31352216 Nature and Scope of Financial Services(1)

8/8/2019 31352216 Nature and Scope of Financial Services(1)

1/51

Nature and characteristics ofNature and characteristics of

Financial ServicesFinancial Services

MODERN ACTIVITIES, PRESENTMODERN ACTIVITIES, PRESENT

SCENARIO, AND ITSSCENARIO, AND ITSCHALLENGES AHEADCHALLENGES AHEAD

By

Javid-115

Swathi-117

Siva Prakash-121

Sridevi-122

Naveen-124


2/51

Meaning of financial servicesMeaning of financial services

In general, all types of activities, which are of aIn general, all types of activities, which are of a

financial nature could be brought under the termfinancial nature could be brought under the term

'financial services'. The term financial services' in'financial services'. The term financial services' ina broad, sense means "mobilizing and allocatinga broad, sense means "mobilizing and allocatingsavings". Thus it includes all activities involvedsavings". Thus it includes all activities involved

in the transformation of savings into investment.in the transformation of savings into investment.


3/51

financial services can also be called 'financial interfinancial services can also be called 'financial intermediation'. Financial intermediation is a process bymediation'. Financial intermediation is a process bywhich funds are mobilized from a large number ofwhich funds are mobilized from a large number of

savers and make them available to all those who are insavers and make them available to all those who are inneed of it and particularly to corporate customers.need of it and particularly to corporate customers.

Thus, financial services sector is a key area and it is veryThus, financial services sector is a key area and it is veryvital for industrial developments. A well developedvital for industrial developments. A well developed

financial services industry is absolutely necessary tofinancial services industry is absolutely necessary tomobilize the savings and to allocate them to variousmobilize the savings and to allocate them to variousinvestable channels and thereby to promote industrialinvestable channels and thereby to promote industrialdevelopment in a country.development in a country.


4/51

Classification of Financial ServicesClassification of Financial Services

IndustryIndustry The financial intermediaries in India can be traditionally .The financial intermediaries in India can be traditionally .

classified into two :classified into two :

i. Capital Market intermediaries andi. Capital Market intermediaries and

ii. Money market intermediaries.ii. Money market intermediaries. The capital market intermediaries consists of the term lendingThe capital market intermediaries consists of the term lending

institutions and investing institutions which mainly provide longinstitutions and investing institutions which mainly provide longterm funds. On the other hand, money market consists ofterm funds. On the other hand, money market consists ofcommercial banks, cocommercial banks, co--operative banks and other agencies whichoperative banks and other agencies which

supply only short term funds. Hence, the term 'financial servicessupply only short term funds. Hence, the term 'financial servicesindustry' includes all kinds of organizations which intermediateindustry' includes all kinds of organizations which intermediateand facilitate financial transactions of both individuals andand facilitate financial transactions of both individuals andcorporate customers.corporate customers.


5/51

Scope of Financial ServicesScope of Financial Services

Financial services cover a wide range ofFinancial services cover a wide range of

activities. They can be broadly classified intoactivities. They can be broadly classified into

two, namely :two, namely : i. Traditional Activitiesi. Traditional Activities

ii. Modern activities.ii. Modern activities.


6/51

Traditional ActivitiesTraditional Activities

Traditionally, the financial intermediaries haveTraditionally, the financial intermediaries have

been rendering a wide range of servicesbeen rendering a wide range of services

encompassing both capital and money marketencompassing both capital and money marketactivities. They can be grouped under two heads,activities. They can be grouped under two heads,viz.viz.

a. Fund based activities anda. Fund based activities and

h. Nonh. Non--fund based activities.fund based activities.


7/51

Fund based activitiesFund based activities

The traditional services which come under fundThe traditional services which come under fund

based activities are the following :based activities are the following :

i. Underwriting or investment in shares,i. Underwriting or investment in shares,debentures, bonds, etc. of new issues (primarydebentures, bonds, etc. of new issues (primarymarket activities).market activities).


8/51

ii. Dealing in secondary market activities.ii. Dealing in secondary market activities.

iii. Participating in money market instrumentsiii. Participating in money market instrumentslike commerciallike commercial

iv. papers, certificate of deposits, treasury bills,iv. papers, certificate of deposits, treasury bills,discounting of bills etc .discounting of bills etc .

v. Involving in equipment leasing, hirev. Involving in equipment leasing, hire

purchase, venture capital, seed capital,purchase, venture capital, seed capital, vi. Dealing in foreign exchange market vi. Dealing in foreign exchange market

activities. Non fund based activities.activities. Non fund based activities.


