Banking and financial services funds are equity funds that primarily invest in equities and equity related securities of banks and companies that cater to the financial services sector. The banking sector is akin to the backbone of the economy – people deposit money in banks and banks in turn provide a steady stream of credits to businesses and individuals. Banks form the fulcrum of the financial machinery of the country and it is only due to the financing provided by banks that firms can set up factories, manufacturing units, expand operations and new businesses can avail capital to start running.

India’s banking infrastructure is fairly well-established – there are 12 public sector banks and 21 private sector banks, as per the Reserve Bank of India. Besides, we also have a network of thousands of rural and urban co-operative banks and 46 foreign banks which have operations in India. Several reforms were ushered in the banking sector when the Indian economy was liberalized in 1991 and in the last seven years too, reforms have been brought about in public sector banks including mergers, recapitalization, recognition of NPAs and recoveries.

The financial services sector encompasses not just banks but other non-banking finance companies such as term lending institutions, NBFCs, housing finance, commercial vehicle financing, leasing and hire purchase and also life insurance and general insurance companies and asset management companies. There are five banks including one PSU among the 20 banks that form the Nifty Financial Services Index while the rest are non-banking financial services firms.

The RBI is the country’s apex banking body which is tasked with regulating all financial operations across the length and breadth of the country’s financial apparatus. The country’s monetary policies are drafted and set down by the RBI and banks and financial institutions align their operations with those policies. With RBI governing banking and financial institutions, the chances of unethical and fraudulent practices are lesser in the companies of these sectors.

With fast paced digitization of banking and financial services and an increasing number of citizens being brought into the folds of financial inclusion, the banking and financial services sector has been witnessing steady growth and the trend is expected to continue. Also, increased infrastructure spending and a slew of government reforms will facilitate the ascent of the sector and a steady pace of economic growth will also act as a catalyst with more businesses relying on financing provided by banks and financial services firms to expand operations.

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