4

Chapter1
-Introductionto Financial Services
Binancial Services - Concept: The term financial services refer to
mobilisation of,savings and its allocation for investment. It inchs a'
activities involved in the channelisation of savings into investment.
The term financial services includes services provided by financial
institutions and financial intermediaries. They enable financial transactions
of individuals and corporates.
Services rendered by financial service organisations to industrial enterprises
and to ultimate consumer markets are financial services. These are the
services and facilities required for the smooth operation of the financial
markets.

CONSTITUENTS, COMPONENTS OR PLAYERS IN FINANCIAL SERVICES: There

are various institutions which render financial services. mutualSome of the
institutions are banks, financial institutions, merchant banks, funds.
leasing companies, investment companies, accounting fims, venture
capital companies, factoring companies etc., These institutions provide
variety of financial services tocorporates.
Objectives of Financial Services
1.To mobilise savings of indiyiduals, institutions and corporates.
2.To channelise savings into investments.
3.To enable corporates raise funds based on their requirements.
individuals,
4.To provide financial services based on specific needs of
corporates and institutions.
sector in order to promote
5.To ensure effective regulation of the financial
orderly growth.
6.To protectthe interests of investors.
customer service.
7lo continuously improve the levels of
8Toprovide services for risk avoidance.
informed investment decisions. and services
S10 help investors take financial instruments
institutions and
introduce new investors,
10.To develop and requirements of
considering the changing up of
corporates. guidance forthe setting
provide
funds and
11.To arrange necessary
 5

new ventures.

To promote industrial growth and employment.

13.To boost economicgrowth and development.

FEATURES, CHARACTERISTICS, NATURE OF FINANCIAL

SERVICES

1.Intangibility: Financial services are intangible in nature. For example,

the services provided by factors, merchant bankers etc., are intangible.
The financial service institutions should build a strong image and win the
conidence of their customers.
2. Inseparability: Both production and supply of financial services have
to be performed at the same time. Therefore, there should be perfect
understahding between the financial service institutions and their customers.
3. Perishability: Like other services, financial services also are perishable.
They canot be stored. Therefore, there should be a perfect match between
the demand and supply of financial services.
4. Importance of Human Element: The quality offinancial service provided
depends on individual knowledge and skill. People with knowledge and
skill are essential toprovidebetter quality of financial services.
5. Variety: Customers have a variety of financial needs.
Therefore financial
service organisations have to offer a wide range of products and services.
6.Customer Orientation: Financial institutions study the requirements
of each customer. They
of customers. For exampleshould provide services based on the needs
a start-up firm-may- require
financing, a firm planning for a fresh venture capital
issue.of shares may require merchant
banking services etc.,
7.Dynamism: Theneeds of
income level and savingscustomers keeps
pattern of ehanging.
in There are changes
providing fnancial services have individuals.
to provide Therefore the firms
services.
innovative. prodåcts and
8.Credibility:
approach. TheyFinancial services providers should be
seryices. should be responsive
Only then, they can earn the to customers and professional in their
provide quality
their business. trust of their customers and grow in
ROLE AND
sucessful IMPORTANCE
functioning OF
of any financial FNANCIAL SERVICESThe
system depends upon the range of
 6

