INTERNATIONAL CONFERENCE ON CONTEMPORARY INNOVATIVE PRACTICES IN MANAGEMENT PACIFIC UNIVERSITY APRIL 13TH AND 14TH APRIL 2012.

FINAL PAPER TITLE: FINANCIAL SERVICES NAMES OF PAPER PRESENTERS: Prof. K.M. Narayan Associate Professor of Commerce & HOD. Mr. Syed Ashhad Ghaffari HOD, Computer Department AFFLIATION: S.L.N College of Arts, Commerce and Management Fort, Bangalore -560002 BANGALORE UNIVERSITY, Karnataka, INDIA. kmnarayan57@gmail.com licashhad@yahoo.com 080- 9480253756 080- 7760008072 Prof. K.M. Narayan 115/28, 5th main, 5th cross, Poorna Pragna layout, B.S.K 3rd Stage, Katriguppa, Bangalore 85, Karnataka.

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FINANCIAL SERVICES INTRODUCTION Money is an arm or leg- you either use it or loose it. Henry ford It would be worthwhile to recall what Henry ford once remarked. This statement of Henry ford though apparently simple is quite meaningful; it brings home the significance of money or finance. Finance may be generally defined as the study of Money Its nature, behaviour, regulation and problems. It may deal with the way in which businessman, investor, government, financial institution and individuals handle their money. In a modern money-using economy, finance may be defined as the provision of money, at the time it is wanted. Every person responsible for finance is confronted with the prospect of the inflow receipt on the one hand and the outflow of payment on the other. The field of finance is closely allied to the field of economics - economics deals with the supply and demand, cost and profits, production, consumption and so on. Finance is closely related to economics for it is seriously concerned with the demand and supply and it is equally concerned with the monetary policy of the central bank of the country and they are reflected in the functions of commercial bank and financial institutions i.e., when money market is thight financial environment is hard hit, in a period of business depression, business activity recedes and financial markets is adversely affected. The fluctuations in the economy are reflected in the financial environment. A well functioning financial market is a key to sustained economic growth. A stable financial system requires sound financial markets, institutions, and well suited financial instruments. ROLE OF FINANCIAL SYSTEM The growth and development of any economy depends on the savings, investments as well as the capital formation. Financial system helps the flow of funds from surplus sectors to

the needy sectors of the economy and thus financial system play a significant role in efficient and speedy allocation of resources inn the process of accelerating economic growth and widens its reach to a large numbers of customers. Capital formations as well as productivity of capital and cost of resources and interest rates are very strong indicators of the strength of the economy. Customization of product to suit the individual requirement is the barometer to gauge the efficacy of financial intermediary. Further an efficient and stable financial system makes the country more attractive to foreign institutional investors to invest in economic developmental programme and projects which creates accelerated growth and solve many problems like unemployment, extension of infrastructure and other capacity building activities generate new opportunities and contribute to the overall development of the economy. FINANCIAL SYSTEMS An efficient financial sector includes well developed banking system, stock exchange to promote capital market and insurance companies. Finance is the life blood of an economy. We need finance for every economic transaction i.e., both for production as well as for their consumption. Financial markets are exposed to adverse affect on market volatility and pose a major threat to the finance al stability. These have to be closely monitored by the regulators because stability in the financial market is an important pre-requisite for the stability in the financial system. Financial system of any country consists of financial markets, financial intermediation and financial instruments or financial products. REFORMS Reforms in the financial markets are necessary for bringing about transformation in the structure, efficiency and stability of market. This can be achieved through a variety of well established financial institutions which offers a variety of financial instruments to cater to the specific needs of government, corporate sector or and individual customers. The Indian financial system has the monitors like

