Nature and scope Nature and scope of financial of financial

servicesservices

MODERN ACTIVITES, MODERN ACTIVITES, PRESENT SCENARIO, AND PRESENT SCENARIO, AND ITS CHALLENGES AHEADITS CHALLENGES AHEAD

Meaning of financial Meaning of financial servicesservices

• In general, all types of activities, In general, all types of activities, which are of a financial nature could which are of a financial nature could be brought under the term 'financial be brought under the term 'financial services'. The term financial services'. The term financial services' in a broad, sense means services' in a broad, sense means "mobilizing and allocating savings". "mobilizing and allocating savings". Thus it includes all activities Thus it includes all activities involved in the transformation of involved in the transformation of savings into investment.savings into investment.

• financial services can also be called 'financial financial services can also be called 'financial inter mediation'. Financial intermediation is a inter mediation'. Financial intermediation is a process by which funds are mobilizing from a process by which funds are mobilizing from a large number of savers and make them available large number of savers and make them available to all those who are in need of it and particularly to all those who are in need of it and particularly to , corporate customers.to , corporate customers.

• . thus, financial services sector is a key area . thus, financial services sector is a key area and it is very vital for industrial developments. A and it is very vital for industrial developments. A well developed financial services industry is well developed financial services industry is absolutely necessary to mobilize the savings and absolutely necessary to mobilize the savings and to allocate them to various invest able channels to allocate them to various invest able channels and thereby to promote industrial development and thereby to promote industrial development in a country.in a country.

Classification of Financial Classification of Financial Services IndustryServices Industry

• The financial intermediaries in India can be The financial intermediaries in India can be traditionally . classified into two :traditionally . classified into two :

• t Capital Market intermediaries andt Capital Market intermediaries and• ii. Money market intermediaries.ii. Money market intermediaries.• The capital market intermediaries consist of term The capital market intermediaries consist of term

lending institutions and investing institutions which lending institutions and investing institutions which mainly provide lung term funds. On the other hand, mainly provide lung term funds. On the other hand, money market consists of ■ commercial banks, co-money market consists of ■ commercial banks, co-operative banks and other agencies which supply operative banks and other agencies which supply only short term funds. Hence, the term 'financial only short term funds. Hence, the term 'financial services industry' includes all kinds of organizations services industry' includes all kinds of organizations which intermediate .and facilitate financial which intermediate .and facilitate financial transactions of both individuals and corporate transactions of both individuals and corporate customers.customers.

Scope of Finacial Scope of Finacial ServicesServices

• Financial services cover a wide Financial services cover a wide range of activities. They can be range of activities. They can be broadly classified into two, namely :broadly classified into two, namely :

• i. Traditional. Activitiesi. Traditional. Activities• ii. Modern activities.ii. Modern activities.

Traditional ActivitiesTraditional Activities

• Traditionally, the financial Traditionally, the financial intermediaries have been rendering intermediaries have been rendering a wide range of services a wide range of services encompassing both capital and encompassing both capital and money market activities. They can money market activities. They can be grouped under two heads, viz.be grouped under two heads, viz.

• a. Fund based activities anda. Fund based activities and• h. Non-fund based activities.h. Non-fund based activities.

• Fund based activities : The Fund based activities : The traditional services which cometraditional services which come

• under fund based activities are the under fund based activities are the following :following :

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

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

• iii. Participating in money market iii. Participating in money market instruments like commercialinstruments like commercial

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

• Involving in equipment leasing, hire Involving in equipment leasing, hire purchase, venture capital, seed capital, purchase, venture capital, seed capital,

• v. Dealing in foreign exchange market v. Dealing in foreign exchange market activities. Non fund based activities activities. Non fund based activities

