1. UNIT 6 :
FINANCIAL SERVICES

2. Meaning of financial services :
As applied in UK:-
• It could be understood be including banking, insurance,
stock broking & investment services as well as wide range
of business & other services.
• Services that insure smooth flow of financial activities in
the economy.
• Important component of financial system.
• Financial institutions & financial markets facilitate
functioning of the financial system through financial
instruments.
• Fourth element of the financial system.
• Efficient & effective financial services extended by the
provider are helpful for the smooth functioning of the
financial system.

3. • Financial services include the services offered by asset
management companies like leasing companies, mutual funds,
merchant bankers & issue/portfolio manager.
• Include the services offered by liability management companies
like bill discounting houses & acceptance houses.
• Key change in financial services sector due to technological
innovation & globalization.
• Raising of required funds & ensuring their efficient deployment.
• Ensuring an efficient management of funds.
• Services provided by various institutions.
• Service sector is regulated by SEBI,RBI,DEPARTMENT OF
BANKING & INSURANCE,GOVERNMENT OF INDIA.

4. • Need & Importance of Financial Services :-
• The financial services play a very crucial & significant
role in country’s economy.
• I) Growth & Development :
• Represent a significant proportion of the total economic activity
in most economies.
• Growth of service sector is much more as compared to the
manufacturing sector.
• Increase in employment statistic due to service sector.
• Changes due to technology.
• Market for manufactured goods has tended towards saturation
in the past. Whereas service sector has experienced acceleration
in demand for their products as income & wealth grow.

5. • II) Role of Financial Intermidiation :
• Financial service sector is made up of different financial
institutions.
• These institutions acts as financial intermediaries.
• Financial institutions carry out the process of financial
intermediations by acting as channel through which the financial
surpluses of some groups in society
• (e.g. household) are collected & then distributed to other groups
in society
• (e.g. firms) which have deficit.
• E.g. Role of banking services & insurance services. They help to
mobilising saving for investment purposes.

6. • III) Unique Features :
• Financial services are unique in themselves but they do share
many of the features of the products of other services.
• Intangible in nature.
• Perishable in nature.
• Focus of the institutions on the quality & innovativeness of
their services.
• Products of financial services are long term in nature.
• The functions of producing & supplying financial services have
to be performed
• Simultaneously for which their has to be perfect understanding
between the financial services firms & their clients.

7. • Marketing of financial services not only need people orientation
but also process orientation.
• Financial services are customer oriented.
• Need of the customer are studied by institutions providing
financial services to suggest financial strategies.
• Financial services remain in constant touch with the market
offering new products.
• Financial services have to be constantly redefined & refined on
the basis of socio-economic changes relative to various income
class.
• Financial services institutions while evolving new services could
be proactive in visualising in advance what the markets want or
reactive to the needs & wants of customers.

8. • Marketing of financial services not only need people orientation
but also process orientation.
• Financial services are customer oriented.
• Need of the customer are studied by institutions providing
financial services to suggest financial strategies.
• Financial services remain in constant touch with the market
offering new products.
• Financial services have to be constantly redefined & refined on
the basis of socio-economic changes relative to various income
class.
• Financial services institutions while evolving new services could
be proactive in visualising in advance what the markets want or
reactive to the needs & wants of customers.

9. • IV) Creation of Credit :
• Financial service sector particularly the banking sector is very
important to the operation of the economy & to the conduct of
the government economic policy.
• The major liability of the banks is the customer deposit, which is
significant element of the country’s money supply.
• It is through their lending activities, that banks are able to
create new bank deposit & hence country’s money supply.
• Cash advances are always repaid in the banking system as fresh
deposits.

10. Characteristics of Financial Services :-
• Financial Services are quite distinct in nature from the other
services.
• These services provided by the financial institutions have some
typical characteristics that makes these products quite distinct
from the products produced by the industrial enterprises.
1) Customer Specific :
• Firms providing these services study the need of customers in
detail before deciding the financial strategies.
• Firms give due regard to costs, liquidity & maturity
considerations.
• Financial services firms continuously remain in touch with their
customers & carry out the market surveys to design the product
which can cater to the specific needs of the customers.
• Newer technologies are being used to introduce innovative,
customer friendly products & services.

11. 2) Intangibility :
• Basically related to brand image.
• In highly competitive global environment, financial institutions
providing financial products & services must have good image
,enjoying the confidence of their clients to became successful.
• Institutions have to focus on the quality & innovativeness of
their services to build up their credibility.
3)Concomitant :
• Production of financial services & supply of these services have
to be concomitant.i.e. Production of new & innovative financial
services & supplying of these services are to be performed
simultaneously.
4) Tendency to perish :
• Financial services have tendency to perish, hence can not be
stored.
• Financial services have to be supplied as required by the
customer.

12. 5) People based service:
• Proper selection of personnel for marketing of financial services
as per their suitability.
• Proper training must be given to them to perform their activity
efficiently & effectively.
6) Market Dynamics:
• Market Dynamics depends mostly on socioeconomic changes such
as disposable income, standard of living & educational changes
related to various classes of customer.
• Financial services have to be constantly redefined & refined on
the basis of socio-economic changes relative to various income
class.
• Financial services institutions while evolving new services could
be proactive in visualising in advance what the markets want or
reactive to the needs & wants of customers.