1. Reserve bank of India 2. Securities and exchange board of India. 3. Insurance regulators development authority that brings regulatory measures from time to time to ensure smooth and effective functioning of Indian financial market. FINANCIAL SERVICES Efficiency of emerging financial system largely depends upon the quality and variety of financial services provided by financial intermediaries, main sectors are banks, financial institutions, non-banking financial companies which can broadly be classified into two categories 1. Asset based service 2. Advisory service/fee-based service. Asset based service includes equipment leasing / finance, hire purchase and consumer credit, bill discounting, venture capital, housing finance, insurance service. Where as feebased service includes portfolio management, issue management, corporate counseling, mergers and acquisitions, credit-rating etc. ROLE OF BANKS The Indian banking has come a long way from being a sleepy business institution to a highly pro-active and dynamic entity. This transformation has been largely brought about by the large dose of liberisation and economic reforms that allowed the banks to explore new business opportunities rather than conventional streams or function of borrowing and lending. The Indian banking has worked upon the competitive dynamics of new India and addressing the relevant issues to take on the multivarious challenges of privatization and globalization. Bank are now employing IT solutions and have become a pro-active players to meet the multivarious needs of large customer base. A paradigm shift has taken place from class banking to mass banking security oriented approach to purpose oriented, from urban based to rural based banking.

BANKING INNOVATIONS

Banking plays a vital role in the economic growth of a country the changes that have taken place in the last five years are more than the changes that took place in the last fifty years because of institutionalization, liberalization, globalization and automation in the banking industry. The main invention that is being brought in use is the computers. Today the entire world is moving hand in hand and banks and computers are two wheels of same chariot. Today computer is being extensively used in almost all bank branches in India. Services to the customer have substantially improved due to easy, fast and accurate use of computers by banks, due to this a lot of man-power and precious time has been saved on account of ATM the ordinary man has the opportunity of using his funds as and when he likes and any where any time, bank provides a wide range banking service to the needs of different classes and sectors of society. The relationship between banker and customer has not confined debtors and creditors but also extending banking services many ways like extension of working hours and many banks provides banking service even in evening times to provide convenience to customers who are unable to operate in the regular 10 to 2 pm. Some banks works on Sunday from 8am to 8pm to meet the customers expectations and provide quality service. In todays fast age, main necessity is security and facility which is fulfilled by debit and credit cards, traveler cheque which provides security to mans invaluable money and visa card and master cards enables customers which are being extensively used in India and all over the world. Bank efforts are now directed towards identifying socially desirable needs in order to establish healthy and sound banking relationship banks have introduced Customer call and Customer needs to device customized services. Customer awareness has also increased the responsibility on bank the modern day customer demands quick and efficient service in a courtesies manner in a cost effective way and banks to meet this challenging tasks to satisfy customer must provide accurate and efficient service. Banks approach ahs to be Customer oriented. All banking operation should be customercentric. Present day banking can be regarded as an era of innovation and technology. The major influencing factor for the survival of industrial business and commercial organization is

proper use of technology, banking being a service industry a lot depends on prompt and efficient customer service. The nationalized banks which account more than 85% of banking have to face a stiff competition from private and foreign banks which are techno-savvy banks and have to evolve innovative banking products in order to attract new customers and to retain old customers and thus modern banks have become more market oriented highly competitive and innovative services. COMPUTERISATION IN BANKING Computerization has become a must rather than a luxury due to the following 1. To improve the service to customers 2. To improve the efficiency in the working of banks 3. Reducing the cost of transaction and to provide quick service 4. Meeting the growing competition in the industry 5. Improving the quality of Management information system Banks have adopted and pursuing effectively the information technology with the aim of achieving efficiency in operation and provide the banking service at a reducing cost. Banks have been able to meet market expectation and also to meet its customers expectation with the help of information technology which can be enlisted as follows: 1. Full branch computerization: the IT has enabled improved customer service, efficiency in house keeping, accurate book keeping, computerized pass book maintenance, faster remittance etc. 2. ATM deployment: almost all commercial banks have national network of their branches providing Anywhere banking Banks have adopted this customer centered technology all over the country i.e., from metros to small towns to remote corners. 3. Tele-banking: in tele-banking the customer is allowed access to tele-banking server at the branch to the telephone. The customer has to dial a specified number and he has to identify himself by dialing his personal identification number and following transactions are permitted.

