FINANCIAL SERVICESFINANCIAL SERVICES

• Introduction Introduction • Meaning and DefinitionsMeaning and Definitions• Features of Financial ServicesFeatures of Financial Services• Significance of Financial Significance of Financial ServicesServices

• Types of Financial ServicesTypes of Financial Services• Growth and Development of Growth and Development of Financial Services in IndiaFinancial Services in India

• Regulation of Financial Regulation of Financial Services Services

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IntroductionIntroductionEvery one depends on services of Every one depends on services of others directly or indirectly. Service others directly or indirectly. Service sector plays an important role in the sector plays an important role in the present economy. Now the services present economy. Now the services are dominating. Therefore, the are dominating. Therefore, the institutions providing services are institutions providing services are increasing, which has resulted into increasing, which has resulted into an increase in varieties of services.an increase in varieties of services.

The term service is difficult to The term service is difficult to define, since sometimes it includes define, since sometimes it includes certain products also.certain products also.

According Stanton “Services are separately According Stanton “Services are separately identifiable, intangible activities which provide identifiable, intangible activities which provide want satisfaction when marketed to customers want satisfaction when marketed to customers and/or industrial users and which are not and/or industrial users and which are not necessarily tied to the sale of a product or necessarily tied to the sale of a product or another service.”another service.”

According to Gronross “ a service is an activity According to Gronross “ a service is an activity or series of activities more or less intangible or series of activities more or less intangible nature that normally, not necessarily, take place nature that normally, not necessarily, take place in interactions between the customer and in interactions between the customer and services employees and/or physical resources or services employees and/or physical resources or goods and/or system of the services provider, goods and/or system of the services provider, which are provided as solution to customers’ which are provided as solution to customers’ problems.”problems.”

FEATURES OF SERVICEFEATURES OF SERVICE

1. Intangible in nature1. Intangible in nature

2. Heterogeneous in character2. Heterogeneous in character

3. Production, distribution and consumption 3. Production, distribution and consumption takes place simultaneouslytakes place simultaneously

4. An activity or series of activities4. An activity or series of activities

5. Cannot be stored5. Cannot be stored

6. Consumer take part in its production6. Consumer take part in its production

7. Costumer has to just enjoy the service7. Costumer has to just enjoy the service

8. Costumer will not get ownership of service 8. Costumer will not get ownership of service

FINANCIAL SERVICEFINANCIAL SERVICE

The services can be broadly The services can be broadly classified into Financial Services and classified into Financial Services and Non-financial Services. Earlier banks Non-financial Services. Earlier banks used to provide financial services. Due to used to provide financial services. Due to the increased width and length of the increased width and length of financial services, financial services has financial services, financial services has gone radical changes and thus gone radical changes and thus specialized institutions have come into specialized institutions have come into existence to cater the needs of existence to cater the needs of community.community.

Financial service cater to the needs of Financial service cater to the needs of financial institutions, financial markets and financial institutions, financial markets and financial instrument geared to serve individual financial instrument geared to serve individual and institutional investors. and institutional investors.

Financial service is concerned with Financial service is concerned with design and delivery of advice and financial design and delivery of advice and financial products to individuals and businesses.products to individuals and businesses.

It includes services, activities and It includes services, activities and financial products to cater the needs of both financial products to cater the needs of both savers/investors and users/industries. savers/investors and users/industries.

Definition of Gronross when applied to financial Definition of Gronross when applied to financial service gives the following meaning:service gives the following meaning:

“ “ a financial service is an activity or series of a financial service is an activity or series of activities more or less intangible nature that activities more or less intangible nature that normally, not necessarily, take place in interactions normally, not necessarily, take place in interactions between the customer and services employees between the customer and services employees and/or physical resources or goods and/or system and/or physical resources or goods and/or system of the services provider, which are provided as of the services provider, which are provided as solution to savers’ and users’ problems.”solution to savers’ and users’ problems.”