tinancialIservicesofferedIbyfinancial service organisations. Theimportance

ofinancial services may be understood from the following points:
I. Promotes Economic growth: The financial service industry mobilises
savings of the people, and channels them into productive investments.
It provides various financial services to people in general and corporate
enterprises in particular. In short, the economic growth of any country
depends uponthese savings and investments.
2 Encourages Savings: The financial service industry mobilises the
ngs of the people. It provides good returns on the savings. In this way
savings.
nancial service industry promotes
industry aids capital
3, Aids Capital Formation: Financial service intermediary
formation by providing various capital market services.
Capital formation is the very basis foreconomicgrowth.
financial
4.New Venture Creation: Venture capital is an important part ofsetting
services. Venture capital firms provide funds and ofguidance for up
new ventures in high
and running new ventures. They enable creation
risk and high tech industries.
5. Employment Generation: The financial service industry creates and
world.
provides employment opportunities to millions of people allover the
The employment potential of the financial services industry is quite high.
6.Minimising Risks: Underwriters enable companies to avoid the risk of
undersubscription of public issues. Insurance companies both in life and
non-lifehelp to minimise risks to life and assets.
assets.
help firms to obtain usage ofprofits.
LaHigher Profits: Leasing companiesand earn higher inconme and
Is enables them to produce more and enable them to
ractors. undertake to collect the receivables of firms
focus on business growth.
enable
8.Better Standard of Living: Consumer finance companies
consumer durables on credit. This enables people to improve
se of
their standard of livingand Jead£ convenient life.
contribution of financial service
9.Contribution to National Income: The They support the setting up and
companies to national income is increasing.higher income to them andto the
expansion of businesses. This reultsin
nation.
liquidity
industry promotes
10. Provides Liquidity: The financial savings andinvestment into various
service
in the System, It allocates assets into liquid
 7

cash.

I1.Encouragement to Trade: Financial service companies provide funds them ir

on to tt
to enable fims expand and increase exports. Financial services such as
tortaiting help exporters to avoid risk in export sales. II. Fee
provid
TYPES OFFINANCIALSERVICES: Financial services can be broadly
Classified into two: I. Fund Based Or Asset Based Services and lI. Fee 1.Secu
Based Services or Non-fund services Securi
securi
services
L Fund Or Asset Based Services: The fund based or asset based 2.Mer
include the following: activit
and in
l.Leasing: Alease is an agreement under which a firm gets the right to use prepa
a capital asset like machinery on payment lease rentals. The owner of the
of Merc
asset is leased is the lessee.
asset is the lessor and the person to whom the
3.Cre
goods are sold on credit by
2. Hire purchase: It is a transaction in which installments. and a
The payment is made in
the hire vendor to the hire purchaser.the princ
purchaser becomes the owner
On payment of the last installment, hire ISSUr
of the goods. 4.Cu
beha
for new ventures having
3. Venture capital: It refers to finance provided return. It is also known servi
high risk and also with the opportunity to earn high S.Lo
as long tem risk capital. mer

the basis of the security of a billof

4.Bill Discounting: It is giving loans onexchange
as lo

exchange. The bank purchases bills of from the holder of the bill 6.P
and credits his account with the amount of the bill less discount. On the due proj
date, the drawee makes payment to the banker. 7.Pe
The inv
5.Insurance services: It is a contract between the insurer and insured.
specific
insurer promises to compensate the insured for the-less arising from
8.N
risks. Insurance can be for life and non-life such as property. me
the
6.Factoring: The accounts receivables of a fim are purchased by the factor 9.C
who takes the responsibility of collecting them. The factor provides finance cap
to the firm based on the amount of receivables. 10.
se
7.Forfaiting: It is financing of receivables relating to international trade. re
The forfaitor discounts export bills and provides finance to the exporter.
Fl
8.Housing Finance: It is providing finance for. buying or construction of 1.
house property. It emerged as a fund based financial Service in ndia with ex
the establishment of National Housing Bank (NHB) in 1988. pr
9.Mutual Funds:Mutual funds mobilise savings from the public and invest 2.
 8

