RBI SUGGESTED TO LAUNCH INDEX-INFLATION BONDS TO FINANCE MINISTER.

The move may also help balance trade imbalances as gold import has been jacking up trade deficit which in turn increases current account deficit. The Reserve Bank of India (RBI) is in talks with the Finance Ministry for launching inflation-indexed bonds, which can help reduce physical demand for gold, its Deputy Governor HR Khan said, reports PTI. The move can also help balance trade imbalances as gold import has been jacking up trade deficit which in turn increases current account deficit. "We are talking to the Finance Ministry to launch inflation-linked bonds, which can help reduce the demand for physical gold," Khan told the FICCI-organised Asian Financial Cooperation Conference. The move can also help arrest imported inflation in the light of the steep fall in the rupee. Typically, according to experts, a 10% fall in the rupee leads to a 100 basis points or 1 percentage point spike in inflation. The rupee has lost nearly 7% this fiscal after losing nearly 18 percent in the last calendar year. It can be noted that last year the country imported 969 tonne gold, which contributed to record current account deficit of 4.2%. This year, however, there is some taming in gold import demand and according to the World Gold Council, this is likely to slide to 800 tonnes, thus losing the years of golddemand dominance to China by a whisker this year. Both the RBI and the government have been taking steps to reduce gold demand through a series of measures. As gold imports touched a record high last year, pushing up the current account deficit to a historic high of 4.2% in the year, the Reserve Bank has unveiled a slew of curbs on gold purchase and financing. This spike in gold demand was in spite of the record price rally that metal witnessed last fiscal.In April, the RBI brought down the loan to value or LTV that gold loan companies could offer to just 60% of the market value, from a high of 85-90%. In the 30th October credit policy, the RBI banned banks from offering loans to gold loan companies and nbfcs for buying gold. The government on its part had increased the import duty on gold in the Budget. RBI had also advised banks to not extend loans for purchase of gold to gold companies. Addressing the annual banking conference in Pune last Saturday, another deputy governor Subir Gokarn had said there was an urgent need to "dematerialise" gold like any other financial product, which could help reduce physical imports of the precious metal that is in turn leading to the current macroeconomic stress. "High gold import is creating some macroeconomic stresses and so the challenge is to find ways to replicate the financial characteristics of gold without necessarily causing physically importing," Gokarn had said. Gokarn had also said an RBI working group head by KUB Rao

would shortly submit a report on the ways to deal with the problem arising from high gold imports on the macroeconomic front in the form of balance of payments. Gokarn had said while global gold output has stayed stable at around 4,000 tonne per year, domestic consumption has doubled to 1,000 tonne annually since 1999, despite a massive rally in the prices. Last fiscal there was a 39% rise in gold imports and in gross terms, constituting 80% of the CAD of 4.2% of GDP. Net gold import constituted 1.8-2.4% of GDP.

NEED OF LAUNCHING THE NEW FINANCIAL PRODUCT. He Reserve Bank of India announced it is contemplating measures to ensure the country consumes less physical gold as the consumer craze for the yellow metal is putting the nation's external trade at risk. A sharply depreciating rupee and the highest ever current account deficit, excess of imports over imports, at 4.5% of the gross domestic product has made policy-makers think of ways to curb the demand that's draining productive purposes. "We are considering instruments which can mimic the returns on gold," Reserve Bank of India deputy governor Anand Sinha said without elaborating on the kind of instruments under consideration. "Gold import has been a substantial part of current account deficit and, therefore, it is being looked at what best can be done." The Indian rupee has been the most volatile among major emerging economies' currencies in the past year as foreign fund flow slows and domestic consumers buy more gold to protect against future inflation as returns from fixed income securities were negative in real terms, meaning adjusted for inflation investors lost money. In contrast, gold has provided positive returns for nearly a decade now. India imported $45 billion worth of gold in 2011-12, an increase of 3% year-on-year although physical imports fell 17% to 854 tonnes from 1,034 tonnes due to high international prices which was amplified by the weak Indian rupee. India is the world's largest importer and consumer of the precious metal. The government imposed a nominal tax too on gold to slow consumption. The government duty is having an impact as some forecast a near 30% drop in gold consumption this year. Rough estimates suggest Indian household possesses some 18,000 tonnes of gold. About 23% of all gold imported was for investment in India while 75% of jewellery is treated as investment, according to World Gold Council data. RBI's Financial Stability Report said that banks' import of gold coins for retail sale to households has risen from just 1% of total imports by banks in 2009-10 to 3.8% in 2011-12. It expressed concerns over the issue as households investing in the metal could reduce the availability of funds for the financial sector and thus shrink economic growth. Sinha said that any economic crisis followed by financial crisis takes a long time heal and he emphasised on the importance of micro and small entrepreneurs who contribute 40% of the country's exports and 46% of manufacturing output. He said revival of sick SME units is under the consideration of RBI and the government. On the issue of new bank licences, the deputy governor said the final guidelines will be released only after the amendment of the Banking Regulation Act.