Financial service refers to mobilizing and allocating Financial service refers to mobilizing and allocating savings effectively, efficiently and economically.savings effectively, efficiently and economically.

FEATURES OF FINANCIAL SERVICES

• Costumer oriented• Intangible• Perishable • Inseparable• Fluctuation in demand • Geographical dispersion• Labour intensive• Information based• Need quality labour

SIGNIFICANCE OF FINANCIAL SERVICES

• Savings and investment• Economic growth• Contribution to GNP • Capital formation• Safety, liquidity & profitability• Provision of finance• Role in money market• Generation of employment• National importance

1.Types of Financial Services1.Types of Financial Services

A. Traditional ServicesA. Traditional Services

a. Fund Based Servicesa. Fund Based Services

b. Non-fund/Fee Based Servicesb. Non-fund/Fee Based Services

B. Modern ServicesB. Modern Services

2. 2. A. Insurance and Insurance Related A. Insurance and Insurance Related ServicesServices

B. Banking and Other Financial B. Banking and Other Financial ServicesServices

A. Traditional Services:A. Traditional Services: Fund Based Services:Fund Based Services:

* Lending* Lending

* Underwriting* Underwriting

* Leasing/Finance* Leasing/Finance

* Hire Purchase* Hire Purchase

* Consumer Credit* Consumer Credit

* Housing Finance* Housing Finance

* Bill Discounting* Bill Discounting

* Insurance* Insurance

* Foreign Exchange* Foreign Exchange

Non-fund Based/Fee Based Services:Non-fund Based/Fee Based Services:

* Capital Issue management* Capital Issue management

* Investment Consultancy* Investment Consultancy

* Loan Syndication* Loan Syndication

* Stock Broking* Stock Broking

* Guaranteeing* Guaranteeing

* Government Clearance* Government Clearance

* Port-folio Management* Port-folio Management

* Raising Foreign Fund* Raising Foreign Fund

* Placement of Debt * Placement of Debt

Modern Services:Modern Services:

* Depositaries * Depositaries * Custodial* Custodial

* Credit Cards* Credit Cards * Venture* Venture

* Credit Rating* Credit Rating CapitalCapital

* Factoring* Factoring * Mergers and* Mergers and

* Forfeiting* Forfeiting AcquisitionsAcquisitions

* Project Advice* Project Advice * Debt * Debt

* Mutual Fund* Mutual Fund SecuritizationSecuritization

* Risk Management* Risk Management * Hedging of Risks* Hedging of Risks

* Merchant Banking* Merchant Banking

Other Classification of Financial ServicesOther Classification of Financial Services

A. Insurance & Insurance Related Services:A. Insurance & Insurance Related Services:

* Underwriting of Financial Risks in Life & * Underwriting of Financial Risks in Life & Non-life productsNon-life products

* Speciality Insurance Products* Speciality Insurance Products

* Re-insurance* Re-insurance

* Insurance Brokerage* Insurance Brokerage

B. Banking & Other financial Services:B. Banking & Other financial Services:

a) Fee Based Commercial Banking a) Fee Based Commercial Banking Business:Business:

* Financial Management & Transaction * Financial Management & Transaction ServicesServices

* Advisory Services* Advisory Services

* Custody Services* Custody Services

* Credit Card Services* Credit Card Services

* Letter of Credit for Business * Letter of Credit for Business Financers Financers

b) Securities Related Services:b) Securities Related Services:

* Security Lending Services* Security Lending Services

* Mutual Fund Services* Mutual Fund Services

* Security Clearance* Security Clearance

* Settlement Services* Settlement Services

* Securities Trade Services* Securities Trade Services

* Private Placement* Private Placement

* Underwriting Services* Underwriting Services

Growth and Development of Financial Growth and Development of Financial Services in India: Services in India: The following three stages can be identified The following three stages can be identified with the growth and development of Financial Services in India.with the growth and development of Financial Services in India.