them in financial securities and other assets. The income earned is passed
tothe unit holders after deducting its fees.
I. Fee Based Or Non-fund Based Services: Financial service companies
providethe following non fund| based or fee based services:
1.Securitisation: Loans given to customers are assets for the bank.
Securitisation is the process of conversion of loan assets into marketable
securities. The organisation can raise funds by selling them to investors.
2.Merchant banking: The primary role of merchant banking is undertaking
activities related to new issue of secunties by companies. Its scope is wide
and includes arrangingfunds and negotiating financial deals for their clients,
preparing and executing projects, underwriting, advising on mergers etc..
Merchant banker are intermediaries who transfer capital from those who
it.
own it to those who need
3.Credit rating: It is a opinion by a rating agency on the relative willingness
and ability of the issuer of adebt instrument to repay both interest and
principal. It is an assessment of the debt repaying capacity of the firm
issuing debt.
4.Custodial Services: It involves keeping the securities safe for and on
bebalf of others in return for custodial charges. The person providing this
service is called as a custodian.
5.Loan Syndication: A single bank cannot give a huge loan. known Hence
merchant bankers negotiate with banks to jointly offer loans. This is
as loan syndication.
6.Project Advisory: It involves assessing investment proposals, studying
project feasibility, preparation of project reports, arranging for funding etc.,
7.Portfolio Management: It involves providing investment advice, making
investments on behalf of clients, managing the investment portfolio etc.,
8. Mergers and Acquisitions:It involves providing advice and guidance on
mergers and acquisitions, assessing the networth of companies, finalising
the terms of mergers etc.,
9.Capital Restructuring: It is providing guidance for restructuring the
Capital structure. Advice on steps to be taken to reduce the cost of debt.
10.Stock Broking: It involves buying, selling or dealing in financial
Securities. This service is offered by stock brokers who are members of a
recognised stock exchange.
FUNCTIONS OF FINANCIAL SERVICES
1. Aid in Exchange of Goods and Services: Financial services aid in
increased
exchange of g0ods and services in the economy. They enablecustomers.
production of goods and services and also their distribution to
2. Mobilising savings: Financial services help to mobilise funds from
 9

individuals, institutions and corporates. Funds are mobilised thrOuoh

various instruments such as
shares, debentures, mutualfunds etc..
3. Allocation of Savings: The savings mobilised are
investments through financial services.Credit rating helpschannelised to
choose among debt instruments. Mutual funds enable investorsinvestors to
to invest in
various assets.
4. Protection of Investors: Financial service
IRDA, RBIetc., regulators such as SEBI.
monitor the activities of financial service providers. They
ensure investor protection through framing rules and regulations.
5. Risk Mitigation: Financial servicès help to avoid
concentration of risk
and enables sprèading of risk. For éxample, when an individual
takes insurance, the insurance company spreads the risk or corporate
policy holders. If there is a loss due to risk, the poicy holderamong the many
is compensated
for the loss.
6.Provision of Specific Services: The financial service needs of individuals,
new entrepreneurs and corporates are different. Financial services are
provided according to specific needs. For example, venture capital services
are provided to new entrepreneurs, consumer finance, housing
insurance etc are provided to individuals. finance,
7.Offers Both Traditional and Modern Services: Financial services offer
traditional services such as financing, bills discounting as well as modern
services like securitisation debts etc.
of
8.Provides Specialised Services: Financial services also provides
specialised services such as credit rating, venture capital, merchant
depository, housing finance etc., bank1ng,
trading. paperless trauuB betae important. roreign Insitutional1es,nvesto
onl1r
hegan to play an important role in stock markets
SONSTTUENTS ORCOMPONENTS OF FINANCIALSERVICgS
a constituents of financial services are: IFinancial instruments II Marl
Participants III. Specialised Institutions and IV. Regulatory bodies