9/51

Non fund based activitiesNon fund based activities

Financial intermediaries provide services on theFinancial intermediaries provide services on the

basis of nonbasis of non--fund activities also. This can befund activities also. This can becalled 'fee based' activity. Today customers,called 'fee based' activity. Today customers,

whether individual or corporate, are not satisfiedwhether individual or corporate, are not satisfiedwith mere provisions of finance. They expectwith mere provisions of finance. They expect

more from financial services companies. Hencemore from financial services companies. Hence

a wide variety of services, are being provideda wide variety of services, are being providedunder this head. They include :under this head. They include :


10/51

i. Managing die capital issuei. Managing die capital issue i.e. management ofi.e. management ofprepre--issue and postissue and post--issue activities relating to the capitalissue activities relating to the capitalissue in accordance with the SEBI guidelines and thusissue in accordance with the SEBI guidelines and thusenabling the promoters to market their issue.enabling the promoters to market their issue.

ii. Making arrangements for the placement of capitalii. Making arrangements for the placement of capitaland debt instruments with investment institutions.and debt instruments with investment institutions.

iii. Arrangement of funds from financial institutionsiii. Arrangement of funds from financial institutionsfor the clients' project cost or his working capitalfor the clients' project cost or his working capital

requirements.requirements. iv, Assisting in the process of getting all Governmentiv, Assisting in the process of getting all Government

and other clearances.and other clearances.


11/51

Modern ActivitiesModern Activities

Beside the above traditional services, theBeside the above traditional services, the

financial intermediaries render innumerablefinancial intermediaries render innumerableservices in recent times. Most of them are in theservices in recent times. Most of them are in the

nature of nonnature of non--fund based activity. In view of thefund based activity. In view of theimportance, these activities have been in briefimportance, these activities have been in brief

under the head 'New financial products andunder the head 'New financial products and

services'. However, some of the modern servicesservices'. However, some of the modern servicesprovided by them are given in brief hereunder.provided by them are given in brief hereunder.


12/51

i. Rendering project advisory services righti. Rendering project advisory services right

from the preparation of the project report rillfrom the preparation of the project report rillthe raising of funds for starting the project withthe raising of funds for starting the project with

necessary Government approvals.necessary Government approvals.

ii. Planning for M&A and assisting for theirii. Planning for M&A and assisting for their

smooth carry out.smooth carry out.

iii. Guiding corporate customers in capitaliii. Guiding corporate customers in capital

restructuringrestructuring


13/51

iv. Acting as trustees to the debenture holders.iv. Acting as trustees to the debenture holders.

v. Recommending suitable changes in thev. Recommending suitable changes in themanagement structure and management style with amanagement structure and management style with a

view to achieving better results.view to achieving better results. vi. Structuring the financial collaborations / jointvi. Structuring the financial collaborations / joint

ventures by identifying suitable joint venture partnersventures by identifying suitable joint venture partnersand preparing joint venture agreements.and preparing joint venture agreements.

vii. Rehabilitating and restructuring sick companiesvii. Rehabilitating and restructuring sick companiesthrough appropriate scheme of reconstruction andthrough appropriate scheme of reconstruction andfacilitating the implementation of the scheme.facilitating the implementation of the scheme.


14/51

viii. Hedging of risks due to exchange rate risk,viii. Hedging of risks due to exchange rate risk,

interest rate risk, economic risk, and political riskinterest rate risk, economic risk, and political riskby using swaps and other derivative products.by using swaps and other derivative products.

ix. Managing Inix. Managing In-- portfolio of large Publicportfolio of large PublicSector Corporations.Sector Corporations.

x. Undertaking risk management services likex. Undertaking risk management services likeinsurance services, buyinsurance services, buy--hack options etc.hack options etc.