1. Transfer of fund 2. draft issue 3. cheque book issue request 4. balance enquiry 5. transaction enquiry 6. Account statement enquiry. 4. Remote Login: under remote login the customer can access his account from his office or house using a PC. The following services are available 1. Cheque book issue request 2. balance enquiry 3. transaction enquiry 4. transfer of fund request 5. downloading of account statement at clients end 5. Electronic Nastro reconciliation: the system provides connectivity with all FOREX branches and handles all types of forex transactions including export, import, inward and outward remittance, forward contracts, it is an online real-time reporting package an helps in reconciliation of forex transaction. 6. Electronic reconciliation: at the end of the day all bank branches transmit information through e-mail to its head office to branch clearing draft accounts agency clearing and thus this system helps in reconciliation of the information electronically. 7. Core banking: in order to have a single channel to support data, voice and video transmission this entire integrated network with the centralized database that is core banking. Transaction of all networked branches will b rooted through the central server which means a customer would be able to operate has account from any of the connected branch. Further the customer will no longer be a customer of one branch alone he will become a customers of the bank and will be given a new customer account number.

E-BANKING

E-Banking is the banking of new era, making banking products and service available wholesale and retail customers through electronic distribution channel called e-banking. The delivery channels have been direct dial-up connections, private and public network to this newer edition of e-banking are being added. Example: mobile banking and internet banking. The use of ATM leads to the concept of anywhere and any time banking. through these ATM cards one can operate his bank accounts to withdraw money from any of banks ATM installed at the nearest site. This had broken down the time and space barrier. The growing popularity of personal computers, easy access to internet and World Wide Web (www) has increased the use of internet by banks as a channel for receiving instruction and also delivering their products and service to customers. This generally referred to as internet banking or net banking. This is newer form of e-banking. RBI GUIDELINES FOR INTERNET BANKING The RBI has notified guidelines applicable to internet banking within the country and according to these guidelines. 1. Only banks licensed under banking companies regulation act of 1949 having physical presence are permitted to offer internet banking service. 2. Internet banking should include Indian currency products only. 3. Prior approval of RBI is required to offer internet banking. Only the latest versions of the licensed software with the latest patches have to be installed into the system. Proper user groups with access privilege are to be created and users are assigned to appropriate groups as per their business roles. RISK: E-BANKING E-banking poses some different risk as compared to the traditional banking these risks are more pronounced in the case of internet banking. Firstly, the risks of technological change have to be carefully watched. This is essential to update technologies and remain costeffective and remain customer friendly.

The technologies are generally obtained from outside parties banks have to be careful about risk involved in such agreements. Security is an important area of risk for expansion of netbanking. Net-banking breaks the geographical boundaries; imposing regulatory conditions on such transactions will be a difficult task. HOUSING FINANCIAL SERVICE Housing is one of the basic human needs of society closely related to the process of socioeconomic development of a country. To meet the ever-growing demand for housing finance government has declared housing as A priority sector. Housing has become a major motivation for house hold thrift, housing being a long lived asset, excellent collateral for loans. The ability to acquire a house depends largely on the income of the household and access to savings, now a days affordable easy housing loans are available in the market. Many factors have contributed to aggressive demand such as 1. raising income level of the middle class 2. tax incentive on the repayment of principal and interest 3. increasing purchasing power and repaying capacity of the household 4. Easy availability of loans from banks and from housing finance companies. 5. stable real estate prices 6. house being an excellent collateral for other loans Market for home loans is sure to see many innovative products as competition is intensifying the private sector players will have to become more customer oriented such as 1. nil margin home loan 2. loan for repairs and renovation 3. loan for furnishing Have been introduced. Even commercial Banks are getting a reasonable share and they have to change their mindset about home loans and have to move faster with customer Till late 1970s the responsibilities to provide finance for house building rested with government of India. The establishment of NHB by the RBI in 1988, the NHB National

housing bank is working as an apex institution in the country with regard to housing finance and NHB is a subsidiary of RBI and fully owned by RBI. A number of specialized financial institutions, companies, both in the public and the private sector have entered the field of housing finance such as HDFC, SBIHF, CANFINHOME, LIC HOUSING FINANCE, ICICI HOUSING etc. these companies have designed suitable scheme for individuals, corporate, builders and promoters. HUDCO and commercial and co-operative banks have designed housing schemes specifically for lower and middle income groups. SUPPLY CONSTRAINTS On an average nations requirement is around 75, 00,000 houses per annum but only 25, 00,000 houses are built every year in India. The housing sector is facing an estimated shortage of 4.72 crores houses. The demand and supply gap in urban housing is 3.45 crore houses, in case, all this urban housing, dwellings were to be built it would require an amount of 3, 00,000 crores. India is a vast country with the population over 1.2 billion more than 50% of people are living in slums. DRIVERS OF CAPITAL FORMATION IN HOUSING SECTORS The government have initiated in creating a conducive environment for capital formation movement. They are 1. Setting up of national housing bank. 2. allowed retail industry flow of FDIs. 3. establishment of HUDCO 4. urbanization programme trough national urban renewal mission funds lowering the housing finance interest rates 5. tax concessions both on interest and principal repayment 6. entry of private players and housing finance institutions 7. establishment of state level housing boards