Constituents in FinanciaB Services

Financial Market Speciaised Regulatory

Instruments Participants Institutions Bodies
wwwwww.www

1.Money 1.Commercial 1.Acceptance 1.RBI

Market Banks Houses |2.SEBI
Instruments 2.Financial 2.Discount 3.IRDA
Institutions Houses 4.PFRDA
a.Treasury Bills3.Merchant 3.Factors
b.Bills of Bankers 4.Depositories
4.Underwrilers 5.Credit
Exchange
C.Finnce Bils 5.StockBrokers Rating
d.Commercial 6.Finacial Agencies
Consutants
Paper
e.Certificates 7.Market
of Deposit Makers
2.Capital
Market
Instruments
a.Equity Shares
b.Preference
Shares
c.Debentures
d.Gilt Edged
Securities
e.Derivatives
 I Financial Instruments: Financial instruments can be classified
Money Market instruments and Capital Market ínstruments,
1.Money Market Instruments: Money market is a market for short
funds. Therefore money market instruments are of short term nature. tem
instrumentsThet
maturity period is between 14 and 364 days. Moncy marketFinance
.(1)Treasury Bills (ii) Bills of Exchange or Trade bills (ifi) are.
Commercial Paper and (v)Certificates of Deposit. bil s (vy
2.Capital Market Instruments: Capital market instruments are of
term nature. They include: (i) Equity shares (ii) Preference shares (ii) long-
Debentures (iv) Gilt-edged securities (v)Derivative instruments (vi)Deen
discount bonds (vii) Zero coupon bonds etc.,
IMarket Participants: The market participants include: 1. Commercial
brokers
banks 2. NBFCs 3. Merchant bankers 4.Underwriters 5.Stock
6.Financial Consultants and 7. Market makers
1.Commercial Banks: They provide loans and also subscribe to the
banking
financial securities issued by companies. They undertake merchantinsurance
services, hire purchase finance, leasing, factoring, mutual funds,
and other services.
2.Non Banking Finance Companies(NBFCs): They receive deposits and
also provide loans. They engage in leasing, hire-purchase, chits business
etc.,
3. Stock Brokers: They act as agents of the buyers and sellers of securities
in arecognised stock exchange. They should have obtained certificate of
registration from SEBI.
4.Underwriters: They guarantee subscription for shares which are not fully
subscribed. They are appointed by the issuing companies in consultation
with the lead managers/merchant bankers.
5. Consultants: They provide advice and guidance on preparation of
project reports, project appraisal, raising of finance, advice on mergers and
takeovers etc.,

6. Market Makers: They provide liquidity and aready market for securities.
They purchase the securities ofered by sellers at any time and hold them ilu
they are demanded by buyers. They buy at alower price and sell at a higher
price and earn profits.
II. Specialised Institutions: They provide various types of financial
services. They include: Acceptance Houses, Discount houses. Facto
Depositories, Credit rating agencies etc. Financial market is dynamic a
 of
serves the ieeds
providers,
IN Regulatory Bodie hey rame ndes and wyujatinn
markets und
ryuatu
thee tinanclal
banking systen. It regulates all the hnancial ervices wded yhaika
EHISregulatory
other (he regulater of thesuch
bodies alockas market and its Law
0he Company parti laoatd
ipnts There as sleth
u 1uguas
functioning of corporales,
GROWTH OF FINANCIAL SERVICESIN INDIA
Financial services is an important compoent of the fisancial
country. I promotes savings, investment, capital formatum aru wmme
growth. In India, financial services has been growing nt an attrative tate
Its contributionto GDPand employnent has been growing on a otinuns
growth of financial services in lndia
basis, The factors contributing lo the
are as follows:
Factors Contributing to the Gowth of Financial Serviees in Sndia
I. Well developed financial sector.
2.Strong banking system.
3.Multiple financial institutions providinga variety of financial services.
4.Regulatory institutions who have developed astrong regulatory franework
for different sectors(RBI, SEB1, IRDAI, PFRDA etc.,).
higher
5.Rising literacy, employment and income levels resulting in
demand for financial services.
potential for
6.A high proportion of youth population resulting in higher
savings and investment.
7.Government incentives for savings and investiment encouraging the
demand for financial services.
8.Strong and well regulated capital markets providing liquidity to
investments.

