“Financial

services”

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Introduction to financial
services
 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, these
organizations includes 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.`
The finance service industry is growing at the rate of 14%
p.a. Scope 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
 Traditional activites
Fund based activities :
 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, seed capital,
 Dealing in foreign exchange market activities. Non fund
based activities
. Non fund based activities

 Financial intermediaries provide services on the basis of

non-fund activities also, ie.'fee based' activity. Today
customers, whether individual or corporate, are not
satisfied with mere provisions of finance. They include :
 i. Managing 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.
 ii. Making arrangements for the placement of capital and
debt instruments with investment institutions.
 iii. Arrangement of funds from financial institutions for
the clients' project cost or his working capital
requirements.
 iv, Assisting in the process of getting all Government and
■' other clearances.
 Causes For Financial
services Innovation
Financial intermediaries have to perform the task of
financial innovation to meet the dynamically changing needs
of theeconomy and to help the investors cope with the
increasingly volatile and uncertain market place.
 Low profitability : Since.there is a decline, in the
profitability of traditional banking products. So, (hey have
been compelled to seek out new products which may fetch
high returns.
 ii. Keen competition : The keen competition has paved the
way for the entry of varied nature of innovative financial
products so as to meet the varied requirements of the
investors.
 . Economic Liberalization : recent economic liberalization
measures have opened the door foreign competitors to enter
into our domestic market. Deregulation in the form of
elimination of exchange controls and interest rate ceilings
have made the market more competitive. Innovation has
become a must for survival.
 Customer Service : Now a days, the customer's
expectations are very great. They want newer products at
lower cost or at lower credit risk to replace the existing
one To meet this increased customer sophistication, the
financial intermediaries are constantly undertaking
research in order to invent a new product which may suit
to the requirement of the investing public.
 vi. Global impact : Many of the providers and users of
capital have changed their roles all over the world. FI
have come out of their traditional approach and they arc
ready to assume more credit risks.
 .Investor Awareness ; With a growing awareness amongst
the investing public, there has been a distinct shift from
investing the savings in physical assets like gold, silver,
land etc. to financial assets like shares, debentures,
mutual funds, etc.
 Merchant Banking
 i : A merchant hanker 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. Thus, a merchant hanker
renders a host of services lo corporate, and thus promote
industrial development in the country.
 Loan Syndication :-This is more or less similar to consortium
financing. But this work is 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.
 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'. In countries like USA, the UK and Japan, equipment
leasing is very popular and nearly 25% of plant and equipment is
being financed by leasing companies.
 Mutual Funds:-A mutual fund refers to a fund raised by a
financial service company by pooling the savings of the public. It
is invested in a diversified portfolio with a view to spreading and
minimizing the risk The fund provides investment avenues for
small investors who cannot participate in the equities of big
companies. It ensures low-risk, steady returns, high liquidity-
and better capitalization in the long run.
 Factoring :- Factoring refers to the process of managing the
sales register of a client by a financial services company. The
entire responsibility of collecting the book debts passes on
to the factor.
 Forfeiting:- Forfeiting is a technique by which a forfeiter
(financing agency) discounts an export bill and pays ready
cash to the exporter who can concentrate on the export
front without bothering about collection of export bills .
 Venture Capital :- A venture capital is another method of
financing in form of equity participation.
 Custodial Services :- Under this a financial intermediary
mainly provides services to clients, for a prescribed fee, like
safe keeping of financial securities and collection of interest
and dividends
 : Corporate advisory services :-Financial intermediaries
particularly hanks have setup specialized branches for this.
As new avenues of finance like Euro loans, GDRs etc. arc
available to corporate customers, this service is of immense
help to the customers.
 Securitization:- Securitization is a technique whereby a
financial company converts its ill-liquid, non-negotiable and
high value financial assets into securities of small value which
are made tradable and transferable.
 Derivative Security :- A derivative security is a security
whose value depends upon the values of other basic variable
backing the security. In most cases, these variables are
nothing but the prices of traded securities.
OTHER TYPES OF BANK
SERVICES
 Private banking – Private banks provide banking services
exclusively to high net worth individuals. Many financial
services firms require a person or family to have a certain
minimum net worth to qualify for private banking services.
Private banks often provide more personal services, such
as wealth management and tax planning, than normal retail
banks.
 Capital market bank - bank that underwrite debt and
equity, assist company deals (advisory services,
underwriting and advisory fees), and restructure debt
into structured finance products.
 Bank cards - include both credit cards and debit cards.
Bank Of America is the largest issuer of bank cards.
 Credit card machine services and networks - Companies
which provide credit card machine and payment networks
call themselves "merchant card providers".