8. House building advance made to employees of public sector, corporations and financial institutions. 9. world bank support 10. reduced stamp duty 11. NHBs support to housing finance corporations. PUBLIC-PRIVATE-PARTNERSHIP IN HOUSING It is not possible for the government to meet entire housing requirement in India due to the want of investments, professionalism and technology. Therefore to support the government in their Endeavour the private players presence is crucial. Government allowed private players entry including FDI in housing. The real estate market in India is fast growing industry where money flows like water. The public-private partnership long time finance for construction of houses for residential purpose and urban development programme. The PPP provides for institutional arrangements for mortgage, credit guarantee and title insurance. The PPP in housing results in creating job opportunity reduced poverty and checked migration to urban areas. Further PPP offers consumer friendly products in housing sector. It acts as a catalyst for creating multiplier effect in other sectors and thus contribute to the over all growth of national economy, its strengthens financial system, increase the physical asset formation and serve the social cause of development of human settlement and thus the basic necessity and the dream of owning a house is materialized by these efforts. MUTUAL FUNDS The concept of mutual fund is a new feather in the cap of Indian capital market. In India first mutual fund was started in 1964 when unit trust of India UTI was established. Terms like trust companies, investment companies, money fund, unit trust, and investment trustees are used interchangeably. Mutual funds are very important form of non-banking financial intermediaries for promoting, encouraging and mobilizing financial savings. The role of mutual fund has

assumed greater importance in the process of acceleration of economic growth, mutual funds play a dynamic role in making savings by issuing units and channelising the funds in the capital market and in turn they provide support to the corporate sector an lead to the process of financial innovations among all the investing institutions, mutual funds have grown at the fastest rate due to their operational flexibility i.e., they provide better returns to the investors and also serve as a sophisticated market clearing agent however the scope and success of mutual funds depends largely on the basic economic structure, the institutional arrangements, the inter-relationship between financial and real sectors and the overall economic policy environment. Mutual fund is pooling concept. Mutual fund is an investment vehicle for investors who pool their savings for investing in diversified portfolio of securities i.e., in the form of stocks, bonds and other types of instruments available in the capital market. The investment is made with the twin objectives of 1. Attractive yield 2. Appreciation of value. Anybody having small money can invest in mutual funds. These investors purchase units of a particular mutual fund scheme that has defined investment objective. The money collected is then invested by the fund manager in different types of securities. Mutual fund is a non-banking financial institution, which operates both in the money market as well as capital market. But these intermediaries have to be registered with the regulating authority of the country before they could mobilize resources and invest the same. As per SEBI regulation 1996 mutual fund is established in the form of a trust to raise money through the sale of units to the public or a section of the public under one or more schemes for investing in securities. SCOPE OF MUTUAL FUND India is a growing country it has tremendous scope for mutual funds to expand their market base. The gross financial savings of the house hold sector is on the rise. Along with rise in savings there has also been a steady increase in the flow of household savings in the capital market. Many small investors in rural and semi-urban areas have started investing in the capital market which has helped the government and the corporate sector raise necessary resources from the capital market.

Mutual funds which were essentially targeted at corporate and high net worth investors are gaining lot of popularity even among small investors. Although banks have been luring investors by offering attractive rates of interest mutual funds still score higher with tax adjusted returns though uncertainty returns and risk element is involved in the investment of mutual fund. Mutual fund is growing at double digit. Many young investors tend to invest in growth oriented funds. They are more interested in growth rather than safety of their funds and thus mutual funds have become a better choice for most of the investors. The scope and extent of mutual funds are influenced by a number of factors like robust health of the economy, rate of growth, state of development of capital market and interest rates offered by banking sector on savings. During the year 2005-06, in order to encourage mutual fund participation in the derivatives market and bring about a level playing field with financial institutions, SEBI permitted mutual funds to enter into all types of derivative transaction with adequate disclosures made to the investors. During 2005-06, total resources mobilized by the mutual fund industry stood at 10,98149 crores while the total repurchase / redemption amounted to 1045370crores The industry thus saw a net inflow of 52,779 crores during the year. TYPES OF MUTUAL FUND SERVICES A large variety of funds is available in the market to suit the needs and preferences of investors. The choice of a particular mutual fund is linked to the demand of investor, his financial position and his risk tolerance capacity and his return expectations. To satisfy the needs and aspirations of different investors, mutual funds may be classified under five broad categories.

