Financial servicesFinancial services comprises various functions and services that are provided by comprises various functions and services that are provided by financial institutions in a financial system.financial institutions in a financial system. includes asset management companies and liability management includes asset management companies and liability management companies.companies.helps not only in raising the required funds but also in ensuring helps not only in raising the required funds but also in ensuring efficient distribution.efficient distribution.are provided by S.E, specialized and general financial institutions, are provided by S.E, specialized and general financial institutions, banks and insurance companies.banks and insurance companies.are regulated by SEBI, RBI, Dept. of Banking and Insurance, and are regulated by SEBI, RBI, Dept. of Banking and Insurance, and Govt. of India.Govt. of India.help in deployment of funds raised , assist in decision making in regard help in deployment of funds raised , assist in decision making in regard to financial mix etc.to financial mix etc.Contributes towards the growth and development through mobilization Contributes towards the growth and development through mobilization of savings and channelizing them into productive investments. of savings and channelizing them into productive investments.

Constituents of financial servicesConstituents of financial services Financial services market – constituents who render services.Financial services market – constituents who render services. Four major constituentsFour major constituents

1.1. Market players:Market players: host of institutions and agencies, like banks, host of institutions and agencies, like banks, fin.Inst, MFds, MB, stock brokers, consultants, underwriters, etc. fin.Inst, MFds, MB, stock brokers, consultants, underwriters, etc.

2.2. Financial instruments: imp part of the financial services. Equity, Financial instruments: imp part of the financial services. Equity, debt, hybrid and exotic instruments.debt, hybrid and exotic instruments.

3.3. Specialized institutions: includes acceptance houses, discount Specialized institutions: includes acceptance houses, discount houses, factors, depositories, credit rating agencies, VC Inst.houses, factors, depositories, credit rating agencies, VC Inst.

4.4. Regulatory bodies: Fin mkt is regulated by a host of institutions Regulatory bodies: Fin mkt is regulated by a host of institutions and agencies, like, Dept. of Banking & Insurance of the Govt., and agencies, like, Dept. of Banking & Insurance of the Govt., RBI, SEBI, BIFR.RBI, SEBI, BIFR.

Example of financial servicesExample of financial services

1.1. Leasing, credit cards, factoring, portfolio Leasing, credit cards, factoring, portfolio management, technical and economic management, technical and economic consultancy, credit information.consultancy, credit information.

2.2. Underwriting, discounting and rediscounting of Underwriting, discounting and rediscounting of bills,bills,

3.3. Acceptances, brokerage and stockholdingAcceptances, brokerage and stockholding4.4. Depository, housing finance and book building,Depository, housing finance and book building,5.5. Hire purchase and instalment creditHire purchase and instalment credit6.6. Deposit insuranceDeposit insurance7.7. Financial and performance guaranteesFinancial and performance guarantees8.8. E-commerce and securitization of debtsE-commerce and securitization of debts9.9. Loan syndicating and credit ratingLoan syndicating and credit rating

Growth of financial services in IndiaGrowth of financial services in India

Discussed under the various stagesDiscussed under the various stages

1.1. Merchant Banking Era (1960 onwards)Merchant Banking Era (1960 onwards)

fin.services like MB, Insurance, Leasing services began to grow.fin.services like MB, Insurance, Leasing services began to grow.

2.2. Investment Companies Era: (1970 onwardsInvestment Companies Era: (1970 onwards))

includes establishment of variety of investment institutions and includes establishment of variety of investment institutions and banks. Like, UTI, MFds, LIC, Nationalization of major commercial banks. Like, UTI, MFds, LIC, Nationalization of major commercial banks.banks.

3.3. Modern Services Era: (1980 onwards)Modern Services Era: (1980 onwards)

launch of a variety of financial products and services like OTCEI, launch of a variety of financial products and services like OTCEI, MF, Factoring, VC, and credit rating.MF, Factoring, VC, and credit rating.

4.4. Depository Era: (1990 onwards)Depository Era: (1990 onwards)

depositories were set up, promoting paperless trading through depositories were set up, promoting paperless trading through dematerialization of securities. Book Building, NSE and dematerialization of securities. Book Building, NSE and computerization of BSE. computerization of BSE.

5.5. Legislative Era: (1995 onwards)Legislative Era: (1995 onwards)

FERA replaced by FEMA, Amendments in Co. Act 1956, FERA replaced by FEMA, Amendments in Co. Act 1956,

Growth of financial services in IndiaGrowth of financial services in India

1.1. Amendments in Inc. Tax Act, etc to facilitate safe and orderly Amendments in Inc. Tax Act, etc to facilitate safe and orderly trading and settlement of transactions and separate law to trading and settlement of transactions and separate law to regulate the internet trading of securities was framed.regulate the internet trading of securities was framed.

2.2. FIIs Era:FIIs Era: (1998 onwards(1998 onwards))

economic reforms envisaged the free play of Foreign Institutional economic reforms envisaged the free play of Foreign Institutional Investors in Indian capital market towards the growth & Investors in Indian capital market towards the growth & development. GDR plays a vital role in portfolio investments in development. GDR plays a vital role in portfolio investments in India.India.

Indian financial services have worked together with the world Indian financial services have worked together with the world level financial services institutions, such as, Lehman Brothers, level financial services institutions, such as, Lehman Brothers, Arthur Anderson and Goldman Sachs as a part of their efforts to Arthur Anderson and Goldman Sachs as a part of their efforts to upgrade to world standards in context to the management of upgrade to world standards in context to the management of financial services.financial services.

