Financial services

Financial services
Means Mobilizing and allocating savings Also called financial intermediation Mobilization of savings in to investments

Definition activities, benefits and satisfaction connected with the sale of money that offer to users and customers financial related value.

EVOLUTION OF FINANCIAL SERVICES IN INDIA:

1. 2. 3.

Initial phase (1960-80)

Second phase (1980-90)

Third phase (1990-2002)

1-merchant banking- merchant banking era Insurance and investment companies

LIC, GIC and UTI initiated to enter into this

segment during this period. Leasing activities was started in the year 1970.- investment companies era

2-counter share transfers, pledging of shares, mutual funds, factoring, discounting, venture capital and credit rating- modern services era

3-the setting up of new institutions and instruments The depositories, the stock lending schemes, online trading, paperless trading, dematerialization, book buildings are the services in this phasedepository era

Indian economy got liberalized during 1991, FERA was replaced by FEMAlegislative era financial services industry in India was dominated by commercial banks The economic liberalization has brought in a complete transformation in the Indian financial services industry . Divestment guidelines by SEBI . More FIIs FIIs Era

Merchant banking Investment companies Era Modern services era

Financial system

Depository era
Legislative era FIIs era

Financial institutions

Finanacial Markets

Scope of financial services

Financial services covers a wide range of activities. They can be Broadly classified into two namely. i) Traditional activities ii) Modern activities

Traditional activities: Traditionally, the financial intermediaries have been rendering a wide Range of services encompassing both capital & money market activities. A- fund based activities and B- non-fund based activities

A. Fund based activities: The traditional services which come under fund based activities are the Following: i. underwriting of or investment in shares,Debentures,bonds etc. of new issues (primary market activities) ii. dealing in secondary market activities

iii. participating in money market instrument like commercial papers, certificate of deposits, treasury bills, discounting of bills etc.

iv. involving in equipment leasing, hire purchase, venture

capital, seed capital etc. v. dealing in foreign exchange market activities

B. Non fund based activities: Financial intermediaries provide services on the basis of nonfund activities.

Also this can also be called fee based "activity.

customers whether individual or corporate are not satisfied with mere provision of finance. They expect more from financial services companies. . i) Managing the capital issues ie., management of pre-issue & post issue activities {Relating to the capital issue in accordance with the SEBI guidelines & thus enabling the promoters to market their issues}

ii) Making arrangements for the placement of capital & debt

instruments with investment institution iii) Arrangement of funds from financial institution for the clients project cost or his working capital requirements iv) Assisting in the process of getting all government &

others clearances

Modern activities:
Non fund activities Modern products and services

Financial system
Financial system which supplies the necessary financial Inputs for the production of goods & services which is then promotes the well being & standard of living of the people

of a country
Functions of Financial System
i) ii) Provision of liquidity Mobilization of savings

FINANCIAL ASSETS
A financial asset is one which is used for production or consumption or for further creation of assets

Classification of financial assets:

Marketable assets Those which can be easily transferred from one person to another without much hindrance. Examples: shares of listed companies, Government securities, Bonds of public sector undertakings etc. Non marketable assets The assets cannot be transferred easily Bank Deposits, Provident funds, Provision funds National savings certificates, Insurance policies etc.

INDIAN FINANCIAL SYSTEM

FORMAL 1- financial institution 2- financial markets 3- financial instruments 4- financial services INFORMAL

Unorganized markets

In these markets, there are a number of money lenders, indigenous bankers, and traders etc. who lend money to the public. Indigenous bankers also collect deposits from the public. There are also finance companies, chit funds etc. whose activities are not controlled by the RBI. Recently the RBI has taken steps to bring private finance companies and chit funds under its strict control by issuing non-banking financial companies (Reserve Bank) Directions, 1998.

Organized Markets

In the organized markets, there are standardized rules and regulations governing their financial dealings. There is also a high degree of institutionalized and instrumentalisation. These markets are subject to strict supervision and control by the RBI or other regulatory bodies like IRDA, SEBI, MoF

Financial concepts
1- financial institution 2-financial markets

3-financial instruments
4- financial services

financial institution

Banking Non-banking Mutual fund Insurance & housing finance companies

FINANCIAL MARKETS
Wherever a financial transaction takes place, it is deemed to have taken place in the financial market. Hence financial markets are pervasive throughout the economic system. Financial markets can be referred to as those centre and arrangements which facilitate buying and selling of financial assets, claims and services. Classified as Capital Market Money Market

CAPITAL MARKET

Capital market is a market for financial assets which have a long or indefinite maturity. It deals with long-term securities which have a maturity period of above one year. Capital market may be further divided in to three; - Industrial Securities Market - Government Securities Market - Long-term Loans Market

Industrial Securities Market

It is a market where industrial concerns raise that capital or debt by issuing appropriate instruments. It is a market for industrial securities namely; i) equity shares or ordinary shares, ii) preference shares iii) debentures or bonds. It can be further subdivided in to: - Primary Market or New issue market Primary market deals with those securities which are issued to the public for the first time -Secondary Market or Stock exchange Secondary market is a market for secondary sale of securities

Government Securities Market

It is a market where government securities are traded. It is otherwise called Gilt-edged securities market. In India, there are many kinds of government securities:-short-term and long-term. Long-term securities are traded in this market while short-term securities are traded in the money market

Long-term Loans Market

Development banks and commercial banks play a significant role in this market by supplying long-term loans to corporate customers. Long-term loans market can be classified into: Term loans Market Mortgages market Financial Guarantees Market

MONEY MARKET Money market is a market for dealing with financial assets and securities which have a maturity period of up to one year. It is a market for purely short-term funds. Money market can be divided in to four; Call money market Call money market is a market for extremely short period loans say 1 day to 14 days. Commercial Market It is a market for bills of exchange arising out of genuine trade transactions. Eg: cheque.

Treasury bills Market It is a market for treasury bills which have shortterm maturity. A treasury bill is a promissory note or a finance bill issued by the government. Maturity period is 3-12 months. Short-term loan Market Short-term loan market is a market where Short term loans are given to corporate customers for meeting their working capital requirements.

Financial instruments

Financial instruments refer to the documents which represent financial claims on assets. Financial assets refer to the claims to repayment of certain sum of money the end of a specified period together with interest of individual. Eg: Bill of exchange, promissory notes, Treasury bill, government bond, deposit receipt, share, debenture etc Financial instruments can also be called financial

securities.

Financial securities can be classified into 1. Primary securities There are securities directly inside by the ultimate investors to the ultimate savers Eg: Share and debentures inside directly to the public 2. Secondary securities There are the securities inside by some intermediaries called financial issue securities in the form of units to the public and the money pooled is invested in companies.

a. Short term securities Short term securities are those which mature with in a period of one year. Eg: Bill of exchange, Treasury bill etc b. Medium term securities Medium term securities are those which have a maturity period ranging between 1 to 5 years. c) Long term securities Long term securities are those which have a maturity period more than 5 years. Eg: Government bonds maturing after 10 years.

FINANCIAL SERVICES

Underwriting Portfolio management Hire purchasing Guaranteeing Leasing Factoring Forfaiting Depositories Custodial Credit rating