. Non fund based . Non fund based activities activities

• Financial intermediaries provide Financial intermediaries provide services on the basis of non-fund services on the basis of non-fund activities also. This can be called 'fee activities also. This can be called 'fee based' activity. Today customers, based' activity. Today customers, whether individual or corporate, are not whether individual or corporate, are not satisfied with mere provisions of finance. satisfied with mere provisions of finance. They expect more from financial services They expect more from financial services companies. Hence a wide variety of companies. Hence a wide variety of services, are being provided under this services, are being provided under this head. They include :head. They include :

• i. Managing die capital issue — i.e. i. Managing die capital issue — i.e. management of pre-issue and post-issue management of pre-issue and post-issue activities relating to the capital issue in activities relating to the capital issue in accordance with the SEBI guidelines and thus accordance with the SEBI guidelines and thus enabling the promoters to market their issue.enabling the promoters to market their issue.

• ii. Making arrangements for the placement ii. Making arrangements for the placement of capital and debt instruments with of capital and debt instruments with investment institutions.investment institutions.

• iii. Arrangement of funds from financial iii. Arrangement of funds from financial institutions for the clients' project cost or his institutions for the clients' project cost or his working capital requirements.working capital requirements.

• iv, Assisting in the process of getting all iv, Assisting in the process of getting all Government and ■' other clearances.Government and ■' other clearances.

Modern ActivitiesModern Activities

• Beside the above traditional services, the Beside the above traditional services, the financial intermediaries render financial intermediaries render innumerable services in recent times. innumerable services in recent times. Most of them are in the nature of non-Most of them are in the nature of non-fund based activity. In view of the fund based activity. In view of the importance, these activities have been in importance, these activities have been in brief under the head 'New financial brief under the head 'New financial products and services'. However, some products and services'. However, some of the modern services provided by them of the modern services provided by them are given in brief hereunder.are given in brief hereunder.

• i. Rendering project advisory i. Rendering project advisory services right from theservices right from the

• preparation of the project report rill preparation of the project report rill the raising of funds for starting the the raising of funds for starting the project with necessary Government project with necessary Government approvals.approvals.

• ii. Planning for M&A and assisting ii. Planning for M&A and assisting for their smooth carry out.for their smooth carry out.

• iii. Guiding corporate customers in iii. Guiding corporate customers in capital restructuringcapital restructuring

• iv. Acting as trustees to the debenture holders.iv. Acting as trustees to the debenture holders.• v. Recommending suitable changes in the v. Recommending suitable changes in the

management structure and management style management structure and management style with a view to achieving better results.with a view to achieving better results.

• vi. Structuring the financial collaborations / vi. Structuring the financial collaborations / joint ventures by identifying suitable joint joint ventures by identifying suitable joint venture partners and preparing joint venture venture partners and preparing joint venture agreements, agreements,

• Rehabilitating and restructuring sick companies Rehabilitating and restructuring sick companies through appropriate scheme of reconstruction through appropriate scheme of reconstruction and facilitating the implementation of the and facilitating the implementation of the scheme.scheme.

• viii. Hedging of risks due to exchange viii. Hedging of risks due to exchange rate risk, interest rate risk, economic rate risk, interest rate risk, economic risk, and political risk by using swaps risk, and political risk by using swaps and other derivative products.and other derivative products.

• Managing [In- portfolio of large Managing [In- portfolio of large Public Sector Corporations.Public Sector Corporations.

• x. Undertaking risk management x. Undertaking risk management services like insurance services, buy-services like insurance services, buy-hack options etc.hack options etc.

• . Advising the clients on the questions of selecting the . Advising the clients on the questions of selecting the best source of funds taking into consideration the best source of funds taking into consideration the quantum of funds required, their cost, lending period quantum of funds required, their cost, lending period etc.etc.

• xii, guiding the clients in the minimization of the cost of xii, guiding the clients in the minimization of the cost of debt and in the determination of the optimum debt-debt and in the determination of the optimum debt-equity mix.equity mix.

Undertaking services relating to the capital market, such Undertaking services relating to the capital market, such asas

• :-..:-.. 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 xiv. Promoting credit rating agencies for the purpose of

rating companies which want to go public by the issue rating companies which want to go public by the issue of debt instrument;*.of debt instrument;*.