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Foreign exchange services
 Foreign exchange services are provided by many
banks around the world. Foreign exchange
services include:
 Currency Exchange- where clients can purchase
and sell foreign currency banknotes.
 Wire transfer- where clients can send funds to
international banks abroad.
 Foreign Currency Banking- banking
transactions are done in foreign currency.

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 Investment services
 Asset management- the term usually given to
describe companies which run
collective investment funds.
 Hedge fund management - Hedge funds often
employ the services of "prime brokerage"
divisions at major investment banks to execute
their trades.
 Custody services - the safe-keeping and
processing of the world's securities trades and
servicing the associated portfolios. Assets
under custody in the world are approximately
$100 trillion

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 Insurance
 Insurance brokerage - Insurance brokers shop for
insurance (generally corporate property and casualty
insurance) on behalf of customers. Recently a number of
websites have been created to give consumers basic price
comparisons for services such as insurance, causing
controversy within the industry.
 Insurance underwriting - Personal lines insurance
underwriters actually underwrite insurance for individuals, a
service still offered primarily through agents, insurance
brokers, and stock brokers. Underwriters may also offer
similar commercial lines of coverage for businesses.
Activities include insurance and annuities, life insurance,
retirement insurance, health insurance, and property &
casualty insurance.
 Reinsurance - Reinsurance is insurance sold to insurers
themselves, to protect them from catastrophic losses

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Challenges Facing the Financial
Services Sector
 Lack of qualified personnel : The financial services sector is
fully geared to the task of 'financial creativity'. However,
this sector has to face many challenges. The dearth of
qualified and trained personnel is an important impediment in
its growth,
 Lack of investor awareness : The introduction of new
financial products and instruments will be of no use unless
the investor is aware of the advantages and uses of the new
and innovative products and instruments.
 Lack of transparency : The whole financial system is
undergoing a phenomenal change in accordance with the
requirements of the national global environments. It is high
time that this sector gave up their orthodox attitude of
keeping accounts in a highly secret manner.
 Lack of specialization: in the Indian sense, each financial
intermediary seems to deal in a different financial service
lines without specializing in one or two areas. In other
countries , FI specialize in one or two areas only and provide
expert service.
 Conclusion
 The Indian economy is in the process of rapid
transformation. Reforms ate taking place in every field /
part of economy. Hence financial services sector is also
witnessing changes. The present scenario can be explained
in following terms :-
 Process of globalization:- The process of globalization
has paved the way for the entry of innovative and
sophisticated products into our country. Since the
government is very keen in removing all obstacles that
stand in the way of inflow of foreign capital, the
potentialities for the introduction of innovative,
international financial products in India are very great.
Moreover, our country is likely to enter the full
convertilibility era soon.
 Process of liberalization:- Our government has initiated
many steps to reform the financial services industry. The
government has already switched over to free pricing of
issues .the interest have been deregulated. The private
sector has been permitted to participate in banking and
mutual funds and the public sector undertakings are being
privatized. SEBI has liberalized many stringent conditions
so as to boost the capital and money markets.
 Project made by:-
Pooja jain - 18
Aloki shah -5
Meha jain -15
Jinal shah -25
Ankita kothari-
Sachin mundra- 34
s.y.bfm

12/07/21 financial services