Organization and

growth of financial
services in India

Presented by :-
Group 2
Overview
 Introduction
 Meaning of financial services
 Organization of financial services Traditional and Modern activities
 Growth of financial services in India
 Banking sector capital market insurance sector venture capital market
 conclusion
Meaning of financial services
Financial services can be defined as the products and services offered by institutions like banks
of various kinds for the facilitation of various financial transactions and other related activities
in the world of finance like loans, insurance, credit cards, investment opportunities and money
management as well as providing information on the stock market and other issues like market
trends

Financial services refer to services provided by the finance industry. The finance industry
encompasses a broad range of organizations that deal with the management of money. Among
these organizations are banks, credit card companies, insurance companies, consumer finance
companies, stock brokerages, investment funds and some government sponsored enterprises.
In general all types of activities which are of a financial nature could
be brought under the term ‘financial services’. IN a broad sense means
“mobilising and allocating savings”. Thus, it includes all activities
involved in the transformation of savings to investment.
 Organization of financial services
 Financial services cover a wide range of activities. They can be broadly classified
into two namely;-
 (i) Traditional activities
 (ii) Modern activities
 A. Traditional Activities
 Traditionally, the financial intermediaries have been rendering a wide range of
services encompassing both capital and money market activities. They can be
grouped under two heads, viz.
1. Fund based activities and
2. Non-fund based activities/ Fee based activites.
1. Fund based activities:
The traditional services which come under 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 commercial papers, certificate of

deposits, treasury bills, discounting of bills etc.

•Involving in equipment leasing, hire purchase, venture capital, equipment leasing etc.

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

Some of the equipments are discussed here:-

Equipment leasing
◦ A lease is an agreement under which a company or a firm acquires a right to
make use of a capital asset like machinery, on payment of a prescribed fee
called rental charges.

Hire Purchase
◦ Hire purchase is a mode of financing the price of the goods to be sold on a
future date. In a hire purchase transaction, the goods are let on hire, the
purchase price is to be paid in installments and hirer is allowed an option to
purchase the goods by paying all the installments.
Venture Capital
◦ Venture capital (VC) is financial capital provided to early- stage, high-potential,
high risk, growth startup companies
◦ The venture capital fund makes money by owning equity in the companies it
invests in, which usually have a novel technology or business model in high
technology industries, such as biotechnology, IT, software, etc.

Insurance Services
◦ Insurance is a form of risk management in which the insured transfers the cost of
potential loss to another entity in exchange for monetary compensation known as
premium.

Housing finance
◦ Housing finance refers to providing finance to an individual or a group of
individuals for purchase, construction or related activities of house/flat etc.
◦ Housing loan is extended by way of term loans; for a number of years (5-20) at a
certain rate of interest and against some security
2. Non fund based/fee based financial activities:
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 in accordance 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.

Fee based income does not involve much risk. But, it requires a lot of expertise
on the part of a financial company to offer such fee-based services.
Examples
◦ Corporate advisory services
◦ Bank guarantees
◦ Merchant banking
◦ Issue management
◦ Loan syndication
◦ Credit rating
Some of the examples are discussed below:-

Merchant banking
◦ A merchant banker is a financial intermediary who helps to transfer
capital from those who possess it to those who need it.

◦ Merchant banking includes a wide range of activities such as

management of customer securities, portfolio management, project
counseling and appraisal, underwriting of shares and debentures, loan
syndication, acting as banker for the refund orders, handling interest
and dividend warrants etc.
Loan Syndication
◦ Similar to consortium financing.

◦ Taken up by the merchant banker as a lead manager.

◦ It refers to a loan arranged by a bank called lead manager for a borrower who is
usually a large corporate customer or a government department.

◦ It also enables the members of the syndicate to share the credit risk associated
with a particular loan among themselves.

Credit Rating

◦ Evaluates the credit worthiness of a debtor, especially a business (company) or a

government.
◦ It is an evaluation made by a credit rating agency of the debtors ability to pay back
the debt and the likelihood of default.

◦ Some credit rating agencies; ICRA, CRISIL, S & P, Moody’s

B. Modern Activities

Beside the above traditional services, the financial intermediaries render

innumerable services in recent times. Most of them are in the nature of non-
fund based activity. In view of the importance, these activities have been in
brief under the head ‘New financial products and services’. However, some of
the modern services provided by them are given in brief here under.
•Guiding corporate customers in capital restructuring.

•Acting as trustees to the debenture holders.

•Recommending suitable changes in the management structure and management style with
a view to achieving better results.

•Structuring the financial collaborations/joint ventures by identifying suitable joint venture

partners and preparing joint venture agreements.

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

•Undertaking risk management services like insurance services, buy-back options etc.
•Advising the clients on the questions of selecting the best source of funds taking into
consideration the quantum of funds required, their cost, lending period etc.

•Guiding the clients in the minimization of the cost of debt and in the determination of
the optimum debt-equity mix.

•Promoting credit rating agencies for the purpose of rating companies which want to go
public by the issue of debt instrument.
GROWTH OF FINANCIAL SECTOR IN INDIA

The present growth rate of

financial sector in India is about
8.5% p.a. An increase in growth
rate is equivalent to growth of
our economy. Over the past few
years, there have been reforms in
monetary policies, economic
policies, opening up of financial
markets, development of other
financial sectors etc.
present times, a wide variety of financial products and services
are offered to consumers to keep them satisfied. The Reserve
Bank of India has also played a major role to help in growth of
financial sector of India.

The diversified financial sector of India comprises of banks,

mutual funds, insurance companies, pension funds etc.
Growth of the banking sector
Being one of the most extensive, the entire Indian banking system has a
total asset value of approximately US$ 270 billion with total deposits
being around US$ 220 billion. The banking system in India is continuously
advancing and transforming itself. The current development of Core
banking, Internet banking etc.. has made banking operations easy and
customer friendly.

Growth of the Capital Market in India

The capital markets in India have also witnessed changes. Some of them
are-
•Stock exchanges facing privatization.

•Removal of ill-used forward trading mechanism

•In order to serve different investors in different locations, the introduction
of infotech systems in National Stock Exchange.
•The increase in the ratio of transaction with deposit system and share
ratio.

Growth in the Insurance sector in India

•The market potential in India is immense. But it is untapped. So now in

order to utilize this opportunity, both foreign and Indian private players
are providing tailor made products with opening of the market.

•Because of huge competition and entry of new players, the insurance

sector has also witnessed innovations like innovative insurance based
products, services and value add-ons etc.
•Many foreign companies like New York Life,Aviva,Standard Life have also
entered this sector.

•Now a days, the insurance companies are engaged in aggressive

marketing, selling and distribution techniques because of the extreme
competition that they face from each other.

•The credit for the development of this sector also goes to the active part
of the regulatory body –Insurance Regulatory and Development Authority.

Growth of the Venture Capital market in India

•In spite of the hindrances by the external setup, the venture capital
sector in India is a very active financial sector.
•In India, currently, there are around 2 international and 34 national venture capital funds
registered by SEBI.
Conclusion

The Indian financial Services sector is one of the

most complex, yet one of the most robust service
segments of the Indian economy. Spanning from
insurance to capital markets, banking to foreign
direct investment (FDI) and from mutual funds to
private equity investments, the financial services
sector covers all related segments under its
umbrella. Having major effects in its abstract as well
as physical form post liberalisation, the financial
services segment is undoubtedly the mainstay of
Indian economy.