Sources of RevenueSources of Revenue

• There arc two categories of sources There arc two categories of sources of income for a financial services of income for a financial services company, namely : (i) Fund based company, namely : (i) Fund based and (ii) Fee — based.and (ii) Fee — based.

Fund based incomeFund based income• Fund based income comes mainly from interest spread Fund based income comes mainly from interest spread

(the difference between the interest earned and (the difference between the interest earned and interest paid), lease rentals, income from investments interest paid), lease rentals, income from investments in capital market and real estate. On the other hand, in capital market and real estate. On the other hand, fee based income has its sources fee based income has its sources in in merchant banking, merchant banking, advisory services, custodial services, loan syndication, advisory services, custodial services, loan syndication, etc. In fact, a major part of the income is earned etc. In fact, a major part of the income is earned through fund-based activities. At the same time, it through fund-based activities. At the same time, it involves a large share of expenditure also in the form involves a large share of expenditure also in the form of interest and brokerage. In recent times, a number of of interest and brokerage. In recent times, a number of private financial companies have started accepting private financial companies have started accepting deposits by offering a very high rate of interest. When deposits by offering a very high rate of interest. When the cost the cost of of deposit resources goes up, tin" (ending rate deposit resources goes up, tin" (ending rate should also go up. It means that such companies have should also go up. It means that such companies have to compromise the quality of its investments.to compromise the quality of its investments.

Fee based incomeFee based income

• Fee based income, on the other Fee based income, on the other hand, does not involve much risk. hand, does not involve much risk. But, it requires a lot of expertise on But, it requires a lot of expertise on the part of a financial company the part of a financial company to to offer such fee-based services.offer such fee-based services.

Causes For Financial Causes For Financial services Innovation services Innovation

• Financial intermediaries have to perform Financial intermediaries have to perform the task of financial innovation to meet the task of financial innovation to meet the dynamically changing the dynamically changing needs needs of theof theeconomy and to help the investors cope economy and to help the investors cope with the increasingly volatile and with the increasingly volatile and uncertain market place. There is a dire uncertain market place. There is a dire necessity for the financial intermediaries necessity for the financial intermediaries to go for innovation due to theto go for innovation due to thefollowing reasons : following reasons :

• Low profitability : The profitability of the major Low profitability : The profitability of the major FI, namely (he banks has been very much FI, namely (he banks has been very much affected in recent times. There is a decline, in affected in recent times. There is a decline, in the profitability of traditional banking products. the profitability of traditional banking products. So, (hey have been compelled to seek out new So, (hey have been compelled to seek out new products which may fetch high returns.products which may fetch high returns.

• ii. Keen competition : The entry of many FIs ii. Keen competition : The entry of many FIs in the financial sector has led to severe in the financial sector has led to severe competition among them. This keen competition among them. This keen competition has paved the way for the entry of competition has paved the way for the entry of varied nature of innovative financial products varied nature of innovative financial products so ns to meet the varied requirements of the so ns to meet the varied requirements of the investors. investors.

• . Economic Liberalization : Reform of the Financial . Economic Liberalization : Reform of the Financial sector constitutes the most important component of sector constitutes the most important component of India's programme towards economic liberalization. India's programme towards economic liberalization. The recent economic liberalization measures have The recent economic liberalization measures have opened the door foreign competitors to enter into opened the door foreign competitors to enter into our domestic market. Deregulation in the form of our domestic market. Deregulation in the form of elimination of exchange controls and interest rate elimination of exchange controls and interest rate ceilings have made the market more competitive. ceilings have made the market more competitive. Innovation has become a must for survival.Innovation has become a must for survival.

• iv. Improved communication technology : Theiv. Improved communication technology : The• communication technology has become so advanced communication technology has become so advanced

that even the world's issuers can be linked with the that even the world's issuers can be linked with the investors i the global financial market without any investors i the global financial market without any difficulty by mean of offering so many options and difficulty by mean of offering so many options and opportunities.opportunities.