15/51

xi. Advising the clients on the questions of selecting the bestxi. Advising the clients on the questions of selecting the bestsource of funds taking into consideration the quantum of fundssource of funds taking into consideration the quantum of fundsrequired, their cost, lending period etc.required, their cost, lending period etc.

xii. guiding the clients in the minimization of the cost of debt andxii. guiding the clients in the minimization of the cost of debt and

in the determination of the optimum debtin the determination of the optimum debt--equity mix.equity mix.xiii. Undertaking services relating to the capital market, such asxiii. Undertaking services relating to the capital market, such as

a.a. Clearing servicesClearing services

b.b. Registration and transfers,Registration and transfers,

c.c. Safe custody of securitiesSafe custody of securities

d.d. Collection of income on securitiesCollection of income on securities xiv. Promoting credit rating agencies for the purpose of ratingxiv. Promoting credit rating agencies for the purpose of rating

companies which want to go public by the issue of debtcompanies which want to go public by the issue of debtinstrument;*.instrument;*.


16/51

Sources of RevenueSources of Revenue

There arc two categories of sources of incomeThere arc two categories of sources of income

for a financial services company, namely : (i)for a financial services company, namely : (i)Fund based and (ii) FeeFund based and (ii) Fee based.based.


17/51

Fund based incomeFund based income

Fund based income comes mainly from interest spread (theFund based income comes mainly from interest spread (thedifference between the interest earned and interest paid), leasedifference between the interest earned and interest paid), leaserentals, income from investments in capital market and realrentals, income from investments in capital market and realestate. On the other hand, fee based income has its sourcesestate. On the other hand, fee based income has its sources inin

merchant banking, advisory services, custodial services, loanmerchant banking, advisory services, custodial services, loansyndication, etc. In fact, a major part of the income is earnedsyndication, etc. In fact, a major part of the income is earnedthrough fundthrough fund--based activities. At the same time, it involves abased activities. At the same time, it involves alarge share of expenditure also in the form of interest andlarge share of expenditure also in the form of interest andbrokerage. In recent times, a number of private financialbrokerage. In recent times, a number of private financial

companies have started accepting deposits by offering a verycompanies have started accepting deposits by offering a veryhigh rate of interest. When the costhigh rate of interest. When the cost ofofdeposit resources goes up,deposit resources goes up,tin" (ending rate should also go up. It means that suchtin" (ending rate should also go up. It means that suchcompanies have to compromise the quality of its investments.companies have to compromise the quality of its investments.


18/51

Fee based incomeFee based income

Fee based income, on the other hand, does notFee based income, on the other hand, does not

involve much risk. But, it requires a lot ofinvolve much risk. But, it requires a lot ofexpertise on the part of a financial companyexpertise on the part of a financial companytoto

offer such feeoffer such fee--based services.based services.


19/51

Causes For Financial servicesCauses For Financial services

InnovationInnovation

Financial intermediaries have to perform theFinancial intermediaries have to perform the

task of financial innovation to meet thetask of financial innovation to meet thedynamically changingdynamically changingneedsneedsof theof the

economy and to help the investors cope with theeconomy and to help the investors cope with theincreasingly volatile and uncertain market place.increasingly volatile and uncertain market place.

There is a dire necessity for the financialThere is a dire necessity for the financial

intermediaries to go for innovation due to theintermediaries to go for innovation due to thefollowing reasons :following reasons :


20/51

i. Low profitability : The profitability of the major FI,i. Low profitability : The profitability of the major FI,namely (he banks has been very much affected in recentnamely (he banks has been very much affected in recenttimes. There is a decline, in the profitability oftimes. There is a decline, in the profitability of

traditional banking products. So, (hey have beentraditional banking products. So, (hey have beencompelled to seek out new products which may fetchcompelled to seek out new products which may fetchhigh returns.high returns.

ii. Keen competition : The entry of many FIs in theii. Keen competition : The entry of many FIs in thefinancial sector has led to severe competition amongfinancial sector has led to severe competition amongthem. This keen competition has paved the way for thethem. This keen competition has paved the way for theentry of varied nature of innovative financial productsentry of varied nature of innovative financial productsso ns to meet the varied requirements of the investors.so ns to meet the varied requirements of the investors.