9.Entry of foreign competitors which have improved product variety.

customer service and range of services offered.
10.Increased adoption of technology which have improved access to
services and customer convenience.
financial
I1.Favourable govermment policies to promote the growth of
services.
 nuy increased
PROBLEMS OF
service sector has to FINANCIAL
face lot of SERVICES
challenges in its SECTOR:
growing financial demand of the way to fulfill Financial
the ever
challenges are listed below: economy. Some of the important
1.Lack of qualified
2. Lack of personnel in the financial service sector.
investor awareness about the various
3.Lack of transparency in the financial services.
disclosure requirements and accounting
practices relating to financial services.
4.Lack of specialisation in different financial
S.Lack of adequate datato take financial service services
6.Lack of efficient risk management system in the
related decisions.
financial service sector.
FINANCIAL SERVICES ENVIRONMENT -THE FORCES The
hnancialservices environment the represents various factors thatinffuence
the creation and
delivery of inancial services. The forces in
services environment are as follows: the
1.0verall Macro-economl
such as intlation rate, e Environment: Macro
financ
savings rate, interest
economic cycle influence economic
rate, foreign exchange
investment
China, a major global exporter, trade wars cconomny. The rate an
in an
increased instability. In this situation, the between countries
encouraging sign for financial services in high India.
slowdown
Indian GDP growth etc. have
rate 1s a
2.theEducation and Skill Levels: The
quality of workforce education and skill levels infuens
in the financial
institutionstheoffer courses on different aspectsservices industry. In India.
improved availability of qualified of financial
services. Thismayhas
3.Inflation and Interest Rates:
workforce.
nature. In India, inflation has been Inflation and interest rates are
interest rates are quite low. This control in the last five years. related in
in
consumer and bousing loans. has resulted in increased demand Thereforefor
4.Rising
beenCompetition:
has
and
Competition
increasing. Firms have to levels
in the financial
face cÍmpetition services industry
multi-nationalinnovate new
efficiencies and companies. survive,
To from both national
companies have to improve
products and services.
5.Entry of Non-financial Firms:
offering financial products and Non-financial firms are
such as Applepay,
Googlepay are in
services. For example financialcreasin gly
services
companies are offered by
as Paytm,offering money transfers andtechnology
such Oxigen etc., other companies.
services. Mobile
Mobile wallets
financial service companies. are offering stiff competition to traditional
6.Custoner Expectations: CustomerS
efficiency, speed, security and
Financial service
are
in expecting convenience
xpectations. transparency financial transactions.
providers should improve their services to
meet customer
7.major
Importance of Technology:
role in creation, Technology is playing and
have to be focussed on delivery and usage of financial would play a
of services. how technology services. Companies
can be used to deliver
better qualhty
8.Regulation:theTheworld.
throughout fnancial services industry is facing increased
In India,
Forward Markets Commission andeglators such as RBI, SEBI,regulations
the
fancial services environmcot. They havegovernment regulariy monitox PFRDA,
protect investor interests. introduced several measuresthet0
9.Poltteal Pove ultwal atability, taxallom, legal hanwwowh, gvomnot
vonthla e, intluene nuneal otVlen m lu ula, hnaal sevvgs
hve evelhed hevaiae of poltteal aalhilty, weniven ottend and
vgulatton which potte ghowth
I0.Novlal Porcost An important Noal kve I ade towand
entrepreneunhip. n lndia, there in # oaitive ailudo wanh
entepreneurahip Many youngalen reler tu atartup theit wn busite
This han reulted n gnowth of venture wapital, privale oquity atnl bank
lending.
11.Demographle PoreeN Nize of the ppulatin, Age prmuy, literacy leveh,
liai a gwth
partieipation of women in work ete.,are imptant facto pilatiom, higher
market fo fnaneial Nervicos Hms becaune of it youngpuotkm of wkig
literacy,inereasing puchaxing pOwer and bvastng
fon savinga, inveNnent an
women. This han tenulted in higher demand
loan products.
Raka: FinANcial fius APe facing high level of vyher
12.Throat of C'yber attacka xuwh AN hacking. phinhing
riska, There are more instanees of cyber have to
impove their NeVUFity atamlands They
ete., Therefore firms haveto tuo their euxtonen.
provide NOCureenvironment
Financlal Servlces Envtronment
Forces In
 17