INTRODUCTION TO FINANCIAL SERVICES.

Financial services are services related to handling and managing money, usually provided on a commercial basis. Examples include banking, insurance, currency exchange, mortgage provision and facilities for borrowing money such as credit cards, car loans, and online payday loans. In the modern world, banking has become a financial service which it can be very difficult to do without. In the past, many people, particularly those at the lower end of the economic spectrum, were able to live entirely on a cash basis. They would have received payment from their employers in cash and would then have spent or saved that money directly, without contact with any financial institution. More recently, many employers have required that their employees have bank accounts in order to receive payment. As a result, some governments have taken steps to encourage banks to provide banking services to poorer people, something they have often been reluctant to do because of its nonprofitability. Many banks market a wide range of financial services to their clients, using the information which they naturally glean from their awareness of the customers financial situation to make suitable offers to them and to assess the customer as a risk prospect. Although in some countries banking services are provided for free and therefore at a loss from the banks perspective, the banks usually expect to earn money through the marketing of other services to the customer.

DEFINITION:Financial services are the economic services provided by the finance industry, which encompasses a broad range of organizations that manage money, including credit unions, banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and some government sponsored enterprises. As of 2004, the financial services industry represented 20% of the market capitalization of the s&p 500 in the united states.

FINANCIAL SERVICES AFTER Lpg. Service sector is fast emerging as the largest contributing forces to the growth of economies around the world. With opening up of the economy at global level, there has been a shift from manufacturing to service sector which has experienced intense attraction and interest the world over. India is no exception to this."TRIMS" Trade related investment measures have played further a key role in spurring the growth of service sector. Since 1990s, the Indian Financial Services has comparatively undergone to complete and a new face of change as compared to other early days when the financial services landscape was exactly controlled by commercial banks and other financial institutions which are the main source of funds for the priority sectors. Consequently, that era is known as Financial Repression because it was engulfed with retarded growth due to: too much regulations of the interest rates, price of securities, lack of enough financial instruments in the required large scale, poor credit rating, too much regulation of foreign exchange market, mitigated or lack of reliable information about international financial sectors development, under developed government securities market and finally poor debt instruments. Now, due to the comprehensive step taken by the Indian government in 1991 owing to economic liberation privatization and globalization (LPG), we have witnessed that the entire financial sector has undergone a wide and vast change. Financial services can be divided into two parts: [a] Fund based services & [b] Fee based services. The fund based services is related to the bank deposits, investment in various securities and instruments. On the other side, fee-based services relate to advisory services, custodial services and many more. Despite the development of new financial services, technology has been a major vehicle for spurting out growth in financial services. Let us discuss theses financial services one by one. Merchant Banking The merchant banker are those financial intermediary involved with the activity of transferring capital funds to those borrowers who are interested in borrowing. The activities of the merchant banking in India is very vast in nature of which includes the following a) The management of the customers securities b) The management of the portfolio, c) The management of projects and counseling as well as appraisal d) The management of underwriting of shares and debentures e) The circumvention of the syndication of loans f) Management of the interest and dividend etc