21/51

iii. Economic Liberalization : Reform of the Financial sectoriii. Economic Liberalization : Reform of the Financial sectorconstitutes the most important component of India's programmeconstitutes the most important component of India's programmetowards economic liberalization. The recent economictowards economic liberalization. The recent economicliberalization measures have opened the door foreignliberalization measures have opened the door foreigncompetitors to enter into our domestic market. Deregulation incompetitors to enter into our domestic market. Deregulation inthe form of elimination of exchange controls and interest ratethe form of elimination of exchange controls and interest rateceilings have made the market more competitive. Innovation hasceilings have made the market more competitive. Innovation hasbecome a must for survival.become a must for survival.

iv. Improved communication technology : Theiv. Improved communication technology : The

communication technology has become so advanced that evencommunication technology has become so advanced that even

the world's issuers can be linked with the investors i the globalthe world's issuers can be linked with the investors i the globalfinancial market without any difficulty by mean of offering sofinancial market without any difficulty by mean of offering somany options and opportunities.many options and opportunities.


22/51

v. Customer Service : Now a days, the customer'sv. Customer Service : Now a days, the customer's expectations are very great. They want newer productsexpectations are very great. They want newer products

at lower cost or at lower credit risk to replace theat lower cost or at lower credit risk to replace theexisting one To meet this increased customerexisting one To meet this increased customersophistication, the financial intermediaries aresophistication, the financial intermediaries areconstantly undertaking research in order to invent aconstantly undertaking research in order to invent anew product which may suit to the requirement of thenew product which may suit to the requirement of theinvesting public.investing public.

vi. Global impact : Many of the providers and users ofvi. Global impact : Many of the providers and users ofcapital have changed their roles all over the world. FIcapital have changed their roles all over the world. FIhave come out of their traditional approach and theyhave come out of their traditional approach and theyarc ready to assume more credit risks.arc ready to assume more credit risks.


23/51

Investor Awareness ; With a growing awarenessInvestor Awareness ; With a growing awarenessamongst the investing public, there has been aamongst the investing public, there has been adistinct shift from investing the savings indistinct shift from investing the savings in

physical assets like gold, silver, land etc. tophysical assets like gold, silver, land etc. tofinancial assets like shares, debentures, mutualfinancial assets like shares, debentures, mutualfunds, etc. Again, within the financial assets,funds, etc. Again, within the financial assets,they go from 'risk free bank deposits to riskythey go from 'risk free bank deposits to risky

investments in shares.investments in shares. ToTo meet the growingmeet the growingawareness of the public, innovations has becomeawareness of the public, innovations has becomethe need of the hour.the need of the hour.


24/51

New Financial Products and ServicesNew Financial Products and Services

In these days of complex finances, people expect a financial service companyIn these days of complex finances, people expect a financial service companyto play a very dynamic role not only as a provider of finance but also as ato play a very dynamic role not only as a provider of finance but also as adepartmental store of finance. With the opening of the economy todepartmental store of finance. With the opening of the economy tomultinationals, the free market concept has assumed much significance. As amultinationals, the free market concept has assumed much significance. As aresult, the clients both corporate and individuals are exposed to theresult, the clients both corporate and individuals are exposed to thephenomena of volatility and uncertainty and hence the)' expect the financialphenomena of volatility and uncertainty and hence the)' expect the financialservices company to innovate new products and services so as to meet theirservices company to innovate new products and services so as to meet theirvaried requirements.varied requirements.

As a result of innovations, new instruments and new products are emerging inAs a result of innovations, new instruments and new products are emerging inthe capital market. The capital market and the money market are gettingthe capital market. The capital market and the money market are gettingwidened and deepened. Moreover, there has been a structured change in thewidened and deepened. Moreover, there has been a structured change in the

international capital market with the emergence of new products andinternational capital market with the emergence of new products andinnovative techniques of operation in the capital market.innovative techniques of operation in the capital market.


25/51

Many financial intermediaries including banksMany financial intermediaries including banks

have already Started expanding [heir activities inhave already Started expanding [heir activities inthe financial services sector by offering a varietythe financial services sector by offering a variety

newnew products. As :t result, sophistication andproducts. As :t result, sophistication andinnovations have appeared in the arena ofinnovations have appeared in the arena of

financial intermediations. Some of them arefinancial intermediations. Some of them are

briefly explained hereunder :briefly explained hereunder :


26/51


27/51

Loan SyndicationLoan Syndication

This is more or less similar to consortiumThis is more or less similar to consortium

financing. But this work is taken up by thefinancing. But this work is taken up by themerchant banker as a lead manager. It refers to amerchant banker as a lead manager. It refers to a

loan arranged by a bank called lead manager forloan arranged by a bank called lead manager fora borrower who is usually a large corporatea borrower who is usually a large corporate

customer or a government department. It alsocustomer or a government department. It also

enables the members of the syndicate to shareenables the members of the syndicate to sharethe credit risk associated with a particular loanthe credit risk associated with a particular loan

among themselves.among themselves.


