2015 was the year in which financial inclusion got a giant push forward; a combination of political will and technology made mass inclusion possible.
To deal with the chronic issue of unbanked masses, the government increased supply by hard-pushing new account openings through existing banks and allowing new innovative ideas to take root.
It takes political will for a mass transformation and it took the prime minister’s personal messaging that went down the line to get the banks to continue the work begun in 2014.
Banks opened a total of 196 million bank accounts under the Pradhan Mantri Jan-Dhan Yojana (PMJDY).
With less than half of these accounts with a zero balance, the new customers put in ₹ 28,000 crore as deposits. To expand on the financial inclusion theme, two insurance plans were added to the push and 92.6 million Suraksha Bima (accident insurance) policies and 29.2 million Jeevan Jyoti Bima (life insurance) polices were sold. The schemes have begun payouts and 847 claims of life cover of ₹ 30,000 and 389 claims of accident insurance cover of ₹ 1 lakh have been paid.
If forcing banks to do their job was one part of the plan, then granting licences to new entities was another. Eleven payments banks and 10 small finance banks got the green signal from the Reserve Bank of India (RBI) to set up shop. The aim is to expand choice to the already banked and to offer options for those unbanked or those with accounts that they don’t use. One microfinance firm, Bandhan, got a licence for a bank and began operations as Bandhan Bank in 2015. The other licencee, IDFC Bank, will open for business in 2016.
The other big event was the beginning of the fin-tech revolution. 2015 will be remembered as the year that marked the beginning of this revolution in India. A speech by Nandan Nilekani, co-founder of Infosys Ltd and former chairman of the Unique Identification Authority of India, in which he predicted the forthcoming fin-tech boom, went viral in the financial sector (bit.ly/1QS1OaY)
The top banks caught the fin-tech bug and the year saw a rush to offer digital money transfer solutions by the top 10 banks—both private and public. Zapping money using the phone seemed so 2014, when in 2015 it was using social media networks to transfer money that was the innovation.
Given the pace of change, traditional banks should be very worried about their future in India. Public sector banks, especially, are inefficient and behind the curve in customer service. They run the risk of their lunch getting snatched away by technology.
Both RBI and the Securities and Exchange Board of India (Sebi) “got it" and put their weight behind fin-tech. RBI signed off on payments banks and allowed virtual money transfers of larger amounts. The Sebi chief appointed a panel headed by Nilekani to give fin-tech in the mutual fund space a boost. At the end of 2015, it looks almost certain that e-kyc (know-your-customer) will be a reality in 2016, removing a big bugbear for the mutual fund industry and an irritant for the investor. Two regulators behind the curve are the pension and insurance industry regulators. The pension regulator is blowing hot and cold on online access to the National Pension System (NPS). It was supposed to happen in 2015, but got postponed. Here is hoping that 2016 sees the NPS getting freed of the cumbersome investing processes in the system. One regulator clearly behind the times is the insurance regulator who commented that he was not in favour of using e-commerce sites to sell insurance as they are advised products. A 2011 mobile app launched by the Insurance Regulatory and Development Authority of India to compare unit-linked insurance plan (Ulip) products now seems abandoned. Insurance in India remains mired in the 1970s mindset.
With both gold and real estate in a slump, money rushed into bonds and equity in 2015.
According to a Karvy Wealth report, 54% of fresh investment in FY15 from household savings went into financial assets, up from 35-40% in the previous years. Mutual funds saw strong inflows of retail money, despite the stock market giving flat returns. The safe way for investors to get an equity exposure, through systematic investment plans (SIPs), finally caught their fancy and the industry saw SIP transactions increase substantially. Some 8.1 million SIPs were in operation by end-October 2015, up from 6.9 million in end-March 2015 and 5.1 million at end-March 2014. The average amount in an SIP was up from ₹ 2,300 in March 2014 to ₹ 2,900 by November 2015. The average assets held by retail investor in equity funds is around ₹ 60,000 according to Association of Mutual Funds of India data.
The forecast for India is mixed for 2016, though most experts agree that a moderate growth of 7.4-7.8% should be within reach. Worries remain on the stalling of reforms by the Congress party, inflation raising its head again and bad loans on the books of banks. For retail investors, it is best not to worry about annual trends but stay focused on long-term goals. The world has come to the brink almost every year for the past 10 years and yet investors with a five-to-seven-year horizon are in the green with their investments. Ignore the noise and stay with your plan. If you don’t have one, get one.