TYPES OF MUTUAL FUNDS

PORTFOLIO
INCOME FUND GROWTH FUND AGGRESSIVE GROWTH FUND SPECIALISED FUND TAXATIONN FUND MONEY MARKET MUTUAL FUND

SCHEME OF OPERATION
OPEN ENDED SCHEME CLOSE ENDED SCHEME

OWNERSHIP
PUBLIC SECTOR

LOCATION
DOMESTIC FUND INTERNATIONAL FUND

OTHERS
LOAN FUNDS PROPERTY FUNDS COMMODITY FUNDS

PRIVATE SECTOR GLOBAL FUND NONLOAN FUNDS

ACCORDING TO PORTFOLIO Mutual funds are classified as under Income fund income funds attempt to provide low risk or no risk income to the investor. Risk averters prefer income funds as they require regular income without much risk. Growth fund the investors with primary investment objective to achieve long term capital growth prefer growth fund. Growth fund concentrates on capital appreciation on securities and not on regularity of income. Aggressive growth fund suitable for investors who can take high degree of risk and can wait for a long period. The investment risk of these funds are above average and their portfolio turn over is very high. Specialised fund any investor wanting to invest in a particular security will prefer specialized funds and these mutual funds invest only in a particular type of security. Taxation funds these are designed to suit tax payers for getting the tax exemption and the lock in period in India is three years. A repurchase offer to units is also given at the current NAV. Money market Mutual fund are also known as cash funds, suitable for investors who want maximize returns from short term investment with a minimum of risk, are setup with an aim of investing exclusively in money market operations. The instrument includes Treasury bill, call and short notice money, commercial papers and certificate of deposit. ACCORDING TO SCHEME OF OPERATION Mutual funds are classified as under

Open ended scheme they offer units for sale without specifying any duration for redemption. No fixed maturity period. Entry to fund is always open to investor and thus provides flexibility in investment. They offer better liquidity to the investor. Most popular open ended scheme of UTI are Unit scheme 1964 and ULIP and of LIC or dhanaraksha and dhanabridhi. Close ended scheme period of maturity is specified which Range from 2 to 15 years. Investors can subscribe directly to the scheme only at the time initial issue. Most popular schemes of LIC are Dhana shree and Dhana samrudhi CANshare of Canara bank, swarna jyothi of Indian bank. ACCORDING TO OWNERSHIP Mutual funds are classified as under Public sector mutual fund the first mutual fund was established in the year 1964 by unit trust of India. The monopoly of UTI in mutual fund was curtailed by opening of operations of mutual fund to the public sector, commercial banks in 1987. SBI MF was the first public sector commercial bank started operations. Thereafter a number of public sector organizations joined operations in the mutual fund business. Today the main mutual funds operating from public sector are LIC MF, GIC-MF, PNB-MF, CANBANK-MF, and DOI-MF. Private sector mutual fund allowing the private sector corporates to join the mutual fund industry for the growth of mutual fund and the capital market from 1992 the ministry of finance allowed private sector to float mutual funds in the market. SEBI regulations provide guidelines for registration, constitution, and management of scheme of mutual fund. A number of private sector companies like 20th century, City bank, ANZ grindlays have setup private mutual funds. ACCORDING TO LOCATION Mutual funds are classified as under Domestic funds these mutual funds operate within ones national and geographical limits. Only citizen of that country can subscribe to such schemes. Global funds these mutual funds invest in domestic as well as foreign stocks and bonds. These funds attract foreign savings for investment in our country.