28/51

LeasingLeasing

A lease is an agreement under which a companyA lease is an agreement under which a company

or a firm acquires a right to make use of a capitalor a firm acquires a right to make use of a capitalasset like machinery, on payment of a prescribedasset like machinery, on payment of a prescribed

fee called 'rental charges'. In countries like USA,fee called 'rental charges'. In countries like USA,the UK and Japan, equipment leasing is verythe UK and Japan, equipment leasing is very

popular and nearly 25% of plant and equipmentpopular and nearly 25% of plant and equipment

is being financed by leasing companies. In Indiais being financed by leasing companies. In Indiaalso, many financial companies have startedalso, many financial companies have started

equipment leasing business.equipment leasing business.


29/51

Mutual FundsMutual Funds

A mutual fund refers to a fund raised by aA mutual fund refers to a fund raised by afinancial service company by pooling the savingsfinancial service company by pooling the savingsof the public. It is invested in a diversifiedof the public. It is invested in a diversified

portfolio with a view to spreading andportfolio with a view to spreading andminimizing the risk The fund providesminimizing the risk The fund providesinvestment avenues for small investors whoinvestment avenues for small investors whocannot participate in the equities of bigcannot participate in the equities of big

companies. It ensures lowcompanies. It ensures low--risk, steady returns,risk, steady returns,high liquidityhigh liquidity-- and better capitalization in theand better capitalization in thelong run.long run.


30/51

FactoringFactoring

Factoring refers to the process of managing theFactoring refers to the process of managing the

sales register of a client by a financial servicessales register of a client by a financial servicescompany. The entire responsibility of collectingcompany. The entire responsibility of collecting

the book debts passes on to the factor.the book debts passes on to the factor.


31/51

ForfeitingForfeiting

Forfeiting is a technique by which a forfeiterForfeiting is a technique by which a forfeiter

(financing agency) discounts an export bill and(financing agency) discounts an export bill andpays ready cash to the exporter who canpays ready cash to the exporter who can

concentrate on the export front withoutconcentrate on the export front withoutbothering about collection of export bills.bothering about collection of export bills.


32/51

Venture CapitalVenture Capital

A venture capital is another method of financingA venture capital is another method of financing

in form of equity participation.in form of equity participation.


33/51

Custodial ServicesCustodial Services

Under this a financial intermediary mainlyUnder this a financial intermediary mainly

provides services to clients, for a prescribed fee,provides services to clients, for a prescribed fee,like safe keeping of financial securities andlike safe keeping of financial securities and

collection of interest and dividends.collection of interest and dividends.


34/51

Corporate advisory servicesCorporate advisory services

Financial intermediaries particularly hanks haveFinancial intermediaries particularly hanks have

setup specialized branches for this. As newsetup specialized branches for this. As newavenues of finance like Euro loans, GDRs etc.avenues of finance like Euro loans, GDRs etc.

arc available to corporate customers, this servicearc available to corporate customers, this serviceis of immense help to the customers.is of immense help to the customers.


35/51

SecuritizationSecuritization

Securitization is a technique whereby a financialSecuritization is a technique whereby a financial

company converts its illcompany converts its ill--liquid, nonliquid, non--negotiablenegotiableand high value financial assets into securities ofand high value financial assets into securities of

small value which are made tradable andsmall value which are made tradable andtransferable.transferable.


36/51

Derivative SecurityDerivative Security

A derivative security is a security whose valueA derivative security is a security whose value

depends upon the values of other basic variabledepends upon the values of other basic variablebacking the security. In most cases, thesebacking the security. In most cases, these

variables are nothing but the prices of tradedvariables are nothing but the prices of tradedsecurities.securities.


