Background material fdi-in_financial_services

Various Aspects under FEMAFinancial ServicesBY CA. Sudha G. BhushanThis Document provides an overview pertaining to regulatoryframework of Financial Services sector in India and theForeign Direct Investment Policy pertaining to same12/18/2010

Contents Overview of Foreign Exchange Management Act, 1999 Foreign Direct Investment Policy About Financial Services Components of Financial Services FDI in Financial Services Indian financial Service Sector – Growth and opportunity | By CA. Sudha G. Bhushan

Overview of Foreign Exchange Management Act, 1999The preamble of the act says that it is an Act to consolidate and amend the law relating toforeign exchange with the objective of facilitating external trade and payments and forpromoting the orderly development and maintenance of foreign exchange market in India.Foreign Exchange Management Act, 1999 (“FEMA”) has come in force from 1st June, 2000by replacing Foreign Exchange Regulations Act (“FERA”). The main change that has beenbrought is that FEMA is a civil law, whereas the FERA was a criminal law. FERA was popularfor its draconian provisions. The shift of FERA to FEMA was the shift of control of foreignexchange to regulation and promotion and orderly development of Foreign exchange. FEMAis forward looking legislation which aims to facilitate foreign trade.FEMA aims to achieve self regulation instead of imposed restrictions. The rationale for strictregulations under FERA 1973 after Independence was that India was left with little forexreserves and during the oil –crisis of seventies ballooning oil import bills further drainedforeign exchange reserves. Unsatisfactory reserves made it imperative to put in placestringent controls to conserve foreign exchange and to utilise it in the best interest of thecountry.FEMA has 49 Sections of which 9 Sections (Sections 1 to 9) are substantive and the rest areprocedural or administrative. RBI is entrusted with the administration and implementationof FEMA. RBI has so far issued over 200 Notifications, each of which contains severalregulations for a particular class of transactions, e.g., Notification No. FEMA/21/RB-2000,deals with acquisition and transfer of immovable property in India.Notifications are type of self contained set of regulations, which are mostly divided intothree broad parts (i) Short title and commencement (ii) Definitions and (iii) Other provisionsIt is interesting to note that the same term may be defined differently for different purposesin different Notifications. For example, the term “Person of Indian Origin (PIO)” is defineddifferently in three Notifications, namely(i) FEMA 13/2000-RB pertaining to remittance of assets,(ii) FEMA 21/2000-RB pertaining to acquisition and transfer of immovable property in Indiaand | By CA. Sudha G. Bhushan

(iii) FEMA 24/2000-RB pertaining to investment in a firm or a proprietary concern in India.The definition section of each Notification makes it clear that the words and expressionsused therein, but not defined in that particular Notification, shall have the same meaningsrespectively assigned to them in the Act. Therefore, wherever a particular term is defined inthe Notification, the meaning to be assigned is unique to that Notification and mostly cannotbe applied to another.Thus, interpretation and application of FEMA provisions and Notifications require utmostcare. FEMA is applicable to the whole of India. The expression “whole of India” wouldindicate that the provisions of the Act are applicable to all transactions taking place in India.Thus, any person who is present in India at the time of transaction has to comply withprovisions of FEMA. FEMA is applicable to all branches, offices and agencies outside Indiaowned or controlled by a person resident in India. Thus, FEMA has retained its extra-territorial application, as under FERA.The Enforcement of FEMA is done through Reserve Bank of India and Central Government.The power has been given to Central Government [section 46] and RBI [Section 47] to laydown detailed rules and regulations to carry out the various provisions of the Act. Whereunder Section 47 the reserve bank of India can make regulations governing procedural andadministrative aspects of FEMA the central government have been given the power to makerules governing enforcement of FEMA.The Central Government has established a Directorateof Enforcement for the purpose of enforcement of Act [section 36]. Officers underDirectorate of enforcement are known as officers of Enforcement. These officers caninvestigate the contraventions of FEMA. | By CA. Sudha G. Bhushan

Foreing Exchange management Act, 1999 Master Regulations - circulars Reserve Bank Regulatory Framework Rules- Central Circulars Goverment Notifications| By CA. Sudha G. Bhushan

