Chapter 1

FINANCIAL SERVICES
Learning Goals:

 Provide an overview of the financial system

 Explain the nature financial services offered.
 Review the role of financial services in the
economy
 Capture the contemporary developments in
the financial sector
Introduction

 Financial Services Industry :Largest in the world

 Has undergone turbulent times in the recent years
 Banking ,Financial Services ,and Insurance (BFSI)
sectors play a greater role
 Real sector needs the services of FS sector;
contribution of services sector to the GDP of the
country is high
Financial Services: Concept

 Services: Hospitality, Tourism, Health

Services, Education, BFSI
 Financial services are intermediary services in
the financial market place.
 Financial services are provided by the banks
and financial institutions in the financial
system

Contd…
Financial Services: Concept

 Project financing, bridge finance, portfolio

management, wealth management, foreign
exchange advisory, risk management are
some of the services
 Financial services in a financial supermarket
Nature of Financial services

 Intangibility
 Inseparability
 Heterogeneity
 Perishability
 Advisory
 Marketing of financial services
 Techno savvy
Indian Financial System

 Commercial Banks
 Insurance companies
 NBFCs
 Mutual Funds
 Housing Finance Companies
 Financial Institutions
 Regulators,FinancialMarkets,Financial
Instruments.
Functions of the Financial
System
 Mobilising Savings
 Storing wealth
 Providing Liquidity
 Payment and settlement mechanism
 Credit provider
 Risk management
 Policy Implementation
 Information provider
Growth of Financial Services:
Key Factors
 Financial Reforms
 Opening up of Insurance sector
 Growth of Capital market
 Changes in the NBFC sector
 Corporate Restructuring
 Regulatory reforms
Trends in the Financial sector

 Financial reforms
 Financial crises
 Financial engineering
 Financial convergence
 Financial Inclusion
 MERCHANT INTERNATION
BANKING AL FINANCE

• Counselling for new projects • Advisory services for joint

• Project Appraisals
• Structuring of issues
• Portfolio Management
• Trading in units. Bonds,
Debentures etc.,
• Mergers & Acquisitions
• Drafting prospectus/Letter of
Offer, Application Form,
Memorandum etc.
• Underwriting and Sub-
Underwriting Arrangement
• Arrangement of Bridge Finance
• Marketing support
• Private Placement
• Strategic publicity
• Loan syndication
• Management of public/Right
issues
ventures
• Arrangements of foreign,
technical and financial
collaborations
• Portfolio management
services for NRIs
• Assistance to exporters in
market information, factoring
and other forms of finance
• Liaison with international
institutions for capital market
products

RETAIL FINANCE EQUIPMENT WORKING CAPITAL

FINANCE FINANCE

• Loans for consumer • Leasing • Bill

Durables • Sale & Lease- Discounting
• Vehicle Finance Back • Inter-
• Equipment Finance • Vendor Leasing Corporate
for Professionals • Hire-Purchase Deposits
• Sales Aid Lease • Short Term
Loans
Institutional Framework of
Indian Financial System
BANKING SECTOR
 Commercial Banks
 Cooperative Banks
BROADER FINANCIAL SECTOR
 Term Lending Institutions
 Investment Institutions
 State level Institutions
 Other Institutions
 NBFCs.

(Based on RBI Report on Currency &Finance)

Contd…
CAPITAL MARKETS
 Equity
 Mutual Funds
Trends

 Financial reforms
Narasimham Committee
Banking, Financial Institutions,
Capital market,Money Market
As a result of the Committee’s recommendation: SEBI was made a
statutory body and the SEBI Act was passed in 1992. The
Capital Issues Control Act was repealed and a free pricing era
started SEBI issued guidelines for each of the market
intermediary and made the market micro structures ready for a
more transparent and orderly growth of the market.

Contd…
Global Depository receipts (GDRs) were launched in 1992 and
investment norms for NRIs and the Overseas Corporate Bodies
were also prescribed.
Foreign Institutional Investors (FIIs) were permitted to invest
in the Indian capital market.
Money Market Mutual Funds (MMMFs), new money market
instruments like Commercial papers (CPs), 14 day T-Bills,
repos were introduced.
Financial Engineering

 Creative application of financial technologies

to solve financial problems or to exploit
financial opportunities / to add value
 Introduction or design of new financial
instruments or structured finance solutions
 CDS, CDOs
FINANCIAL TURBULENCE IN
2007-2008
 U.S. Sub prime crisis surfaces Mid 2007
 Bear Stearns Collapses June 2007
 JP Morgan buys Bear Stearns March 2008
 Fannie Mae & Freddie Mac taken over by US
Treasury September 6, 2008

Contd…
 Bank of America (BoA) agrees to acquire Merill
Lynch.
 BoA refuses to buy Lehman Brothers
September 15, 2008
 Federal Reserve agrees to lend AIG $85 billion
in return for control of the group September
16, 2008
Financial Convergence and
Financial Inclusion
 Financial Convergence
 All under one roof model / financial super market
model / one stop finance shoppe
 Financial Inclusion
 Ensuring access to financial services and timely
and adequate credit to vulnerable sections of the
society at affordable cost
 credit to all ‘bankable’people; insurance to all
‘insurable’ people
Contribution of Services Sector
to the GDP
Fig.1.4Agriculture,IndustryandServicescontributioninGDP

70
60
50
40
30
P
g
n
e
a
c
r
t

20
10
0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Agriculture&AlliedServices 23.9 24 21.4 21.7 20.2 19.6 18.5 17.8
Industry 20 19.3 19.9 19.4 19.6 19.4 19.5 19.4
Services 56.1 56.7 58.7 58.9 60.2 61.1 61.9 62.9