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The Indian banking sector is a widely proliferated sector spread across the length and breadth of the country. From banking accounts to demat services, credit facilities and loans to digital banking services – the banking sector in India today has several business arms.
With India now touted to be the world’s fastest growing economy – a robust banking sector is a must to support such fast-paced growth. An ever-rising young population coupled with increased awareness and access is expanding the banking base which can create quantum rise in the business of banking sector in India.
1. Parwati Capital
2. Jigar Commodities & Derivatives Private Ltd.
Introducing Aditya Birla Sun Life Banking Exchange Traded Fund (An open ended exchange traded fund tracking Nifty Bank Index)
It is an exchange traded fund that looks to track and mimic the Nifty Bank Index through its investment portfolio. The Nifty Bank Index comprises 12 of India’s most liquid and large capitalised banking stocks listed on the NSE. The investment objective of the Scheme is to provide returns that, before expenses, closely correspond to the total returns of the securities as represented by the Nifty Bank Index. However, the performance of Scheme may differ from that of the underlying index due to tracking error. The NIFTY Bank Index has been one of the leading indices in terms of returns, having earned an average return of 13.59% over the last 5 years and a staggering return of 18.60% since its inception in 2003#. This fund is structured as an ETF, ETFs are funds listed on stock exchange which seek to mimic the benchmark index with a passive investment strategy. ETFs offer benefits of high liquidity, transparency for investors, diversification and low expense ratios.
#Source: NSE India, as on September 30, 2019; Inception date September 15, 2003
Rationale behind the fund:
A robust banking sector is the backbone of any economy. As an economy progresses, banks must also grow and adapt to support the growing consumer and corporate demands in a growing economy. With the government’s vision and plan of a USD 5 trillion economy by 2025*, the banking sector too would receive considerable impetus to grow so as to support this high paced growth.
India is witnessing a considerable growth in its young working age population – having risen from 860mn to 886mn from 2015 to 20171, and expected to cross 900mn by 20202. This has created a considerable growth in per capita income, as per an IMF report it is expected to cross USD 2,500 by 2020 from the amount USD 1,940 in 2017. This can further widen the customer base of the banking sector and contribute to a considerable growth in the years to come. This can be seen in the rising numbers of consumer credit – with housing sector credit having increased from USD 151.21 bn in FY 2018 to USD 165.99 bn in FY 20193. Personal finance segment has also risen at a CAGR of 9.23% from FY 2009-194.
The government has also rolled out several schemes to boost the banking sector. The Pradhan Mantri Jan Dhan Yojana aimed at improving banking access to a wider population has seen considerable response with more than 360 million accounts having been opened and deposits having crossed INR 1 lac crores5. The government is also continuously infusing capital into the banking sector to boost their lending capabilities, having infused INR 1.06 lac crore in the FY 2018-196. In fact the finance minister has recently announced an additional capital infusion of INR 70,000 crores in state run banks7. Other measures such as the Prompt Corrective Action(PCA) program and enforcement through Insolvency and Bankruptcy Code have also contributed to a cleaner banking system.
Out of the 6,00,000+ villages in India, only around 5%8 have a commercial bank branch. This means that there is a fairly untapped growth opportunity for banks in rural areas. The government too has extended its capital infusion plan, infusing an additional INR 343 crores in regional rural banks by FY 20209. Growing rural income and government support to strengthen the rural banking sector can further boost the growth of this industry.
The Indian banking sector is continuously innovating to offer more and more digital banking services. Digital lending in India is expected to rise to USD 1trillion by 202310. These technological innovations are only going to help increase the consumer base for banks in India.
(An Open ended exchange traded fund tracking Nifty Bank Index)
This product is suitable for investors who are seeking:
*We recommend investors to consult their financial advisers in case of doubt about whether the product is suitable for them.
For more information on the scheme, please refer Scheme Information Document/Key Information Memorandum of this scheme.