Foreign Direct Investment PolicyTo fulfill the need of freeing the Indian industry from excessive official control and forpromoting foreign investments in India in necessary sectors the much required liberalizationof Indian economy was brought in by Industrial Policy of 1991. From then the Indianeconomy is more facilitating to Foreign Direct investment in all form.The intent and objective of the Government is to promote foreign direct investment througha transparent, predictable, simple and clear policy framework and the which reducesregulatory burden.Foreign Direct Investment in India is regulated under FEMA and it regulations. FDI by non-resident in resident entities through transfer or issue of security to person resident outsideIndia is a ‘Capital account transaction’ under FEMA, 1999. Keeping in view the currentrequirements, the Government from time to time comes up with new regulations andamendments/changes in the existing ones through order/allied rules, Press Notes, etc. TheDepartment of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry,Government of India makes policy pronouncements on FDI through Press Notes/ PressReleases which are notified by the Reserve Bank of India as amendment to notificationNo.FEMA 20/2000-RB dated May 3, 2000. These notifications take effect from the date ofissue of Press Notes/ Press Releases, unless specified otherwise therein. The proceduralinstructions are issued by the Reserve Bank of India vide A.P.Dir. (series) Circulars. Theregulatory framework over a period of time thus consists of Acts, Regulations, Press Notes,Press Releases, Clarifications, etc.Foreign Investment can be in two ways (i) Foreign Direct Investment (FDI) and(ii) Foreign Portfolio Investment.“Investment’ is usually understood as financial contribution to the capital of an enterprise orpurchase of shares in the enterprise. ‘Foreign investment’ is investment in an enterprise bya Non-Resident irrespective of whether this involves new capital or reinvestment ofearnings. One of the difference between FDI and Foreign Portfolio investment is theobjective with which the investment is made. The main motivation of investor of ForeignDirect Investment is a strategic long term relationship with the direct investment enterpriseto ensure the significant degree of influence by the direct investor in the management of thedirect investment enterprise. Direct investment allows the direct investor to gain access tothe direct investment enterprise which it might otherwise be unable to do. However theobjectives of portfolio investment is different whereby investors do not generally expect toinfluence the management of the enterprise.FDI is defined by International Monetary Fund (IMF) and Organization for EconomicCooperation and Development(OECD) as a category of cross border investment made by aresident in one economy (the direct investor) with the objective of establishing a ‘lastinginterest’ in an enterprise (the direct investment enterprise) that is resident in an economyother than that of the direct investor. In the Indian context, ‘FDI’ means investment by non-resident entity/person resident outside India in the capital of the Indian company underSchedule 1 of FEM(Transfer or Issue of Security by a Person Resident Outside India)Regulations 2000. | By CA. Sudha G. Bhushan

It is the policy of the Government of India to attract and promote productive FDI inactivities which significantly contribute to industrialization and socio-economic development.FDI supplements domestic capital and technology.FDI EQUITY INFLOWS (MONTH-WISE) DURING THE FINANCIAL YEAR 2010-11:Financial Year Amount of FDI inflows Amount of FDI inflows 2010-11 (In Rs. Crore) (In US$ mn)( April-March ) April 2010 9,697 2,179 May 2010 10,135 2,213 June 2010 6,429 1,380 July 2010 8,359 1,785 August 2010 6,196 1,330 September 9,754 2,118 2010 Total 50,570 11005 2010-11 (upto September 2010)# Figures are provisional, subject to reconciliation with RBI, Mumbai.Soruce : www.dipp.nic.inFor detailed statistics on FDI follow:http://www.dipp.nic.in/fdi_statistics/indian_FDI_September2010.pdf | By CA. Sudha G. Bhushan

SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWSAmount Rupees in crores (US$ in million)RANKS SECTOR 2008-09 2009-10 2010-11 (April- (April- ( April- March) March) Sep) 1. SERVICES SECTOR 28,516 20,776 9,506 (financial & non-financial) (6,138) (4,353) (2,067) 2. COMPUTER SOFTWARE & HARDWARE 7,329 4,351 2,438 (1,677) (919) (534) 3. TELECOMMUNICATIONS 11,727 12,338 4,803 (radio paging, cellular mobile, basic (2,558) (2,554) (1,057) telephone services) 4. HOUSING & REAL ESTATE 12,621 13,586 2,957 (2,801) (2,844) (640) 5. CONSTRUCTION ACTIVITIES 8,792 13,516 1,523 (2,028) (2,862) (332) 6. POWER 4,382 6,908 3,357 (985) (1,437) (729) 7. AUTOMOBILE INDUSTRY 5,212 5,754 825 (1,152) (1,208) (180)Source: www.dipp.nic.inFor detailed statistics on FDI follow:http://www.dipp.nic.in/fdi_statistics/indian_FDI_September2010.pdf | By CA. Sudha G. Bhushan

