This is three times the amount (USD 200 billion) of savings into the financial sector compared to the past 5 years.
According to the report, “opportunities from the reset in financial services sector in India’, assuming that 60 per cent of household savings shift to financial savings, nearly 40 per cent of this would flow into capital markets, MFs and insurance, resulting in estimated result in investments of about USD 600 billion over the next five years.
The flows into capital markets could be because the physical assets — real estate and gold, the two big gainers in the last 5-7 years — witness lower returns and unwinding of positions. Besides, inflow of money into the banking system would keep interest rates subdued, making banking deposits less attractive, the report said.
Moreover, new entrants to the banking system who will look to offer more attractive rates to depositors and will therefore need to construct more sophisticated deposit products, such as setting up deposit linked products, in partnerships with asset managers and insurance companies, would help channelise savings into financial instruments.
Additionally, increasing supply in the equity capital markets through government divestments and listing of financial investors backed firms, may also help with the flows, Ambit said.
The report noted that as a percentage of overall savings, the share of physical assets grew from 48 per cent in 2007-08 to a high of 69 per cent in 2011-12, and stayed as high as 60 per cent in 2014-15.
“This is contrary to the general expectation of increasing share of financial assets as the economy becomes more mature and income levels rise.”
However, it observed that equity markets picked up in 2014-2015 and consequently resulted in a strong flows into equities, mutual funds and insurance.
“The regulatory and policy initiatives over the last 12 months have resulted in greater money flowing into the banking system and reduced the attractiveness of real estate and gold as investment avenues through the major clampdown by the government on the parallel economy,” the report said.
Meanwhile, the report noted digital payment systems following demonetisation measures have a potential for up to USD 1 trillion worth of transactions in 4-5 years, a four-fold growth over current levels.
Further, Ambit has estimated that well capitalised private sector financial institutions are likely to grow at 25 per cent over the medium term and may generate over USD 5 billion over the next 18 months.