International funds they invest in foreign countries other than the host country. The fund manager can augment his overall rate of return by investing in other geographical locations. INSURANCE SERVICE Insurance a contract whereby the insurer i.e., the insurance company agrees or undertakes to pay a sum of money to make good the loss suffered by the insured i.e., the policy holder against a specified risk such as fire, theft or on the happening a specified event such as accident or death. The document containing the terms of the contract between the insurer and the insured is called as insurance policy. The property that is insured is a subject matter of insurance. The interest which the insured has in the subject matter of insurance is known as insurable interest. Depending upon the subject matter insurance service is divided into 1. Life insurance 2. General insurance. To cater to the different needs of the insured a variety of policies are offered by the insurance organization. The principal life insurance policies are endowment, whole life, joint life etc. Important fire insurance policies offered by insurance companies are specific policy, comprehensive policy, third party insurance policy. Marine insurance policies which insures against marine laws or voyage, time mixed value open and unvalued and floating. Until 1999 there were only two public sector organizations i.e., Life Insurance Corporation of India (LIC) and General insurance Corporation (GIC) an its 4 subsidiaries rendering insurance service. LIC providing against loss of life and GIC providing protection against the accident, loss on account of fire and marine losses. With the setting up of insurance regulatory and development authority (IRDA) in 1999 their monopoly has been dismantled and new players have entered the field. For example HDFC life insurance, Prudential ICICI life insurance, Max New York life insurance, Birla sun life insurance etc. SCOPE OF LIFE INSURANCE In India more than 400 million can afford to buy life insurance but only 20% have insurance cover and only 25% of their need and financial capacity is covered. To the GDP

only 1.29% coverage compared to 10% in Japan, 9 .1% in UK and 7.31% in USA clearly demonstrate a wide scope in insurance service by devising attractive policy the insurance service can be extended to a great extend to the benefit of both insurance companies and assure the risk coverage to the insured. MISCELLANEOUS INSURANCE In addition to life, fire and marine insurance several other types of general insurance are available today. Insurance companies have also been offering special schemes meant for rural areas such as crop insurance, cattle insurance, insurance for poultry, huts etc. there is also a social security group accident scheme covering the weaker sections of society. Some of these are. 1. personal accident insurance all of us exposed to risk of accident which is a threat to our financial security and therefore it is prudent to have adequate and personal accident cover to manage this contingency, for handling accident risk personal accident policy, janatha personal accident policy and gramin personal accident polices are available in India. These policies pay compensation to the insured in the event of happening of one or more of the following on death - On permanent total and partial disability and on temporary disability 2. Burglary insurance such a policy provides protection against loss or damaged caused by house robbery or theft. For this purpose a comprehensive policy may be taken 3. Workmens compensation insurance - in India workmen compensation act was passed in 1934 and in 1946. Accordingly an employer is required to pay compensation to his workers who receive injuries contract occupational disease during the course of their work. Employer may obtain an insurance policy to cover such liability. The premium is payable on the basis of the wages. The employer in order to protect himself against the legal liabilities arising out of death or bodily injury takes workmen compensation insurance policy. It also extends coverage through reimbursement of medical, surgical and hospitalization expenses.

National insurance company, United India insurance company, Oriental insurance company limited and new India assurance insurance company limited offers workmens compensation policy. MEDICLAIM POLICY Mediclaim policy is offered to individuals and groups. It covers the hospitalization for diseases for sickness and for injuries. The medical expenses will be reimbursed if the insured is admitted in the hospital for a minimum duration of 24 hours. Cost of treatment includes consultation fee of doctors, cost of medicine and hospitalization charges. Health insurance in India is available at very economical rates. It is very popular among professionals like, engineers, chartered accountant, advocates. It is also suitable for elf employed person as it covers risk against several general and serious diseases. NEW FINANCIAL PRODUCTS AND SERVICE In these days of complex finance people expect financial service company to play a very dynamic role not only as a provider of finance but also as departmental store of finance. With the opening up of economy i.e., in the LPG regime the entry of multinationals free market, and consumerism ruling the market sentiments as a result the clients both individuals and corporate expects multivarious financial service and the service providers to innovate new product and service so as to meet the various requirements. As a result of innovation new instruments new products are emerging in the capital market and the money market are getting widened. Some of them are 1. Merchant banking a merchant banker is a financial intermediary who helps in transferring from those who posses it to those who need it. Merchant banking includes a wide range of activities such as management of customer securities, portfolio management, project counseling, appraisal, underwriting of shares and debentures, banker for refund order, handling interest and dividend warrants etc.