13. • Evolution Of Financial Services :-
• The Financial Services Industry in India is in the process of
attaining full bloom.To reach the present position, it has to
passed through the following stages.The stages are :-
A) The stage of Infancy ( between 1960 to 1980):-
• Covered in merchant banking, insurance & leasing services.
Merchant bankers provide different services as follows.
• Service starting from project appraisal to arranging funds from
bankers.
• Act as bridge between capital market & fund seeking
institutions Underwriting of issues & helps in development of
issues which are not fully subscribed.
• Assessing enterprises in getting listed on the stock market.
• Offering legal advice on registration of companies & removing
legal barriers.
• Proving advice & helping in mergers & acquisitionProviding
technical advice on takeovers &Performing syndication activity

14. • Development of investment companies & starting such as U.T.I.
• Life Insurance business initiated by the L.I.C.
• Nationalization of general insurance business in early 1970s.
• Setting of holding company with four subsidiaries to handle
the general insurance business inn the public sector.
• Giving up of suggestions to privatize the insurance business,
as in no way could the insurance business be considered as
national monopoly.
• Leasing made its mark in the closing years of the 1970,s.
a) Initially companies were engaged in equipment lease
financing .Later on operations of different kinds like financial,
operating & net leasing.
b) In starting there were 400 companies then no contracted due to
their non viability.

15. • B) The stage of Modern Financial Services:-
• Financial services have entered the second rung during later
part of the 1980s.
• These services include counter services, share transfer, pledging
of shares, mutual funds, factoring, discounting,venture capital
& credit rating.
• Starting of mutual fund business in India.
• Credit rating is another important financial service which made
its mark in the mid 1980,s.
• Appearance of Discount & Finance House of India Limited
• Appearance of no of factoring institutions in public sector in
the late 1980’s.
• e.g.State Bank of India Factors & Can Bank Factors Ltd.

16. Types of Financial Services:-
1) Fee Based Services :- Services where financial institutions
operate in specialized fields to earn substantial income by way
of fees, dividend, commission, discount & brokerage.
a) Issue Management: Issue Management referes to management of
securities offerings of the corporate sector to public & existing
shareholders on right basis.
• Issue Management refers to managing issues of corporate
securities like equity shares, preference shares & debentures.
• Issue Managers in capital market are known as Merchant
Banker or Lead Managers.Issue Management involves marketing
of capital issues of existing companies including right issues &
dilution of shares by letter of offer.
• Merchant Banker give advice on decisions concerning size &
timing of the public issues in the light of market condition.
• Merchant Banker provide assistance to corporate units on the
designing of sound structure acceptable to financial institutions.

17. b) Corporate Advisory Services:
• Corporate Advisory Services are needed to ensure that corporate
enterprise runs efficiently at its maximum potential through
effective management of financial & other resources.
• These services include for business enterprise,include services
such as providing guidance in areas of diversification based on
the Government economic & licensing policies,appraising product
lines & analyzing their growth & profitability.consultancy for
rehabilitation of sick industrial units,advice on capital
structuring & restructuring.
• Corporate Advisory Services constitutes an important
component of the portfolio of the activities of the merchant
bankers.
• Corporate Advisory Services covers matter benifited for
corporate unit involving financial aspects,government
regulations,policy changes & business environmental reshuffles.
• Thus Scope of Corporate Advisory Services is very vast ranging

18. c) Credit Rating: Origin of Credit Rating service lies in the
financial crisis of the US in 1837.The first mercantile credit
rating agency was set up in New York in 1841 to rate the ability
of the merchants to pay financial obligations.
• In India,Credit Rating came much later as compared to US.The
first credit rating agency i.e.Credit Rating & Information
Services of India Ltd.( CRISIL)was set up in 1987,followed by
ICRA IN 1994.
• The term ‘Credit Ratting’ comprises of two words’credit’ &
‘rating’.Where Credit is trust in a person’s ability & intention
to pay or reputation of solvency & honesty.Rating means
estimating worth or value of,or to assign value to classifying a
persons position with reference to particular subject
matter.Rating is usually expressed in alphabetical symbols.
• Thus Credit Rating can be defined as an expression of an opinion
through symbols about credit quality of the issue of securities or
company with reference to particular instrument.
•

19. d) Mutual Funds:
• Mutual Fund is a trust that pools the saving of a number of
investors who share common goal of getting good returns on
investment fund.
• Mutual Fund offers a common man an opportunity to invest in
diversified ,professionally managed basket of securities at a
relatively low cost.
• Thus Mutual Funds invest the money collected from the
investors,with the help of professional managers,in capital
market instruments,such as shares,debentures & other securities.
• Mutual Fund is usually a long-term investment with certain
level of risk.
• Schemes like Open-ended Mutual Funds ensures that investors
will get money whenever they want at a short notice.
• Long term investment can be made through close ended scheme.
• E.g.Tax-saving Equity Linked Saving Scheme(ELSS) & Pension
Fund. Tax benefit can be get through these scheme.

20. e) Asset Securitization :-
• Asset Securitisation is a process whereby loans & other
receivables are packaged,underwritten & sold in the form of
asset-backed securities.
• The asset which can be securitised include receivables from the
Government, trade related receivables,credit card
receivables,automobile loans,real estate loans,housing loans etc.
• Under Asset Securitisation Financial institution pools &
packages individual loans & receivables,create securities against
them,gets them rated & sells them to the investor at large
through public offerings or private placements.
• Asset Securitisation is a synthetic technique of converting assets
into securities,securities into liquidity,liquidity into assets &
assets into securitiesan on an onging basis.
• Thus Asset Securitisation provide flexibility of yield,pricing
pattern,size risks & marketability of instruments used to the
advantage of both borrowers & lender/investors.

21. Thank You!