germany 1,370 49 Netherlands 385 61 Switzerland 337 91 Table 17 Pension Assets Under Management (US$ billion end 2005) Country Pension Funds % of GDP India 60* 8 Switzerland 469 127 Netherlands 693 110 USA 12,119 97 Japan 3,419 75 UK 1,607 73 France 165 8 Germany 114 4 * Estimate of EPFO, EPS and PF Funds. Table 18 Asset Allocation of Pension Funds (2005) Country Domestic International Domestic International Cash Equity Equity Bonds Bonds Others Japan 29 16 26 11 11 7 UK 39 28 23 1 2 7 USA 47 13 33 1 1 5 Table 19 Old-dependency ratio (population above 64 years of age divided by the population between 14-64) 2005 World 11 G10 23 China 11 Latin America 9 India 8 2050 25 42 37 29 22