Financial Services SectorFinancial Services are defined as a bundle of intangible utilities aimed at satisfying theneeds of users. Financial Services bridges the gap between savers and those who needfunds. A financial service perform 1. Identification of resources for efficient allocation 2. Providing constant evaluation of allotted of resources 3. Providing liquidity to investorsFinancial System of any country consists of financial markets, financial intermediation andfinancial instruments or financial products.There are multiple regulators for various financial services in India. For eg; Reserve Bank ofIndia, IRDAFinancial services in India have prevailed since time immemorial. Kautilya’s Arthashatra cansaid to be the first organized literature on financial service where he has amply describedthe rules and regulations of money and mint management. The old instruments, like hundiresemble the bill of exchange or promissory note or bearer cheque of contemporaryfinancial markets.Financial services can be categorized into two groups, namely 1. Fund based activities and 2. Non fund based activitiesFund based activities are those where there is involvement of funds like underwriting,portfolio management, venture capital, private equity, structural finance etc. Non fundsbased financial services are those where intellectual property is used and advices areoffered. A fee or commission is charged for rendering services. The service sector in Indiahas been witnessing a boom in recent times. In addition to the strong growth in IT/ITES,the Indian financial services sector is considered to be stable and progressive, and has beena major beneficiary of India’s growth story.The growing attractiveness of the financial services has triggered the entry of global majors.Aggressive plans of incumbents coupled with the entry of new players are expected tofurther drive the growth of sector. Liberalization, privatization and Globalization have furtherstrengthened the financial services in India. | By CA. Sudha G. Bhushan

Asset reconstruction companies Non Banking Banking - Finance Private Sector Companies Financial Credit Services Banking -Information Public Sector Companies Commodity Insurance Exchanges | By CA. Sudha G. Bhushan

FDI Policy in Financial Services(A) Asset Reconstruction Companies‘Asset Reconstruction Company’ (ARC) means a % of FDI CAP/Equity: - 49% of paidcompany registered with the Reserve Bank of up capitalIndia under Section 3 of the Securitisation andReconstruction of Financial Assets and Route: - GovernmentEnforcement of Security Interest Act, 2002(SARFAESI Act).SARFAESI Act was famed with the purpose to regulate securitization and reconstruction offinancial assets and enforcement of security interest and for matters connected therewith orincidental thereto.As defined in the Act "asset reconstruction" means acquisition by any securitisationcompany or reconstruction company of any right or interest of any bank or financialinstitution in any financial assistance for the purpose of realisation of such financialassistance;Presently 49% of FDI is allowed in ARC under Government Route subject to followingconditions as mentioned below: (i) Persons resident outside India, other than Foreign Institutional Investors (FIIs), can invest in the capital of Asset Reconstruction Companies (ARCs) registered with Reserve Bank only under the Government Route. Such investments have to be strictly in the nature of FDI. Investments by FIIs are not permitted in the equity capital of ARCs. (ii) However, FIIs registered with SEBI can invest in the Security Receipts (SRs) issued by ARCs registered with Reserve Bank. FIIs can invest upto 49 per cent of each tranche of scheme of SRs, subject to the condition that investment by a single FII in each tranche of SRs shall not exceed 10 per cent of the issue. (iii)Any individual investment of more than 10% would be subject to provisions of section 3(3) (f) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.Key Players in Market: - Arcil etc | By CA. Sudha G. Bhushan

(B) Banking –Private sector PrivateThe Banking sector is most predominant sector in any financial system. FDI in privatebanking sector is allowed upto 74% including investment by FIIs. Following are the further ing includingconditions:(1) The limit of 74% limit will include investment under the Portfolio Investment Scheme(PIS) by FIIs, NRIs and shares acquired prior to September 16, 2003 by erstwhile OCBs,and continue to include IPOs, Private placements, GDR/ADRs and acquisition of shares fromexisting shareholders.(2) The aggregate foreign investment in a private bank from all sources will be allowed up eto a maximum of 74 per cent of the paid up capital of the Bank. At all times, at least 26per cent of the paid up capital will have to be held by residents, except in regard regato a wholly-owned subsidiary of a foreign bank. owned(3) The stipulations as above will be applicable to all investments in existing private sectorbanks also. Branches A wholly- owned subsidiary a subsidiary - Investment 74% Foreing Banks in India | By CA. Sudha G. Bhushan