• Customer Service : Now a days, the customer'sCustomer Service : Now a days, the customer's• expectations are very great. They want newer expectations are very great. They want newer

products at lower cost or at lower credit risk to products at lower cost or at lower credit risk to replace the existing one To meet this increased replace the existing one To meet this increased customer sophistication, the financial customer sophistication, the financial intermediaries are constantly undertaking intermediaries are constantly undertaking research in order to invent a new product research in order to invent a new product which may suit to the requirement of the which may suit to the requirement of the investing public.investing public.

• vi. Global impact : Many of the providers and vi. Global impact : Many of the providers and users of capital have changed their roles all users of capital have changed their roles all over the world. FI have come out of their over the world. FI have come out of their traditional approach and they arc ready to traditional approach and they arc ready to assume more credit risks.assume more credit risks.

• .Investor Awareness ; With a growing .Investor Awareness ; With a growing awareness amongst the investing public, awareness amongst the investing public, there has been a distinct shift from there has been a distinct shift from investing the savings in physical assets like investing the savings in physical assets like gold, silver, land etc. to financial assets gold, silver, land etc. to financial assets like shares, debentures, mutual funds, etc. like shares, debentures, mutual funds, etc. Again, within the financial assets, they go Again, within the financial assets, they go from 'risk free bank deposits to risky from 'risk free bank deposits to risky investments in shares. investments in shares. To To meet the meet the growing awareness of the public, growing awareness of the public, innovations has become the need of the innovations has become the need of the hour.hour.

New Financial Products and New Financial Products and ServicesServices

• In these days of complex finances, people expect a In these days of complex finances, people expect a financial service company to play a very dynamic role not financial service company to play a very dynamic role not only as a provider of finance but also as a departmental only as a provider of finance but also as a departmental store of finance. With the opening of the economy to store of finance. With the opening of the economy to multinationals, the free market concept has assumed much multinationals, the free market concept has assumed much significance. As a result, the clients both corporate and significance. As a result, the clients both corporate and individuals are exposed to the phenomena of volatility and individuals are exposed to the phenomena of volatility and uncertainty and hence the)' expect the financial services uncertainty and hence the)' expect the financial services company to innovate new products and services so as to company to innovate new products and services so as to meet their varied requirements.meet their varied requirements.

• As a result of innovations, new instruments and new As a result of innovations, new instruments and new products are emerging in the capital market. The capital products are emerging in the capital market. The capital market and the money market are getting widened and market and the money market are getting widened and deepened. Moreover, there has been a structured change deepened. Moreover, there has been a structured change in the international capital market with the emergence of in the international capital market with the emergence of new products and innovative techniques of operation in new products and innovative techniques of operation in the capital market. the capital market.

• Many financial intermediaries Many financial intermediaries including banks have already Started including banks have already Started expanding [heir activities in the expanding [heir activities in the financial services sector by offering a financial services sector by offering a variety newvariety new products. As :t result, products. As :t result, sophistication and innovations have sophistication and innovations have appeared in the arena of financial appeared in the arena of financial intermediations. Some of them are intermediations. Some of them are briefly explained hereunder :briefly explained hereunder :

Merchant BankingMerchant Banking

• i : A merchant hanker is a financial i : A merchant hanker is a financial intermediary who helps to transfer capital intermediary who helps to transfer capital from those who possess it to those who need from those who possess it to those who need it. Merchant banking includes a wide range of it. Merchant banking includes a wide range of activities such as management of customer activities such as management of customer securities, portfolio management, project securities, portfolio management, project counseling and appraisal, underwriting of counseling and appraisal, underwriting of shares and debentures, loan syndication, shares and debentures, loan syndication, acting as banker for the refund orders, acting as banker for the refund orders, handling interest and dividend warrants etc. handling interest and dividend warrants etc. Thus, a merchant hanker renders a host of Thus, a merchant hanker renders a host of services lo corporate, and thus promote services lo corporate, and thus promote industrial development in the country.industrial development in the country.

