Financial services

 comprises various functions and services that are provided by

financial institutions in a financial system.
 includes asset management companies and liability management
companies.
helps not only in raising the required funds but also in ensuring
efficient distribution.
are provided by S.E, specialized and general financial institutions,
banks and insurance companies.
are regulated by SEBI, RBI, Dept. of Banking and Insurance, and
Govt. of India.
help in deployment of funds raised , assist in decision making in regard
to financial mix etc.
Contributes towards the growth and development through mobilization
of savings and channelizing them into productive investments.
 Constituents of financial services
 Financial services market – constituents who render services.
 Four major constituents
 Market players: host of institutions and agencies, like banks,
fin.Inst, MFds, MB, stock brokers, consultants, underwriters, etc.
 Financial instruments: imp part of the financial services. Equity,
debt, hybrid and exotic instruments.
 Specialized institutions: includes acceptance houses, discount
houses, factors, depositories, credit rating agencies, VC Inst.
 Regulatory bodies: Fin mkt is regulated by a host of institutions
and agencies, like, Dept. of Banking & Insurance of the Govt.,
RBI, SEBI, BIFR.
 Example of financial services

1. Leasing, credit cards, factoring, portfolio

management, technical and economic
consultancy, credit information.
2. Underwriting, discounting and rediscounting of
bills,
3. Acceptances, brokerage and stockholding
4. Depository, housing finance and book building,
5. Hire purchase and instalment credit
6. Deposit insurance
7. Financial and performance guarantees
8. E-commerce and securitization of debts
9. Loan syndicating and credit rating
 Growth of financial services in India
 Discussed under the various stages
2. Merchant Banking Era (1960 onwards)
fin.services like MB, Insurance, Leasing services began to grow.
 Investment Companies Era: (1970 onwards)
includes establishment of variety of investment institutions and
banks. Like, UTI, MFds, LIC, Nationalization of major commercial
banks.
3. Modern Services Era: (1980 onwards)
launch of a variety of financial products and services like OTCEI,
MF, Factoring, VC, and credit rating.
4. Depository Era: (1990 onwards)
depositories were set up, promoting paperless trading through
dematerialization of securities. Book Building, NSE and
computerization of BSE.
5. Legislative Era: (1995 onwards)
FERA replaced by FEMA, Amendments in Co. Act 1956,
 Growth of financial services in India
1. Amendments in Inc. Tax Act, etc to facilitate safe and orderly
trading and settlement of transactions and separate law to
regulate the internet trading of securities was framed.
 FIIs Era: (1998 onwards)
economic reforms envisaged the free play of Foreign Institutional
Investors in Indian capital market towards the growth &
development. GDR plays a vital role in portfolio investments in
India.
Indian financial services have worked together with the world
level financial services institutions, such as, Lehman Brothers,
Arthur Anderson and Goldman Sachs as a part of their efforts to
upgrade to world standards in context to the management of
financial services.
 Regulatory framework

 Broad classification of the regulatory framework relating to

financial service sector in India is as:
 Institutional regulations: also known as structural regulations
which call for a clear demarcation of activities of Financial
institutions. It is to promote healthy competition among players.
Apex agencies like SEBI to regulate the MB, Stock Broking Co.
and RBI another structural entity prescribing the activities of
commercial banking.
 Prudential regulations: related to internal management of
financial institutions and other financial services org, regarding
capital adequacy, liquidity and solvency etc. Aims at preventing
the entry of firms without adequate resources. (ex. Minimum net
worth requirement for various financial service firms is fixed by the
SEBI and RBI`s regulations relating to the NBFC`s)
 Regulatory framework

 Investors regulations: the role of SEBI is highlighted with

periodic guidelines on investor protection.
 Legislative Regulations: brought out by Govt. for all round
development of financial services industry. They are, Banking
Regulation Act, Securities Contract Regulation Act, meant for
evolving rules, guidelines and regulations that govern the micro
aspect and operational issues.
 Self-regulations: this is addition to the above regulations that are
self imposed regulations such as, Foreign Exchange Dealers
association, and Merchant Bankers association in addition to
SEBI regulation that governs their members.
 Regulatory Framework

The framework of regulations

currently operating in India is
elaborated as
 banking and financial services
 insurance services
 investment services
 Merchant Banking and Financial
Services
 Framework for Banking and Financial services
 regulated by the central government and RBI.
 RBI through RBI ACT and the Banking regulation Act ensure the
orderly functioning of the institutions.
 Regulations relating to banking institutions are about sanction of
new branch, minimum capital, reserves, maintenance of minimum
capital reserves and other liquid assets.
 Appointment of Chairman, CEO, and nominating of member to
BOD.
 Drawing and implementing the monetary and credit policies to
effectively regulate the credit flows, CRR, SLR, and REPOS.
 Implementing various credit control measures (qualitative and
quantitative)
 Regulating factoring, bill discounting and credit card services, etc.
 Framework for banking and financial services

Regulations relating to the non-banking financial companies (NBFC`s)

 Regulated by RBI thru a host of measures such as Banking Laws
Act, 1963, powers of regulation are exercised by RBI under the
directives such as the NBFC`s Directions, 1997, 1987,etc.
 The regulation of NBFC`s is in relation to reports, periodical
statements for the functioning.
 Prescribing eligibility to raise funds from the public its terms and
conditions.
 Norms related to investing a % of the deposits in the approved
securities and maintain funds, capital adequacy norms, accounting
standards, formulation of policy in relation to deployment of funds.
 Punishing the NBFC`s by imposing penalties, canceling the license
or registration, and initiating appropriate actions against the
management of NBFC`s.