37/51

New products in Forex MarketsNew products in Forex Markets

New products have also emerged in the forex markets of developed countries. SomeNew products have also emerged in the forex markets of developed countries. Someof these products are yet to make full entry in Indian markets. Among them are :of these products are yet to make full entry in Indian markets. Among them are :

a.a. Forward contract : A forward transaction is oneForward contract : A forward transaction is onewhere the delivery of foreign currency takes place at awhere the delivery of foreign currency takes place at aspecified future date for a specified price. It may have aspecified future date for a specified price. It may have afixed or flexible maturity date.fixed or flexible maturity date.

b.b. Options : As the very name implies, it is a contractOptions : As the very name implies, it is a contractwhere in the buyer of option's has a right to buy or sellwhere in the buyer of option's has a right to buy or sella. fixed amount of currency against another currency ata. fixed amount of currency against another currency atb. fixed rate on a future date according to his options.b. fixed rate on a future date according to his options.

c. Futures : It is a contract wherein there is an agreement to buy or sell a statedc. Futures : It is a contract wherein there is an agreement to buy or sell a statedquantity of foreign currency at a future date at a price agreed to between the parties onquantity of foreign currency at a future date at a price agreed to between the parties onthe stated exchange.the stated exchange.

d. Swaps ; A swap refers to a transaction wherein ad. Swaps ; A swap refers to a transaction wherein a

financial intermediary buys and sells a specified foreign currency simultaneously forfinancial intermediary buys and sells a specified foreign currency simultaneously fordifferent maturity dates.different maturity dates.


38/51

Lines ofCreditLines ofCredit

It is an innovative funding mechanism for theIt is an innovative funding mechanism for the

import of goods and services on deferredimport of goods and services on deferredpayments terms. LOC is an arrangement of apayments terms. LOC is an arrangement of a

financing institution of one country withfinancing institution of one country withanother to support the export of goods andanother to support the export of goods and

services to as to enable the importer to importservices to as to enable the importer to import

on deferred payment terms.on deferred payment terms.


39/51


40/51

i. Lack of qualified personnel : The financial servicesi. Lack of qualified personnel : The financial servicessector is fully geared to the task of 'financial creativity'.sector is fully geared to the task of 'financial creativity'.However, this sector has to face many challenges. TheHowever, this sector has to face many challenges. The

dearth of qualified and trained personnel is andearth of qualified and trained personnel is animportant impediment in its growth,important impediment in its growth,

ii. Lack of investor awareness : The introduction ofii. Lack of investor awareness : The introduction ofnew financial products and instruments will be of nonew financial products and instruments will be of no

use unless the investor is aware of the advantages anduse unless the investor is aware of the advantages anduses of the new and innovative products anduses of the new and innovative products andinstruments,instruments,


41/51

Lack of transparency : The whole financial system is undergoing aLack of transparency : The whole financial system is undergoing aphenomenal change in accordance with the requirements of the nationalphenomenal change in accordance with the requirements of the nationalglobal environments. It is high time that this sector gave up their orthodoxglobal environments. It is high time that this sector gave up their orthodoxattitude of keeping accounts in a highly secret manner.attitude of keeping accounts in a highly secret manner.

Lack of specialization: in the Indian sense, each financial intermediary seemsLack of specialization: in the Indian sense, each financial intermediary seemsto deal in a different financial service lines without specializing in one or twoto deal in a different financial service lines without specializing in one or twoareas. In other countries , FI specialize in one or two areas only and provideareas. In other countries , FI specialize in one or two areas only and provideexpert service.expert service.


42/51

Lack of recent data: most of the fi do not spend moreLack of recent data: most of the fi do not spend moreon research. It is very vital that one should build up aon research. It is very vital that one should build up aproper data base on the basis of which one couldproper data base on the basis of which one could

embark upon financial creativity.embark upon financial creativity. Lack of efficient risk management system: with theLack of efficient risk management system: with the

opening of the economy to multinationals and exposureopening of the economy to multinationals and exposureof Indian companies to international competition,of Indian companies to international competition,much importance is given to foreign portfolio flows. Itmuch importance is given to foreign portfolio flows. Itinvolves the utilization of multi currency transactionsinvolves the utilization of multi currency transactionswhich exposes the client to exchange rate risk, interestwhich exposes the client to exchange rate risk, interestrate risk and economic and political risk.rate risk and economic and political risk.