2. Leasing A lease is an agreement under which a company or firm acquires a right to make use of capital asset like machinery on payment of a prescribed fee rental charges. 3. Factoring refers to a process of managing sales register of a client by a financial service company. The entire responsibility of collecting book debts passes on to the factors. 4. Custodial service under this a financial intermediary mainly provide service to clients for a prescribed fee like safe keeping of financial securities and collection of interest and dividends. 5. Venture capital a venture capital is another method of financing in form of equity participation. 6. Corporate advisory service financial intermediaries particularly banks have setup specialized branches for this as new avenue of finance euro loans, GDRs etc are available to corporate customers. 7. Securitization is a technique whereby a financial company converts its illiquid non-negotiable and high value financial assets into securities of small value which are made tradable and transferable. 8. Derivative securities a derivative security is a security whose value depends on the value of other basic variable backing the security in most cases these variables are nothing but the price of traded security. 9. New products in FOREX market new products have also emerged in the forex market of developed countries 1. Forward contract a forward transaction is one where the delivery takes place at a specified future date for a specified price it may have fixed or flexible maturity date. 2. Options it is a contract where in the buyer of option has a right to buy or sell a fixed amount of currency against another currency at a fixed date on future date according to his options. 3. Futures it is a contract where in there is an agreement to buy or sell a stated quantity of foreign currency at a future date at a price agreed between parties on a stated exchange.

4. Swaps swap refers to a transaction where a financial intermediary buys and sells a specified foreign currency simultaneously for different maturity dates. 5. Lines of credit it is an innovative funding mechanism for import of goods and service on deferred payment terms. It is an arrangement of financing institution of one country with another to support the export of good and service as to enable the importer to import on deferred payment terms. SPECIAL CHARACTERISTRICS OF FINANCIAL SERVICE Service tends to share four important characteristics which distinguish them from physical products 1. Intangibility 2. Inseparability 3. Variability 4. Perishability INTANGIBILITY Service providers go to considerable lengths to tangibles the service to customer. Pass book, credit card, insurance policy are all examples of the way in which financial services are presented to consumers.

INSEPREBALITY Service a customer will frequently be inseparable from service provider, such as the quality of service received by a customer visiting the bank to pay some bills. Now days, these transactions can be carried out by ATMs. VARIABLITY The service transaction process determines the extent of variability which can differ between institutions and even within one institution. The greater the degree of automation the greater the degree of standardization. One service may be provided by

two banks in two ways. For example encashing a cheque may take less than 5 min in one bank but another bank may take 15 min. PERISHABILITY Degree of Perishability depends on the type of service customers perceive many financial products to be long term commitment. An insurance policy perishes the minute it expires. Further production and consumption is frequently not simultaneous with financial service. CONCLUSION Financial intermediaries play an important role in financial system they provide a whole range of financial service to meet the varied needs of their clients. The financial intermediaries act as facilitators for smoothfunctioning of the system. They also provide service on various issues ranging from restructuring to diversification plan. FINANCIAL SERVICES IN INDIA The financial sector faces many obstacles. Following are some of the constraints of Indian financial service. 1. Lack of education among investors the introduction of new financial product will be useless if the investor is unaware of advantages and uses of new products. 2. Lack of standardization financial service institutions have to offer a wide range of service and so it is very difficult to arrive at standardized financial service. 3. Inadequate and poor quality of information to the user the users are either provided with inadequate or with poor quality information it is high time that the financial sector opts for better level of transparency and further the disclosure requirements should be in accordance with international standards so as to ensure transparency. 4. Lack of research most of the financial intermediaries does not take up research activity seriously. Proper database needs to be maintained and recent data should be taken into consideration so as to take sound financial decision. 5. High service cost the financial service sector is highly labour intensive, which raises the cost of financial products and services.

Financial service requires huge amount of high quality labour to deal with the information and to communicate with the market. The type of labour range from performing simple tasks to those undertaking complex analysis and negotiations require proper training and experience. The importance of labour cost and the role of human inputs need to be developed. The financial service providers have to make extra efforts to attract, motivate and retain the human resources in order to survive grow and serve better to delight the customers and prosper in future. --------------