(4) The permissible limits under portfolio investment schemes through stock exchanges for FIIs and NRIs will be as follows: In case of FIIs In the case of FIIs, individual FII holding is restricted to 10 per cent of the total paid-up capital, aggregate limit for all FIIs cannot exceed 24 per cent of the total paid-up capital, which can be raised to 49 per cent of the total paid -up capital by the bank concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body.FII investment limit is 49 per cent of the total paid-up capital. In the case of NRIs Individual holding is restricted to 5 per cent of the total paid-up capital both on repatriation and non repatriation basis and aggregate limit cannot exceed 10 per cent of the total paid- up capital both on repatriation and non-repatriation basis. However, NRI holding can be allowed up to 24 per cent of the total paid-up capital both on repatriation and non- repatriation basis provided the banking company passes a special resolution to that effect in the General Body. Private Bank with JV with Insurance sector Applications for foreign direct investment (FDI route) in private banks having joint venture/subsidiary in insurance sector may be addressed to the Reserve Bank of India (RBI) for consideration in consultation with the Insurance Regulatory and Development Authority (IRDA) in order to ensure that the 26 per cent limit of foreign shareholding applicable for the insurance sector is not being breached. Other conditions:a) Transfer of shares under FDI from residents to non-residents will continue to require approval of RBI and Government as applicable.b) The policies and procedures prescribed from time to time by RBI and other institutions such as SEBI, Department of Company Affairs and IRDA on these matters will apply as applicable.c) RBI guidelines relating to acquisition by purchase or otherwise of shares of a private bank, if such acquisition results in any person owning or controlling 5 per cent or more of the paid up capital of the private bank will apply to non-resident investors as well. | By CA. Sudha G. Bhushan

Setting up of a subsidiary by foreign banks (a) Foreign banks will be permitted to either have branches or subsidiaries but not both. (b) Foreign banks regulated by banking supervisory authority in the home country and meeting Reserve Bank’s licensing criteria will be allowed to hold 100 per cent paid up capital to enable them to set up a wholly-owned subsidiary in India. (c) A foreign bank may operate in India through only one of the three channels viz., (i) branches (ii) a wholly-owned subsidiary and (iii) a subsidiary with aggregate foreign investment up to a maximum of 74 per cent in a private bank. (d) A foreign bank will be permitted to establish a wholly-owned subsidiary either through conversion of existing branches into a subsidiary or through a fresh banking license. A foreign bank will be permitted to establish a subsidiary through acquisition of shares of an existing private sector bank provided at least 26 per cent of the paid capital of the private sector bank is held by residents at all times. (e) A subsidiary of a foreign bank will be subject to the licensing requirements and conditions broadly consistent with those for new private sector banks. (f)Guidelines for setting up a wholly-owned subsidiary of a foreign bank to be issued separately by RBI. (g) All applications by a foreign bank for setting up a subsidiary or for conversion of their existing branches to subsidiary in India will have to be made to the RBI.At present there is a limit of ten per cent on voting rights in respect of banking companies,and this should be noted by potential investor.Key Foreign Banks in India: - ABN AMRO, Bank of America, HSBC, Deutsche Bank, CitibankIndia, Barclays Bank etc | By CA. Sudha G. Bhushan

(C) Banking- Public SectorThe FDI can be made subject to Banking Companies (Acquisition & Transfer ofUndertakings) Acts 1970/80. This ceiling (20%) is also applicable to the State Bank of Indiaand its associate Banks.FDI limit is 20% (FDI and Portfolio Investment) through Government route.(D) Financial Infrastructure in the Securities MarketForeign investment is permitted in infrastructure companies in Securities Markets in (a) Stock exchanges (b) Depositories and (c) Clearing corporationsThe investment has to be done in compliance with SEBI Regulations and subject to thefollowing conditions:(i) There is a composite ceiling of 49 per cent for Foreign Investment, with a FDI limit of 26per cent and an FII limit of 23 per cent of the paid-up capital;(ii) FDI will be allowed with specific prior approval of FIPB; and(iii) FII can invest only through purchases in the secondary market.(E) Commodity ExchangesA commodity exchange is a place where various commodities and derivatives are boughtand sold. Commodities exchanges usually trade on commodity futures. Futures trading incommodities are regulated under the Forward Contracts (Regulation) Act, 1952. CommodityExchanges, like Stock Exchanges, are infrastructure companies in the commodity futuresmarket. With a view to infuse globally acceptable best practices, modern management skillsand latest technology, it was decided to allow foreign investment in Commodity Exchanges.The FDI allowed in the sector is 49% including the investment from FIIs. The otherconditions of investment are as follows: 1. Investment by Registered FII under Portfolio Investment Scheme (PIS) will be limited to 23% 2. Investment under FDI Scheme shall be limited to 26% 3. The investment can be made though Government Route only 4. FII purchases shall be restricted to secondary market only and 5. No non-resident investor/ entity, including persons acting in concert, will hold more than 5% of the equity in these companies.Key players: National Commodity & Derivatives Exchange Limited (NCDEX), Multicommodity exchange of India Ltd | By CA. Sudha G. Bhushan