Factors responsible for the Changes Globalization of Indian Economy has made the whole economy open, which has more multinational player in the era of the financial services. This has resulted in to the emergence of the global investment in financial sector. Government has now open up the doors of investments especially in the area of banks and insurance, which leads to competitive environment for the present players. Now, they have to bring something new which is efficient and best services to live in the competitive environment. Competition arising out of Private Company Participation is due to the liberalization of the economy. Now along with the public/government players, private players are also offering financial services and instruments, which are more innovative and different than the earlier offering. All around, there is a fresh thinking on the financial products, structure of banking and insurance instruments with value creation. Financial markets are being redefined, reinvented and reconfigured on a persistent basis. Changing Customer Demographics If we look at the all-growing economies like China, Germany and Brazil, India has 35% of the population in the age group of 15 years to 34 years. The demographic change leads to the change in the need of the customer. Changing Customer Needs customers have larger segment in corporate decision-making they are the final judges of the every single activity offered by the marketer. Banks in India have traditionally offered mass banking products. Financial market has turned into a buyer's market. Market focus is shifting from mass banking products to class banking with introduction of value added products. Today, financial institutions are co-designing the products/services with their customers and striving to provide them with global solutions. Technology Improvements Technology is also helping market players redefine the way they have been operating in the market. In today's time, it becomes very easy for a customer to transfer a fund from one location to another location with click of mouse. Availability of the concepts like phone banking, anytime banking etc. has become possible because of the technological developments only. Government Reforms Government is major decision player in the financial market. It decides the proportion of the investment limits as well as the regulation and control. In last ten years, government is designing its policy with more liberal and competitive content which are welcome trends for the emerging financial services. Given the heightened focus on customer relations, the bank of the future has to be essentially a marketing organization that also sells banking products. New distribution channels are being used; more & more banks are outsourcing services like disbursement and servicing of consumer loans, Credit card business. Direct Selling Agents (DSAs) of various Banks go out and sell their products. They make house calls to get the application form filled in properly and also take your passport-sized photo.

Value Added Services in Banking There are new and innovative value added services in banking which makes the banking a unique and very comfortable experience. Some of them are: 2 in 1 Accounts Overdrafts (OD) ATMs Net Banking Credit Card 2 in 1 Accounts 2 in 1 accounts are available at many of the foreign and private banks. It amalgamates the features of a savings or a current account and a fixed deposit account. As soon as one opens 2 in 1 accounts with the bank, deposit starts earning a rate of interest higher than that of a plain savings account. The rate of interest can be equivalent to prevailing rates for Fixed Deposit. Customers can choose the sweep option Term Deposit or Mutual Fund, based on their requirements. Overdraft [OD] Overdraft is the agreed amount by which a bank account can be overdrawn. When the amount of money withdrawn from the bank account is greater than the amount actually available in the account the excess is known as the overdraft and the account is said to be overdrawn. If agreed by the bank in advance this is essentially a form of loan facility and there is a particular interest rate attached with the overdrawn amount. ATMs Automated Teller Machines has revolutionized entire banking sector. Currently, there are more than 16000 ATMs in India fulfilling the daily requirement of money to a common man. The story of the humble cash-dispensing machine started around three decades back. Since then, they have become common site in metros and semi-metro cities. ATM allows a customer to do number of banking functions like withdrawing cash, making balance inquiries, transferring money from one account to another account, request for a Cheque book and statements, Utility Bill Payment like electricity bills, Credit Card payments etc by using a plastic, magnetic strip card and personal identification number issued by financial institution. Net Banking Internet technology has invaded the portal of our banking institutions. No doubt, innovation like ATM have considerably put customer at ease in the recent past, but with net banking the customer is able to transact with the help of the mouse. The services offered enable one to check credit card transactions, paying bills, transferring fund between accounts in two different banks, and scheduling future payments and transfers. A gradual increase in net banking is logical as the need to minimize costs catches attention. A North American Internet Banking survey done by management consultancy Booz Allen & Hamilton in 2000 revealed that the cheapest way of banking is internet banking. Credit Cards