a. Merchant banking d. Over the counter j. New a. Merchant banking d. Over the counter j. New instruments instruments

b. Insurance services k. Depositoryb. Insurance services k. Depository

c. Leasingc. Leasing e. Mutual funds Services e. Mutual funds Services

f. Factoring l. Dematerializationf. Factoring l. Dematerialization

g. Discounting m. Online tradingg. Discounting m. Online trading

h. Venture capital n. Book buildingh. Venture capital n. Book building

i. Credit rating i. Credit rating

1st Stage1960-1980

2nd Stage1980-1990

3rd Stage1991 onwards

New Financial Instruments:

1. Treasury Bills/TBs 2. Certificate of Deposits/CDs

3. Commercial Papers 4. Zero Interest convertible

5. Deep Discount Bonds Debenture/Bond

6. Swaps 7. Repos & Reverse Repos

8. Commercial Bills 9. Call & Short Notice money

10. Securitized Debt 11. Inter-bank participation

12. Bills Rediscounting Certificates/IBPC

Scheme 13. Option bonds

14. Index-linked Guilt Bonds 15. Convertible Bonds

Regulation of Banking &

Financial Services

Regulation of Banking and Financial Services Regulation of Insurance Services Regulation of Investments and Fee Based

Services Regulation of Merchant Banking and other

Services

a.a. Regulation of banking & Financial Services:Regulation of banking & Financial Services:

* Banking Regulation Act 1949* Banking Regulation Act 1949

* Reserve Bank of India* Reserve Bank of India

* Notification Rules and Directions* Notification Rules and Directions

b.b. Insurance Services:Insurance Services:

* Insurance Act 1938* Insurance Act 1938

* Insurance Regulatory Authority* Insurance Regulatory Authority

c.c. Investment & Fee Based Services:Investment & Fee Based Services:

* Securities Contract Act 1956* Securities Contract Act 1956

* Indian Companies Act 1956* Indian Companies Act 1956

* Securities and Exchange of India* Securities and Exchange of India

* Regulations, Guidelines and clarifications* Regulations, Guidelines and clarifications

d. Merchant Banking and Other d. Merchant Banking and Other ServicesServices

* Securities Exchange Board of * Securities Exchange Board of India Regulation Act 1992India Regulation Act 1992

* SEBI Rules for Registrar to an * SEBI Rules for Registrar to an Issue and Share Transfer Agent Issue and Share Transfer Agent 19931993

* SEBI (Bankers) Regulations 1994* SEBI (Bankers) Regulations 1994

SEBI (Debenture Trustees) 1993SEBI (Debenture Trustees) 1993

Code of Advertisement to Capital Code of Advertisement to Capital OfferingsOfferings

• Various Acts, Authorities, Regulations & Provisions Various Acts, Authorities, Regulations & Provisions Regulating Financial Services:Regulating Financial Services:

* Banking Regulation Act, 1949* Banking Regulation Act, 1949

* Reserve Bank of India* Reserve Bank of India

* Banking Laws Act, 1963* Banking Laws Act, 1963

* SEBI (Merchant Banker) Regulation Act, 1992* SEBI (Merchant Banker) Regulation Act, 1992

* SEBI Rules for Underwriters* SEBI Rules for Underwriters

* SEBI (Brokers & Sub-brokers) Regulation, 1992* SEBI (Brokers & Sub-brokers) Regulation, 1992

* SEBI Rules for Registrar to an Issue & Share * SEBI Rules for Registrar to an Issue & Share Transfer Agent, 1993Transfer Agent, 1993

* SEBI (Bankers to an Issue) Regulations, 1994* SEBI (Bankers to an Issue) Regulations, 1994

* SEBI (Debenture Trustees) Regulations, 1993* SEBI (Debenture Trustees) Regulations, 1993

* Code of Advertisement to Capital Offerings* Code of Advertisement to Capital Offerings

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