FINANCIAL SERVICES
Introduction
The Indian financial services industry has undergone a metamorphosis since1990. Before its
emergence the commercial banks and other financial institutions dominated the field and they met
the financial needs of the Indian industry. It was only after the economic liberalisation that the
financial service sector gained some prominence. Now this sector has developed into an industry.
In fact, one of the world’s largest industries today is the financial services industry.
Financial service is an essential segment of financial system. Financial services are the
foundation of a modern economy. The financial service sector is indispensable for the prosperity of
a nation.
Meaning of Financial Services
In general, all types of activities which are of financial nature may be regarded as financial
services. In a broad sense, the term financial services means mobilisation and allocation of savings.
Thus, it includes all activities involved in the transformation of savings into investment.
Financial services refer to services provided by the finance industry. The finance industry
consists of a broad range of organisations that deal with the management of money. These
organisations include banks, credit card companies, insurance companies, consumer finance
companies, stock brokers, investment funds and some government sponsored enterprises.
Financial services may be defined as the products and services offered by financial institutions
for the facilitation of various financial transactions and other related activities.
Financial services can also be called financial intermediation. Financial intermediation is a
process by which funds are mobilised from a large number of savers and make them available to all
those who are in need of it and particularly to corporate customers. There are various institutions
which render financial services. Some of the institutions are banks, investment companies,
accounting firms, financial institutions, merchant banks, leasing companies, venture capital
companies, factoring companies, mutual funds etc. These institutions provide variety of services to
corporate enterprises. Such services are called financial services. Thus, services rendered by
financial service organisations to industrial enterprises and to ultimate consumer markets are called
financial services. These are the services and facilities required for the smooth operation of the
financial markets. In short, services provided by financial intermediaries are called financial
services.
,Functions of financial services
1. Facilitating transactions (exchange of goods and services) in the economy.
2. Mobilizing savings (for which the outlets would otherwise be much more limited).
3. Allocating capital funds (notably to finance productive investment).
4. Monitoring managers (so that the funds allocated will be spent as envisaged).
5. Transforming risk (reducing it through aggregation and enabling it to be carried by those more
willing to bear it).
Characteristics or Nature of Financial Services
From the following characteristics of financial services, we can understand their nature:
1. Intangibility: Financial services are intangible. Therefore, they cannot be standardized or
reproduced in the same form. The institutions supplying the financial services should have a better
image and confidence of the customers. Otherwise, they may not succeed. They have to focus on
quality and innovation of their services. Then only they can build credibility and gain the trust of
the customers.
2. Inseparability: Both production and supply of financial services have to be performed
simultaneously. Hence, there should be perfect understanding between the financial service
institutions and its customers.
3. Perishability: Like other services, financial services also require a match between demand
and supply. Services cannot be stored. They have to be supplied when customers need them.
4. Variability: In order to cater a variety of financial and related needs of different customers in
different areas, financial service organisations have to offer a wide range of products and services.
This means the financial services have to be tailor-made to the requirements of customers. The
service institutions differentiate their services to develop their individual identity.
5. Dominance of human element: Financial services are dominated by human element. Thus,
financial services are labour intensive. It requires competent and skilled personnel to market the
quality financial products.
,6. Information based: Financial service industry is an information based industry. It involves
creation, dissemination and use of information. Information is an essential component in the
production of financial services.
Importance of Financial Services
The successful functioning of any financial system depends upon the range of financial
services offered by financial service organisations. The importance of financial services may be
understood from the following points:
1. Economic growth: The financial service industry mobilises the savings of the people, and
channels them into productive investments by providing various services to people in
general and corporate enterprises in particular. In short, the economic growth of any country
depends upon these savings and investments.
2. Promotion of savings: The financial service industry mobilises the savings of the people by
providing transformation services. It provides liability, asset and size transformation service
by providing huge loan from small deposits collected from a large number of people. In this
way financial service industry promotes savings.
3. Capital formation: Financial service industry facilitates capital formation by rendering
various capital market intermediary services. Capital formation is the very basis for
economic growth.
4. Creation of employment opportunities: The financial service industry creates and
provides employment opportunities to millions of people all over the world.
5. Contribution to GNP: Recently the contribution of financial services to GNP has been
increasing year after year in almost countries.
6. Provision of liquidity: The financial service industry promotes liquidity in the financial
system by allocating and reallocating savings and investment into various avenues of
economic activity. It facilitates easy conversion of financial assets into liquid cash.
Types of Financial Services
Financial service institutions render a wide variety of services to meet the requirements of
individual users. These services may be summarized as below:
1. Provision of funds:
(a) Venture capital
(b) Banking services
(c) Asset financing
(d) Trade financing
(e) Credit cards
(f) Factoring and forfaiting
, 2. Managing investible funds:
(a) Portfolio management
(b) Merchant banking
(c) Mutual and pension funds
3. Risk financing:
(a) Project preparatory services
(b) Insurance
(c) Export credit guarantee
4. Consultancy services:
(a) Project preparatory services
(b) Project report preparation
(c) Project appraisal
(d) Rehabilitation of projects
(e) Business advisory services
(f) Valuation of investments
(g) Credit rating
(h) Merger, acquisition and reengineering
5. Market operations:
(a) Stock market operations
(b) Money market operations
(c) Asset management
(d) Registrar and share transfer agencies
(e) Trusteeship
(f) Retail market operation
(g) Futures, options and derivatives
6. Research and development:
(a) Equity and market research
(b) Investor education
(c) Training of personnel
Introduction
The Indian financial services industry has undergone a metamorphosis since1990. Before its
emergence the commercial banks and other financial institutions dominated the field and they met
the financial needs of the Indian industry. It was only after the economic liberalisation that the
financial service sector gained some prominence. Now this sector has developed into an industry.