FINANCIAL MARKETS - Markets in which financial

are known as financial markets. Financial instrumentsassets are trad
exchanged in fnancial markets. Fiinancial markets help to are
value of financial securities. traded
The segments of Financial Markets are: 1.Money
market
t discover
and 3.Foreign exchange market.
The regulators in the financial markets
2.Capital marke
5.Department of Company Affairs andare:1.RBI 2.SEBI13.Stock
7. Forward Markets
The financial market
Commission (FMC). 6.Department of Economic
Af as exchangs
instruments (i)Equity shares
(ii) Debentures (iv)Bonds are:
(i)Preference shar
(v)Treasury and (vi)Commercial paper ete
bills
PLAYERS
financial
IN
FINANCIAL MARKETS -There are
markets. Each
of role. The role of each player in the financial many players
player is market plays a different kind
important
financial markets. The following are the for the effective
functioning of
important
1.Investors: Investors are those with surplus funds for players:
financial
investors securities and
and householdassets. Investors can be retailinvestment in various
investors investors) or institutional investors.
can be firms, mutual
etc., Investors can be funds, in vest o rs(in div idual
Institutional
considered to be pension
the backbone funds, insurance companies
of financial
2.Business Firms:
raise funds through They raise funds from the markets.
securities such as
issue of securities.
Securities financial markets. They can
can also raise term equity shares or debt issued can be ownersh1p
firms can raise fundsloans
1nvestors.
from banks and
from investors withinsecurifinancial
tithees(debentinstitutions.
ures,or bonds).BusinessThey
country from global
3.Financial
from those with Intermediaries: They are institutions
surplus
They mobilise savings for to those who requirewhich
funds channelise
funds for investmTuu
counselling services, brokinginvestment.
Financial They provide advisory serv
agencies etc., intermediaries includeservices,
brokers,merchant
merchantbanking
bankers, services
credit Tau
4.fordevelRegulopment
ators:ofRegul ators play an important role in
the financial the orderly
protecting
penalties on
the sector. They promoting
rights of investors. Theyframe regulations and guidelines
an those violating rules monitor the market and impose
higher important role in
improving
investor participation and investor
and
regulations. Regulators have
played
led to confidence. This has encouraged
higher Thei regulators
 18

of Indian financial markets are RBI, SEBI, IRDAI, PFRDA, FMC etc.,

5.Government: The government lays "down the framework for the

functioning of financial markets. It plays an important role in the regulation
of financial markets. The government, raises long term funds from the
market through issue of bonds. It can raise short term funds through issue
of treasury bills.
PLAYERS IN FINANCIAL SERVICES MARKETS - The players in
financial services provided services of a specialised nature. The following
are the players in financial services:
1.Banks: They provide various financial services such as acceptance of
deposits, lending of loans, undertaking foreign exchange transactions etc.,
2.Leasing Companies: They enable firms to obtain the usage of assets
without actually purchasing and investing on them. It provides for hundred
per cent financing of the cost of assets.
3. Hire-purchase Companies: They enable customers to buy goods on
credit. Customers get products which they cannot afford to buy by paying
their entire price. The cost of the product is spread over installments.
4.Merchant Bankers: Merchant bankers are financial intermediaries
operating in both the money market and capital market. They provide
services related to management of new issues, project counselling,
corporate counselling, arranging finance, advising on capital structure,
acting as underwriters, providing investment advice, advising on mergers
and acquisitions etc.,
5.Underwriters: They guarantee subscription to public issues of companies.
They undertake to subscribe to the unsubscribed portion of public issues in
return for underwriting commission
6.Factors: Banks and financial institutions undertake factoring services.
Factors buy the receivables of firms and undertake the responsibility of
collecting them. They make advance payments to the firm based on the
amount of receivables.
7.Forfaiters: Forfaiting is an arrangement for financing receivables of
international trade. The forfaiter purchases the bill of exchange from the
exporter at a discount and pays him the balance. The forfaiter then collects
the amount from the importer's bank and assumes allcredit
risks.
8.Mutual Funds: Mutual funds are collective investment vehicles. The
mobilise savings of the public and invest themn in financial securities and
other assets. The income earned would be distributed to unit holders.
 19