Regulatory frameworkRegulatory framework

Broad classification of the regulatory framework relating to Broad classification of the regulatory framework relating to financial service sector in India is as:financial service sector in India is as:

1.1. Institutional regulationsInstitutional regulations: also known as structural regulations : also known as structural regulations which call for a clear demarcation of activities of Financial which call for a clear demarcation of activities of Financial institutions. It is to promote healthy competition among players. institutions. It is to promote healthy competition among players. Apex agencies like SEBI to regulate the MB, Stock Broking Co. Apex agencies like SEBI to regulate the MB, Stock Broking Co. and RBI another structural entity prescribing the activities of and RBI another structural entity prescribing the activities of commercial banking.commercial banking.

2.2. Prudential regulationsPrudential regulations: related to internal management of : related to internal management of financial institutions and other financial services org, regarding financial institutions and other financial services org, regarding capital adequacy, liquidity and solvency etc. Aims at preventing capital adequacy, liquidity and solvency etc. Aims at preventing the entry of firms without adequate resources. (ex. Minimum net the entry of firms without adequate resources. (ex. Minimum net worth requirement for various financial service firms is fixed by worth requirement for various financial service firms is fixed by the SEBI and RBI`s regulations relating to the NBFC`s)the SEBI and RBI`s regulations relating to the NBFC`s)

Regulatory frameworkRegulatory framework

3.3. Investors regulationsInvestors regulations: the role of SEBI is highlighted with : the role of SEBI is highlighted with periodic guidelines on investor protection.periodic guidelines on investor protection.

4.4. Legislative RegulationsLegislative Regulations: brought out by Govt. for all round : brought out by Govt. for all round development of financial services industry. They are, Banking development of financial services industry. They are, Banking Regulation Act, Securities Contract Regulation Act, meant for Regulation Act, Securities Contract Regulation Act, meant for evolving rules, guidelines and regulations that govern the micro evolving rules, guidelines and regulations that govern the micro aspect and operational issues.aspect and operational issues.

5.5. Self-regulationsSelf-regulations: this is addition to the above regulations that are : this is addition to the above regulations that are self imposed regulations such as, Foreign Exchange Dealers self imposed regulations such as, Foreign Exchange Dealers association, and Merchant Bankers association in addition to association, and Merchant Bankers association in addition to SEBI regulation that governs their members. SEBI regulation that governs their members.

Regulatory FrameworkRegulatory Framework

The framework of regulations The framework of regulations currently operating in India is currently operating in India is elaborated aselaborated as

banking and financial servicesbanking and financial services insurance servicesinsurance services investment servicesinvestment services Merchant Banking and Financial Merchant Banking and Financial

ServicesServices

Framework for Banking and Financial servicesFramework for Banking and Financial services

regulated by the central government and RBI.regulated by the central government and RBI. RBI through RBI ACT and the Banking regulation Act ensure the RBI through RBI ACT and the Banking regulation Act ensure the

orderly functioning of the institutions.orderly functioning of the institutions. Regulations relating to banking institutions are about sanction of Regulations relating to banking institutions are about sanction of

new branch, minimum capital, reserves, maintenance of minimum new branch, minimum capital, reserves, maintenance of minimum capital reserves and other liquid assets.capital reserves and other liquid assets.

Appointment of Chairman, CEO, and nominating of member to Appointment of Chairman, CEO, and nominating of member to BOD.BOD.

Drawing and implementing the monetary and credit policies to Drawing and implementing the monetary and credit policies to effectively regulate the credit flows, CRR, SLR, and REPOS.effectively regulate the credit flows, CRR, SLR, and REPOS.

Implementing various credit control measures (qualitative and Implementing various credit control measures (qualitative and quantitative)quantitative)

Regulating factoring, bill discounting and credit card services, etc.Regulating factoring, bill discounting and credit card services, etc.

Framework for banking and financial servicesFramework for banking and financial services

Regulations relating to the non-banking financial companies (NBFC`s)Regulations relating to the non-banking financial companies (NBFC`s) Regulated by RBI thru a host of measures such as Banking Laws Regulated by RBI thru a host of measures such as Banking Laws

Act, 1963, powers of regulation are exercised by RBI under the Act, 1963, powers of regulation are exercised by RBI under the directives such as the NBFC`s Directions, 1997, 1987,etc.directives such as the NBFC`s Directions, 1997, 1987,etc.

The regulation of NBFC`s is in relation to reports, periodical The regulation of NBFC`s is in relation to reports, periodical statements for the functioning.statements for the functioning.

Prescribing eligibility to raise funds from the public its terms and Prescribing eligibility to raise funds from the public its terms and conditions.conditions.

Norms related to investing a % of the deposits in the approved Norms related to investing a % of the deposits in the approved securities and maintain funds, capital adequacy norms, accounting securities and maintain funds, capital adequacy norms, accounting standards, formulation of policy in relation to deployment of funds.standards, formulation of policy in relation to deployment of funds.

Punishing the NBFC`s by imposing penalties, canceling the license Punishing the NBFC`s by imposing penalties, canceling the license or registration, and initiating appropriate actions against the or registration, and initiating appropriate actions against the management of NBFC`s. management of NBFC`s.