43/51

The above challenges are likely to increase inThe above challenges are likely to increase in

number with the growing requirements of thenumber with the growing requirements of thecustomers. The financial services sector shouldcustomers. The financial services sector should

rise up to the occasion to meet these challengesrise up to the occasion to meet these challengesby adopting new instruments and innovativeby adopting new instruments and innovative

means of financing so that it could play a verymeans of financing so that it could play a very

dynamic role in the economy.dynamic role in the economy.


44/51

Present ScenarioPresent Scenario

The Indian economy is in the process of rapidThe Indian economy is in the process of rapid

transformation. Reforms ate taking place intransformation. Reforms ate taking place inevery field / part of economy. Hence financialevery field / part of economy. Hence financial

services sector is also witnessing changes. Theservices sector is also witnessing changes. Thepresent scenario can be explained in followingpresent scenario can be explained in following

termsterms


45/51

Conservatism to dynamismConservatism to dynamism

The main objective of the financial sector reforms is toThe main objective of the financial sector reforms is topromote an efficient, competitive and diversifiedpromote an efficient, competitive and diversifiedfinancial system in the country. This is very essential tofinancial system in the country. This is very essential to

raise the allocate efficiency of available savings, increaseraise the allocate efficiency of available savings, increasethe return on investment and thus to promote (hethe return on investment and thus to promote (heaccelerated growth of the economy as a whole. Ataccelerated growth of the economy as a whole. Atpresent numerous new Fls have started functioningpresent numerous new Fls have started functioning

with a view to extending multifarious services to thewith a view to extending multifarious services to theinvesting public in the area of financial servicesinvesting public in the area of financial services


46/51

Emergence of Primary EquityEmergence of Primary Equity

MarketMarket

The capital markets, which were very sluggish,The capital markets, which were very sluggish,

have become a very popular source of raisinghave become a very popular source of raisingfinance. The number of stock exchanges in thefinance. The number of stock exchanges in the

country has gone up from 9 in 1980 to 22 incountry has gone up from 9 in 1980 to 22 in1994. After the lowering of bank interest rates,1994. After the lowering of bank interest rates,

capital markets have become a very popularcapital markets have become a very popular

mode of channelizing the saving of mediummode of channelizing the saving of mediumclass people.class people.


47/51

Concept of credit ratingConcept of credit rating

The investment decisions of the investors haveThe investment decisions of the investors have

been based on factors like name recognition ofbeen based on factors like name recognition ofthe company, operations of the group, marketthe company, operations of the group, market

sentiments, reputation of the promoters etc.sentiments, reputation of the promoters etc.now grading from an independent agency wouldnow grading from an independent agency would

help the investors in his portfolio managementhelp the investors in his portfolio management

and thus, equity grading is going to play aand thus, equity grading is going to play asignificant role in investment decision making.significant role in investment decision making.


48/51

Process of globalizationProcess of globalization

The process of globalization has paved the wayThe process of globalization has paved the way

for the entry of innovative and sophisticatedfor the entry of innovative and sophisticatedproducts into our country. Since the governmentproducts into our country. Since the government

is very keen in removing all obstacles that standis very keen in removing all obstacles that standin the way of inflow of foreign capital, thein the way of inflow of foreign capital, the

potentialities for the introduction of innovative,potentialities for the introduction of innovative,

international financial products in India are veryinternational financial products in India are verygreat. Moreover, our country is likely to entergreat. Moreover, our country is likely to enter

the full convertibility era soon.the full convertibility era soon.


49/51

Process of liberalizationProcess of liberalization

Our government has initiated many steps toOur government has initiated many steps toreform the financial services industry. Thereform the financial services industry. Thegovernment has already switched over to freegovernment has already switched over to free

pricing of issues .the interest have beenpricing of issues .the interest have beenderegulated. The private sector has beenderegulated. The private sector has beenpermitted to participate in banking and mutualpermitted to participate in banking and mutualfunds and the public sector undertakings arefunds and the public sector undertakings are

being privatized. SEBI has liberalized manybeing privatized. SEBI has liberalized manystringent conditions so as to boost the capitalstringent conditions so as to boost the capitaland money markets.and money markets.


50/51


51/51

31352216 Nature and Scope of Financial Services(1)

Documents