9.Insurance Companies: Insurance companies enable

Life insurance companies provide savings benefit, old agespreading
income
of
secu ris ks
inssuranc
ecurity
and financial security to the family of the insured. General insura
companies protect the economic value of assets.
10.Housing Finance Companies: Housing finance
loans to customers to buy or construct house property. companies
They
provida
housing development, employment and economic growth. contribute to
11.Credit Rating Companies: They assess the
issuer of debt to meet financial relative capacity of an
obligations. They
relative capacity of companies to meet their debt assign grades based on the
obligations.
12.
fundNon-Banking
based and feeFinance
based Companies: They provide a wide variety of
the Indian financial system. financial services. They play an important role in
borrewers to corporates. They hav a wide range of
clients from small
13.Credit Card Companies: Credit cards
goods on credit
and benefit and pay for them later. Creditenable card
their customers to buy
manufacturers, retailers and customers.companies provide credit
14.Custodiforans:a fee.They undertake the
securities
as custodians. The institutions responsibisuch
lity of safekeeping
undertaking services are knownof
15.Depositories:
securities A
of investorsdepository is an
in an electronic institution w
which holds the financial
debentures, mutual funds and other form.
depository. securitiesInvest
in oanrs can keep their shares,
NEED AND
IMPORTANCE OF
electronic form in the
Financial regulation
and institutions. is the supervision and
financial
FINANCI
the actions of the Regulators provide guidelines regulaAtioLn REGULATI
and of
financi a l ON
is to maintain and
improveinstitutions. The
imofpose markets
objfenctanciiveal financirestal rictions
the stability of the
on
Financial regulation can be
governmental
and regulationsinstitutions,
undertaken by the system.
Financial
are simple, clear andregulators
regulation
implemented uniformly to improve credibility. understandable government
should ensure thator on-
They nulebes
Financial Sector Regulation in india
The banking and NBFC sector is
should
(RBI). regulated by the RReserve
Bank of
 20

The stock markets and mutual funds are regulated by the Securities
Exchange Board of India(SEBI).
The insurance sector is regulated by Insurance Regulatory Development
Authority of India (IRDAI).
The commodiy exchanges are regulated by the Forward Markets
The Pensions sector is regulated by Pension Fund Regulatory Development
Authority (PFRDA).
The following points bring out the importance of financial sector
regulation:
1.Financial regulation is required to provide a framework for the proper
functioning of the financial market.
2.It is on the basis of financial regulation, that
misconduct of any market
participant is investigated and suitable action is taken.
3.Financial regulation is essential for the orderly functioning of financial
markets.
4.Financial regulation is essential for strengthening and improving
individualfinancial institutions and the entire financial system.
5.Mobilisation of savings and their optimal allocation for investments is
required for economic growth and development. Financial sector
enables this. regulation
6.Protection of investors rights is possible only through effective financial
regulation.
7.Financial regulation and its effective implementation is
improving the confidence in the financial system. essential for
8.0ptimal use of resources is possible only if the financial sector
an eficient manner. Aa essential operates in
requirement of this is financial regulation.
9.Competition is an essential requirement for
financial markets. Financial efective functioning of
regulation
practices and promotes fair competition. tries to eliminate unfair
competitive
16. The financiai sector faces many types
iS essential to manage risks in a ofrisks. Financial sector regulation
prudent manner.
11.Financial sector
tinancial sector. regulation improves the healthy development of the
This is an essential condition for
development. ecenomic growth and
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12. A strong and stable financial sector is essential for meeting the financial
needs of households, MSMEs and businesses. This is essential for improving
cconomic growth and development.
13. Strong financial sector regulation can help to prevent and manage
financial crisis in an effective manner.
14. Complete and clear disclosure of financial information is essential
for investors to take prudent investment decisions. Financial regulations
investors.
provide clear guidelines for disclosures to benefit