In fact, one of the world’s largest industries today is the financial services industry.
Financial service is an essential segment of financial system. Financial services are the
foundation of a modern economy. The financial service sector is indispensable for the prosperity of
a nation.
Meaning of Financial Services
In general, all types of activities which are of financial nature may be regarded as financial
services. In a broad sense, the term financial services means mobilisation and allocation of savings.
Thus, it includes all activities involved in the transformation of savings into investment.
Financial services refer to services provided by the finance industry. The finance industry
consists of a broad range of organisations that deal with the management of money. These
organisations include banks, credit card companies, insurance companies, consumer finance
companies, stock brokers, investment funds and some government sponsored enterprises.
Financial services may be defined as the products and services offered by financial institutions
for the facilitation of various financial transactions and other related activities.
Financial services can also be called financial intermediation. Financial intermediation is a
process by which funds are mobilised from a large number of savers and make them available to all
those who are in need of it and particularly to corporate customers. There are various institutions
which render financial services. Some of the institutions are banks, investment companies,
accounting firms, financial institutions, merchant banks, leasing companies, venture capital
companies, factoring companies, mutual funds etc. These institutions provide variety of services to
corporate enterprises. Such services are called financial services. Thus, services rendered by
financial service organisations to industrial enterprises and to ultimate consumer markets are called
financial services. These are the services and facilities required for the smooth operation of the
financial markets. In short, services provided by financial intermediaries are called financial
services.
,Functions of financial services
1. Facilitating transactions (exchange of goods and services) in the economy.
2. Mobilizing savings (for which the outlets would otherwise be much more limited).
3. Allocating capital funds (notably to finance productive investment).
4. Monitoring managers (so that the funds allocated will be spent as envisaged).
5. Transforming risk (reducing it through aggregation and enabling it to be carried by those more
willing to bear it).
Characteristics or Nature of Financial Services
From the following characteristics of financial services, we can understand their nature:
1. Intangibility: Financial services are intangible. Therefore, they cannot be standardized or
reproduced in the same form. The institutions supplying the financial services should have a better
image and confidence of the customers. Otherwise, they may not succeed. They have to focus on
quality and innovation of their services. Then only they can build credibility and gain the trust of
the customers.
2. Inseparability: Both production and supply of financial services have to be performed
simultaneously. Hence, there should be perfect understanding between the financial service
institutions and its customers.
3. Perishability: Like other services, financial services also require a match between demand
and supply. Services cannot be stored. They have to be supplied when customers need them.
4. Variability: In order to cater a variety of financial and related needs of different customers in
different areas, financial service organisations have to offer a wide range of products and services.
This means the financial services have to be tailor-made to the requirements of customers. The
service institutions differentiate their services to develop their individual identity.
5. Dominance of human element: Financial services are dominated by human element. Thus,
financial services are labour intensive. It requires competent and skilled personnel to market the
quality financial products.
,6. Information based: Financial service industry is an information based industry. It involves
creation, dissemination and use of information. Information is an essential component in the
production of financial services.
Importance of Financial Services
The successful functioning of any financial system depends upon the range of financial
services offered by financial service organisations. The importance of financial services may be
understood from the following points:
1. Economic growth: The financial service industry mobilises the savings of the people, and
channels them into productive investments by providing various services to people in
general and corporate enterprises in particular. In short, the economic growth of any country
depends upon these savings and investments.
2. Promotion of savings: The financial service industry mobilises the savings of the people by
providing transformation services. It provides liability, asset and size transformation service
by providing huge loan from small deposits collected from a large number of people. In this
way financial service industry promotes savings.
3. Capital formation: Financial service industry facilitates capital formation by rendering
various capital market intermediary services. Capital formation is the very basis for
economic growth.
4. Creation of employment opportunities: The financial service industry creates and
provides employment opportunities to millions of people all over the world.
5. Contribution to GNP: Recently the contribution of financial services to GNP has been
increasing year after year in almost countries.
6. Provision of liquidity: The financial service industry promotes liquidity in the financial
system by allocating and reallocating savings and investment into various avenues of
economic activity. It facilitates easy conversion of financial assets into liquid cash.
Types of Financial Services
Financial service institutions render a wide variety of services to meet the requirements of
individual users. These services may be summarized as below:
1. Provision of funds:
(a) Venture capital
(b) Banking services
(c) Asset financing
(d) Trade financing
(e) Credit cards
(f) Factoring and forfaiting
, 2. Managing investible funds:
(a) Portfolio management
(b) Merchant banking
(c) Mutual and pension funds
3. Risk financing:
(a) Project preparatory services
(b) Insurance
(c) Export credit guarantee
4. Consultancy services:
(a) Project preparatory services
(b) Project report preparation
(c) Project appraisal
(d) Rehabilitation of projects
(e) Business advisory services
(f) Valuation of investments
(g) Credit rating
(h) Merger, acquisition and reengineering
5. Market operations:
(a) Stock market operations
(b) Money market operations
(c) Asset management
(d) Registrar and share transfer agencies
(e) Trusteeship
(f) Retail market operation
(g) Futures, options and derivatives
6. Research and development:
(a) Equity and market research
(b) Investor education
(c) Training of personnel