Loan Syndication Loan Syndication

• This is more or less similar to consortium This is more or less similar to consortium financing. But this work is taken up by financing. But this work is taken up by the merchant banker as a lead manager. the merchant banker as a lead manager. It refers to a loan arranged by a bank It refers to a loan arranged by a bank called lead manager for a borrower who called lead manager for a borrower who is usually a large corporate customer or is usually a large corporate customer or a government department. It also a government department. It also enables the members of the syndicate to enables the members of the syndicate to share the credit risk associated with a share the credit risk associated with a particular loan among themselves.particular loan among themselves.

. Leasing ; . Leasing ;

• ; A lease is an agreement under which a ; A lease is an agreement under which a company or a firm acquires a right to company or a firm acquires a right to make use of a capital asset like make use of a capital asset like machinery, on payment of a prescribed machinery, on payment of a prescribed fee called 'rental charges'. In countries fee called 'rental charges'. In countries like USA, the UK and Japan, equipment like USA, the UK and Japan, equipment leasing is very popular and nearly 25% leasing is very popular and nearly 25% of plant and equipment is being financed of plant and equipment is being financed by leasing companies. In India also, by leasing companies. In India also, many financial companies have started many financial companies have started equipment leasing business.equipment leasing business.

Mutual Funds : Mutual Funds :

• A mutual fund refers to a fund raised by A mutual fund refers to a fund raised by a financial service company by pooling a financial service company by pooling the savings of the public. It is invested the savings of the public. It is invested in a diversified portfolio with a view to in a diversified portfolio with a view to spreading and minimizing the risk The spreading and minimizing the risk The fund provides investment avenues for fund provides investment avenues for small investors who cannot participate small investors who cannot participate in the equities of big companies. It in the equities of big companies. It ensures low-risk, steady returns, high ensures low-risk, steady returns, high liquidity- and better capitalization in the liquidity- and better capitalization in the long run.long run.

Factoring Factoring

• Factoring refers to the process of Factoring refers to the process of managing the sales register of a managing the sales register of a client by a financial services client by a financial services company. The entire responsibility of company. The entire responsibility of collecting the book debts passes on collecting the book debts passes on to the factor.to the factor.

Forfeiting Forfeiting

• Forfeiting is a technique by which a Forfeiting is a technique by which a forfeiter (financing agency) forfeiter (financing agency) discounts an export bill and pays discounts an export bill and pays ready cash to the exporter who can ready cash to the exporter who can concentrate on the export front concentrate on the export front without bothering about collection of without bothering about collection of export bills export bills

Venture Capital Venture Capital

• A venture capital is another method A venture capital is another method of financing in form of equity of financing in form of equity participation. participation.

Custodial Services Custodial Services

• Under this a financial intermediary Under this a financial intermediary mainly provides services to clients, mainly provides services to clients, for a prescribed fee, like safe for a prescribed fee, like safe keeping of financial securities and keeping of financial securities and collection of interest and dividends.collection of interest and dividends.

Corporate advisory Corporate advisory services services

• : Financial intermediaries : Financial intermediaries particularly hanks have setup particularly hanks have setup specialized branches for this. As new specialized branches for this. As new avenues of finance like Euro loans, avenues of finance like Euro loans, GDRs etc. arc available to corporate GDRs etc. arc available to corporate customers, this service is of customers, this service is of immense help to the customers.immense help to the customers.

. Securitization . Securitization

• Securitization is a technique Securitization is a technique whereby a financial company whereby a financial company converts its ill-liquid, non-negotiable converts its ill-liquid, non-negotiable and high value financial assets into and high value financial assets into securities of small value which are securities of small value which are made tradable and transferable.made tradable and transferable.