It is estimated in the year 2004; the total credit card market in the country was at 17 million cards. The credit card industry is growing at 30 35 % per annum at present. The size of Indian credit card market is estimated to be around $4bn by end of 2010. Four banks have now crossed the 2 million card base, with ICICI bank leading the pack at 4 million cards followed by Citibank at 2.8 million, HDFC bank at 2.2 million and SBI card just over 2 million. Industry average for spends on credit a card two years ago was just around Rs 16,000 per card that has now increased to around 20,000 per card. Rapid advancement in technology, easier access to knowledge and globalization have changed entire banking sector. Because of these factors, today customer is sophisticated and well aware about the financial needs. Leasing Services Lease is that agreement under which the company or Indian firm acquires the exact right and make use of certain capital asset on the consideration of payment of rental charges. The Indian company cannot acquire any kind of ownership to such an asset apart from making use of it. The user comparatively pays all the expected operating costs and also the maintenance expenses.Leasing services are popular in developed countries like America, United Kingdom. In India, since the era of liberalization, many of the Indian companies have equally been involved in the leasing transactions. On the other side, many financial institutions and even the commercial banks in the Indian financial sector have comparatively been accepted over the same transactions. Mutual Funds Services The mutual funds comprises of funds gained by pooling all the public savings. The mutual funds are comparatively invested in those portfolios, which are commonly diversified in nature with the main objectives of sharing the risk. The modern concept of the mutual funds was developed in 1968 in London by the foreign and colonial government trust of London. Its invention in India was in early 1980, even if it was exactly started in 1964 by the unit trust of India. The mutual funds can be grouped into [a] Close ended funds & [b] Open ended funds. The Indian corporate companies can only benefits from the mutual funds on gaining savings for investment, better yield low cost on investment, tax benefits, flexible on investment, promoting industrial development reducing the cost of new issue and many more other advantages. On the other side, the kind of risks involved with the mutual funds are market risks, scheme risks, business risk, investment risks and even the political nature of risks. While the investors selecting the funds must take into account the objectives of the fund, consistency of performance of the funds, historical background of the funds, cost of operation, capacity for innovation, the investors servicing, market trends, and even the transparence of the fund management. Hire Purchase Services In the hire purchase, goods are left out on hiring by the company on which the hirer is required to do the payment on an agreed sum of amount in the system of periodical installments. In the hire purchase, the ownership of such kind of the property exactly remain under the control of the creditor who normally passes the right to hirer on the condition of payment of the last agreed sum of money in installment.

Payment is usually made in installment over the agreed specified period, possession of the same right is delivered to the purchaser during the time of agreement, the property passes to the exact purchaser on the agreed last installment, and the hirer has a right to return the property without further installment. In addition to the above, the agreement must contain the nature of the goods as described in manner so that to identify them easily, the nature of the hire purchase price, the date of commencement and finally the extend or number of installments. Venture Capital Services The venture capital is that investment in the new Indian enterprises which are comparatively specializing, in new technological ideas in the commercial sectors. The venture capital is equity participation, it's of high risk in nature, it's also available only for commercialization of new technologies and it's the exact promoter of the projects, and it's continuous in nature and input of the firm. The venture capital involves the development of project idea, implementation, fledging or additional financing, and establishment stage. The main importance of venture capital to Indian, corporate companies are the reduction of risk, easy to analyze the business prospects and to assume the investors on affairs of the business. The Indian methods of venture financing are equity participation, income notes, the conventional loans and even the conditional loans. In order to promote the venture capital growth in India, there must be tax concessions for capital gains, high level development of capital market, giving of fiscal incentives to Indian corporate companies, high level participation of the private sectors the improving and reviewing of the existing laws and limited partnership and many more. Discounting, factoring and forfeiting services The supplier of the exact goods draws bill which is based on the purchase for the invoice price of goods sold on credit. It is drawn for the short period of time. The buyer pays the amount on the exact date by which the supplier of goods has to await until the expiry of the exact bill. However, the banks provides the cash discounting based on the exact trade bills by which they deduct certain charges as discount based on the amount of the bill and credit balance to the customers account. Factoring In factoring, assignment of debt has to be in favor of the factor. The factor will equally have recourse in case of non-payment, details on payment for the services, interest and limit of any overdraft facility charged. The Indian corporate companies must be well informed about the types of factoring as full service, recourse factoring, maturity, bulk, invoice, agency and also international factoring. At the same time, the exact cost of factoring like the pricing, fee, discount, accounting system must be taken into consideration.