(F) Credit Information Companies (CIC)Credit information company means a company FDI Cap: - 49% (FDI & FII)formed and registered under the Companies Act,1956 (1 of 1956) and which has been granted a Route: Governmentcertificate of registration under sub-section (2) ofSection 5 of Credit Information Companies(Regulation) Act, 2005.“Credit information” means any information relating to— (i) the amounts and the nature of loans or advances, amounts outstanding under credit cards and other credit facilities granted or to be granted, by a credit institution to any borrower; (ii) the nature of security taken or proposed to be taken by a credit institution from any borrower for credit facilities granted or proposed to be granted to him; (iii) the guarantee furnished or any other non-fund based facility granted or proposed to be granted by a credit institution for any of its borrowers; (iv) the creditworthiness of any borrower of a credit institution; (v) any other matter which the Reserve Bank may, consider necessary for inclusion in the credit information to be collected and maintained by credit information companies, and, specify, by notification, in this behalf;Foreign Investment in allowed till 49% under approval route. Following are furtherconditions: 1. Foreign investment is permitted under the Government route, subject to regulatory clearance from RBI. 2. Investment by a registered FII under the Portfolio Investment Scheme would be permitted up to 24% only in the CICs listed at the Stock Exchanges, within the overall limit of 49% for foreign investment. Such FII investment would be permitted subject to the conditions that: (a) No single entity should directly or indirectly hold more than 10% equity. (b) Any acquisition in excess of 1% will have to be reported to RBI as a mandatory requirement; and (c) FIIs investing in CICs shall not seek a representation on the Board of Directors based upon their shareholding.Players:- (a) Credit Information Bureau of India Ltd (CIBIL) (b) Equifax Credit Information Services [backed by Crisil and Tata Capital] (c) Experian Credit Information Company of India [US based] (d) Highmark Credit Information Services | By CA. Sudha G. Bhushan

(G) InsuranceThe Insurance sector in India is regulated by INSURANCE REGULATORY AND DEVELOPMENTAUTHORITY ACT, 1999. The objective of act is to provide for the establishment of anAuthority to protect the interests of holders of insurance policies, to regulate, promote andensure orderly growth of the insurance industry and for matters connected therewith orincidental thereto and further to amended the Insurance Act, 1938, the Life InsuranceCorporation Act, 1956 and the General Insurance Business(Nationalisation) Act, 1972.Therehave been lot of changes in the sector since it has opened for private participation in 2000following the recommendations of the Malhotra Committee report. Presently FDI upto 26%is allowed under automatic route. Other conditions are as follow:(1) FDI in the Insurance sector, as prescribed in the Insurance Act, 1999, is allowed underthe automatic route.(2) This will be subject to the condition that Companies bringing in FDI shall obtainnecessary license from the Insurance Regulatory & Development Authority for undertakinginsurance activities. List of Private Companies in Life InsuranceName of the Private Life % of Name of the ForeignInsurance Foreign partnerCompany EquityAllianz Bajaj Life Insurance 26 AllianzCo. Ltd.Birla Sun Life Insurance Co. 26 SunlifeLtd.HDFC Standard Life 18.60 Standard LifeInsurance Co.Ltd.ICICI Prudential Life 26 PrudentialInsurance Co.Ltd.ING Vysya Life Insurance Co. 26 INGLtdMax New York Life Insurance 26 New York LifeCo.Ltd.MetLife India Insurance Co. 25.99 MetlifeLtd.Om Kotak Mahindra Life 26 Old MutualInsuranceCo. Ltd. 26 CardiffSBI Life Insurance Co. Ltd. | By CA. Sudha G. Bhushan

List of Private Companies in General InsuranceName of the Private % of Name of theGeneral Foreign Foreign partnerInsurance Company EquityRoyal Sundaram Alliance 26 Royal Sun AllianceInsuranceCo. LtdICICI Lombard General 26 LombardInsuranceCo. LtdIFFCO-Tokio General 26 Tokio MarineInsurance Co.LtdTata-AIG General Insurance 26 AIGCo. Ltd | By CA. Sudha G. Bhushan