. Derivative Security . Derivative Security

• A derivative security is a security A derivative security is a security whose value depends upon the whose value depends upon the values of other basic variable values of other basic variable backing the security. In most cases, backing the security. In most cases, these variables are nothing but the these variables are nothing but the prices of traded securities.prices of traded securities.

. New products in Forex . New products in Forex Markets Markets

• : New products have also emerged in the forex markets of : New products have also emerged in the forex markets of developed countries. Some of these products are yet to make full developed countries. Some of these products are yet to make full entry in Indian markets. Among them are :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 ata fixed rate on a future date according to his options.a fixed rate on a future date according to his options.

• c Futures : It is a contract wherein there is an agreement to c Futures : It is a contract wherein there is an agreement to buy or sell a stated quantity of foreign currency at a future date buy or sell a stated quantity of foreign currency at a future date at a price agreed to between the parties on the stated exchange.at a price agreed to between the parties on 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 financial intermediary buys and sells a specified foreign currency

simultaneously for different maturity dates.simultaneously for different maturity dates.

. Lines of Credit . Lines of Credit

• It is an innovative funding It is an innovative funding mechanism for the import of goods mechanism for the import of goods and services on deferred payments and services on deferred payments terms. LOC is an arrangement of a terms. LOC is an arrangement of a financing institution of one country financing institution of one country with another to support the export of with another to support the export of goods and services to as to enable goods and services to as to enable the importer to import on deferred the importer to import on deferred payment terms.payment terms.

Challenges Facing the Challenges Facing the Financial Services SectorFinancial Services Sector

• Though financial services sector is Though financial services sector is growing very fast, it has its own set growing very fast, it has its own set of problems and challenges. The of problems and challenges. The financial sector has to face many financial sector has to face many challenges in its attempt to fulfill the challenges in its attempt to fulfill the ever growing financial demands of ever growing financial demands of the economy. Some of the important the economy. Some of the important challenges are briefly explained challenges are briefly explained hereunder hereunder

• . Lack of qualified personnel : The financial . Lack of qualified personnel : The financial services sector is fully geared to the task of services sector is fully geared to the task of 'financial creativity'. However, this sector has to 'financial creativity'. However, this sector has to face many challenges. The dearth of qualified face many challenges. The dearth of qualified and trained personnel is an important and trained personnel is an important impediment in its growth,impediment in its growth,

• ii. Lack of investor awareness : The ii. Lack of investor awareness : The introduction of new financial products and introduction of new financial products and instruments will be of no use unless the investor instruments will be of no use unless the investor is aware of the advantages and uses of the new is aware of the advantages and uses of the new and innovative products and instruments,and innovative products and instruments,

• Lack of transparency : The whole financial system Lack of transparency : The whole financial system is undergoing a phenomenal change in accordance is undergoing a phenomenal change in accordance with the requirements of the national global with the requirements of the national global environments. It is high time that this sector gave environments. It is high time that this sector gave up their orthodox attitude of keeping accounts in a up their orthodox attitude of keeping accounts in a highly secret manner.highly secret manner.

• Lack of specialization: in the Indian sense, each Lack of specialization: in the Indian sense, each financial intermediary seems to deal in a different financial intermediary seems to deal in a different financial service lines without specializing in one or financial service lines without specializing in one or two areas. In other countries , FI specialize in one two areas. In other countries , FI specialize in one or two areas only and provide expert service.or two areas only and provide expert service.

•

•

• Lack of recent data: most of the fi do not spend Lack of recent data: most of the fi do not spend more on research. It is very vital that one should more on research. It is very vital that one should build up a proper data base on the basis of which build up a proper data base on the basis of which one could embark upon financial creativity.one could embark upon financial creativity.

• Lack of efficient risk management system: with Lack of efficient risk management system: with the opening of the economy to multinationals the opening of the economy to multinationals and exposure of Indian companies to and exposure of Indian companies to international competition, much importance is international competition, much importance is given to foreign portfolio flows. It involves the given to foreign portfolio flows. It involves the utilization of multi currency transactions which utilization of multi currency transactions which exposes the client to exchange rate risk, interest exposes the client to exchange rate risk, interest rate risk and economic and political risk.rate risk and economic and political risk.

