BANKING AND FINANCIAL SECTOR INTRODUCTION

Overview
The Banking and Financial Services Industry serves an important role in the global economy.
By facilitating the movement of money from people or organizations with surplus capital to
people or organizations wanting capital.
Financial intermediaries help power innovation and growth, creating jobs, building
infrastructure and funding new ideas.
Individual tend to borrow more early in life (to pay for college and buy homes, for example)
but invest more later in life (to build wealth and save for retirement).
Financial intermediaries offer a service to help an individual or firm to save or borrow money.

Role of financial system in economic development of a country

The development of any country depends on the economic growth which the country
achieves over a period of time. Economic growth deals about investment and production.
Only when this grows, the people will experience growth in the form of improved standard of
living.
The following are the roles of financial system in the economic development of a country: -

 Saving-investment relationship.
 Financial system helps in growth of capital market.
 Government securities market
 Help in infrastructure building and growth.
 Helps in development of trade
 Boost the employment growth.
 Venture capital.
 Ensures balanced growth.
 Helps in fiscal discipline and control of economy.
 Balanced regional development.
 Attracts foreign capital.
 Economic integration (European Union)
 Political stability
 Helps in uniform interest rates.

Type of Financial Companies

 Retail banks
 Corporate investment bankers
 Financial traders
  Investment banks

Retail Banks
They provide transaction services and facilitate the lending of money to individuals via credit
cards, loans and mortgages.
Commercial banks do the same for the companies.

Corporate Investment Bankers

Provide a range of financial services to companies, institutions and governments. They
manage corporate, strategic and financial opportunities including mergers, acquisitions,
bonds and shares, lending, privatizations, initial public offering (IPOs).

Financial Traders
They buy and sell shares, bonds and assets for investors, including individuals and banks.
They make prices and executes trades, seeking to maximize assets or minimize financial risk.
Investment Banks
A bank that purchases large holdings of newly issued shares and resells them to investors.

Financial Services in India

India has a diversified financial sector undergoing rapid expansion, both in terms of strong
growth of existing financial service firm and new entities entering the market.
The sector comprises commercial banks, insurance companies, non-banking financial
companies, co-operatives, pension funds, mutual funds.
The financial sector in India is predominantly a banking sector with commercial banks
accounting for more than 64% of the total assets held by the financial system.

Government and Central Bank Role

The government of Indian has introduced several reforms to liberalize, regulate and enhance
this industry. The government and RBI have taken various measures to facilitate easy access
to finance for Micro, Small and Medium Enterprises (MSMEs).

 Nationalization of banks in 1969.

 Reduction in Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR)
 High Capital Adequacy Ratio
 Competitive Financial System
 Non-Performing Assets (NPA) norm
 Promoting Micro-Finance to increase financial inclusion
 Setting up of rural infrastructure development fund (RIDF)
 Pension reforms