(H) Non-Banking Finance Companies (NBFC)Foreign investment in NBFC is allowed under the automatic route in the following activities: 1. Merchant Banking 2. Under Writing 3. Portfolio Management Services 4. Investment Advisory Services 5. Financial Consultancy 6. Stock Broking 7. Asset Management 8. Venture Capital 9. Custodian Services 10. Factoring 11. Leasing & Finance 12. Housing Finance 13. Forex Broking 14. Credit Card Business 15. Money Changing Business 16. Micro Credit 17. Rural Credit Minimum capitalization norms for Fund based ActivitiesFDI Limit Minimum capitalization Capital Infusion requirementForeign capital upto 51% US $0.5 million to be brought upfrontForeign capital more than US $ 5 million to be brought upfront51% and upto 75%Foreign capital more than US $ 50 million US$ 7.5 million to be75% brought upfront and the balance in 24 months.100% foreign owned NBFCs with a minimum capitalisation of US$ 50 million can set upstep down subsidiaries for specific NBFC activities, without any restriction on the number ofoperating subsidiaries and without bringing in additional capital.Joint Venture operating NBFCs that have 75% or less than 75% foreign investment canalso set up subsidiaries for undertaking other NBFC activities, subject to the subsidiariesalso complying with the applicable minimum capitalisation norm mentioned above. Minimum capitalization norms for Non Fund based ActivitiesFDI Limit Minimum capitalization Capital Infusion requirementFor all permitted non- US $0.5 million upfrontfund based NBFCsirrespective of the levelof foreign investment | By CA. Sudha G. Bhushan

NBFC with Non- Fund based activities would not be permissible for such a company to set up any subsidiary for any other activity, nor it can participate in any equity of an NBFC holding/operating company. (vii) This will be subject to compliance with the guidelines of RBI. Investment advisory Services Credit rating Financial Agencies Consultancy Non-Fund Based activities Money Forex Changing Broking Business(2) Venture Capital Fund (VCF)A Foreign Venture Capital Investor (FVCI) may contribute up to 100% of the capital of anIndian Venture Capital Undertaking and may also set up a domestic asset managementcompany to manage the fund. All such investments can be made under automatic route interms of Schedule 6 to Notification No. FEMA 20.A SEBI registered FVCI can also invest in domestic venture capital fund registered under theSEBI (Venture Capital Fund) Regulations, 1996. Such investments would also be subject toRBI regulations and FDI policy. However, in case the entity undertaking venture capital fundactivity is a Trust registered under the Indian Trust Act, 1882, FDI would be permittedunder the Government route. FVCIs are also allowed to invest in other companies subject toFDI Regulations. | By CA. Sudha G. Bhushan

Indian financial Service Sector – Growth and opportunityIndia is the largest democracy and 4th largest economy in the world. With its consistentgrowth performance and abundant high skilled man power, India provides enormousopportunities for investment, both domestic and foreign. Since the beginning of reforms in1991, major reform initiative has been taken in the field of investment, trade, financialsector, exchange control simplification of procedure. India provides liberal, attractive andinvestor friendly investor. The Financial Services sector in India has emerged as a mature and sophisticated system.System which is inherently strong, functionally diverse and displays efficiency and flexibility.This is a sector which is further expected to witness increasing consolidation, sophisticationand maturity in future. As compared to other developed markets, the Indian financialservices sector is largely under penetrated with a huge potential for growth keeping inconsideration government thrust on liberalization on one side and rising income, increasingawareness of financial products, strong equity market growth on the other.Indian Financial Services sector provides very promising investment for global investors.Backed by favorable regulatory reforms and institutional framework, robust earning of thecorporate sector and a booming capital market, favorable demographics with a growingconsumer and investor class, increased saving in the economy channelised into the creationof productive assets. In Financial year 09 the contribution of financial services sector toIndias GDP was 15% which is the second-largest component after trade, hotels, transportand communication all combined together[as per the Banking & Finance Journal, releasedby an FICCI in August 2010].The robust financial services sector and vibrant Indian Economy have given birthto plethora of emerging opportunities which are expected to gain prominence inthe long term based on regulatory and market developments. | By CA. Sudha G. Bhushan

DISCLAIMERThe analysis/views in this booklet do not purport to be and should not be treated as legalopinion. **** In case of clarification please Contact at: + 091 9769033172 Email at: sudhag999@gmail.com sudha.gupta@icai.org Blog: http://casudhafema.blogspot.com/ | By CA. Sudha G. Bhushan

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