Forfeiting Forfeiting is the French term means "to give something" or "give one's right". Generally the term forfeit is non-recourse purchase by the commercial bank or any other financial intermediaries or institutions receivables that equally arises from the export of the goods. Securitization of Debt Services The securitization is that process by which the exact long term, non-negotiable instruments are equally converted into securities of such kind of small value in nature which can be easily transacted in the commercial capital market. In India, apart from the above, there is low and unpopularity of securitization due to introduction of it as it's a new idea or concept to India, heavy stamp duty and comparative registration fees imposed by the Indian government, complicated and also, legal transfer procedure the difficulty in the assignment of debts. Also there is poor standard of loan documentation, problem of In adequate credit rating system, poor accounting procedure and lack of comprehensive guidance. Derivatives The derivatives are those instruments, which are commonly used to derive therein-exact value of underlying asset of the financial institutional corporate companies. The derivatives comparatively may involve the payment or receipt of the value or income created by the underlying assets. The main factors that are responsible for the slow growth of derivatives in India and high level of misconception of the derivatives, the derivatives lends themselves to leveraging, the nature of the off balance sheet items, poor accounting system, speculative mechanism and finally poor infrastructure system. Credit Rating Services According to Moody's Rating are designed exclusively for the purpose of grading bonds according to their investments qualities". Also according to the Australian Ratings "A corporate credit rating provides lenders with a simple system of gradation by which the relative capacity of companies to make timely repayment of interest and principal on a particular type of debt can be noted". The main credit ratings in India are credit rating information service ltd (CRISIL), investment information and credit rating agency of India (ICRA), Credit Analysis and Research (CARE), and Duff Phelps Credit Rating Pvt. Ltd (DCR India). Banncassurance Insurance provided by a bank. For example, a bank could offer life insurance in addition to its savings, loan, and investment services. Proponents argue that bancassurance can streamline internal and government regulations. For example, a bank offering a mortgage may require borrowers to buy homeowners insurance; if bancassurance is available, the borrower could purchase a policy directly from the bank without needing to shop around. However, bancassurance is somewhat controversial; critics contend that allowing banks to sell insurance gives them too much control over the financial services sector. The sale of insurance and other similar products through a bank. This can help the consumer in some situations; for example, when a bank requires life insurance for those receiving a mortgage loan, the consumer could purchase the insurance directly from the bank. Some critics feel that bancassurance gives the bank too much control.

CLASSIFICATION OF FINANCIAL SERVICES:-

Issue Management. Corporate. AdvisoryServices. Credit Rating. Mutual Funds. Asset Securitization. Stock Broking Services

LEASING AND HIRE PURCHASE. HOUSING FINANCE. CREDIT CARDS. VENTURE CAPITAL. FACTORING. FORFEITING. BILLDISCOUNTING. INSURANCE.

Fund based activities : In fund-based services the firm raises funds through debt, equity, deposits and the bank invests the funds in securities or lends to those who are in need of capital. The traditional services which comeunder fund based activities are the following : Underwriting or investment in shares, debentures, bonds, etc. of new issues (primary market activities). Dealing in secondary market activities.Participating in money market instruments like commercialpapers, certificate of deposits, treasury bills, discounting of bills etc. Involving in equipment leasing, hire purchase, venture capital, seed capital. Dealing in foreign exchange market activities. Fee-based activities : Fee based financial services are those services wherein financial institutions operate in specialized fields to earn a substantial income in the form of fees or dividends or brokerage on operations. Financial intermediaries provide services on the basis of non-fund activities also. This can be called fee based activity. Today customers, whether individual or corporate, are not satisfied with mere provisions of finance. They expect more from financial services companies. Hence a wide variety of services, are being provided under this head. They include : Managing the capital issue i.e. management of pre-issue and post-issue activities relating to the capital issue inaccordance with the SEBI guidelines and thus enabling the promoters to market their issue. Making arrangements for the placement of capital and debt instruments with investment institutions. Arrangement of funds from financial institutions for the clients project cost or his working capital requirements. Assisting in the process of getting all Government and other clearances.