• The above challenges are likely to The above challenges are likely to increase in number with the growing increase in number with the growing requirements of the customers. The requirements of the customers. The financial services sector should rise financial services sector should rise up to the occasion to meet these up to the occasion to meet these challenges by adopting new challenges by adopting new instruments and innovative means of instruments and innovative means of financing so that it could play a very financing so that it could play a very dynamic role in the economy.dynamic role in the economy.

Present ScenarioPresent Scenario

• The Indian economy is in the process The Indian economy is in the process of rapid transformation. Reforms ate of rapid transformation. Reforms ate taking place in every field / part of taking place in every field / part of economy. Hence financial services economy. Hence financial services sector is also witnessing changes. sector is also witnessing changes. The present scenario can be The present scenario can be explained in following terms explained in following terms

Conservatism to Conservatism to dynamism dynamism

• The main objective of the financial sector The main objective of the financial sector reforms is to promote an efficient, competitive reforms is to promote an efficient, competitive and diversified financial system in the country. and diversified financial system in the country. This is very essential to raise the allocate This is very essential to raise the allocate efficiency of available savings, increase the efficiency of available savings, increase the return on investment and thus to promote (he return on investment and thus to promote (he accelerated growth of the economy as a accelerated growth of the economy as a whole. At present numerous new Fls have whole. At present numerous new Fls have started functioning with a view to extending started functioning with a view to extending multifarious services to the investing public in multifarious services to the investing public in the area of financial services the area of financial services

Emergence of Primary Emergence of Primary Equity Market Equity Market

• The capital markets, which were very The capital markets, which were very sluggish, have become a very popular sluggish, have become a very popular source of raising finance. The number source of raising finance. The number of stock exchanges in the country has of stock exchanges in the country has gone up from 9 in 1980 to 22 in 1994. gone up from 9 in 1980 to 22 in 1994. After the lowering of bank interest After the lowering of bank interest rates, capital markets have become a rates, capital markets have become a very popular mode of channelising very popular mode of channelising the saving of medium class people.the saving of medium class people.

Concept of credit ratingConcept of credit rating

• The investment decisions of the The investment decisions of the investors have been based on factors investors have been based on factors like name recognition of the company, like name recognition of the company, operations of the group, market operations of the group, market sentiments, reputation of the promoters sentiments, reputation of the promoters etc. now grading from an independent etc. now grading from an independent agency would help the investors in his agency would help the investors in his portfolio management and thus, equity portfolio management and thus, equity grading is going to play a significant grading is going to play a significant role in investment decision making.role in investment decision making.

Process of globalizationProcess of globalization

• The process of globalization has paved the The process of globalization has paved the way for the entry of innovative and way for the entry of innovative and sophisticated products into our country. sophisticated products into our country. Since the government is very keen in Since the government is very keen in removing all obstacles that stand in the way removing all obstacles that stand in the way of inflow of foreign capital, the of inflow of foreign capital, the potentialities for the introduction of potentialities for the introduction of innovative, international financial products innovative, international financial products in India are very great. Moreover, our in India are very great. Moreover, our country is likely to enter the full country is likely to enter the full convertilibility era soon.convertilibility era soon.

Process of liberalizationProcess of liberalization

• Our government has initiated many steps Our government has initiated many steps to reform the financial services industry. to reform the financial services industry. The government has already switched The government has already switched over to free pricing of issues .the over to free pricing of issues .the interest have been deregulated. The interest have been deregulated. The private sector has been permitted to private sector has been permitted to participate in banking and mutual funds participate in banking and mutual funds and the public sector undertakings are and the public sector undertakings are being privatized. SEBI has liberalized being privatized. SEBI has liberalized many stringent conditions so as to boost many stringent conditions so as to boost the capital and money markets.the capital and money markets.