Introduction to financial system and financial services

1. Introduction to Financial System
and Financial Services

2. Meaning of Financial System
It is the financial system that supplies the necessary financial inputs
for the production of goods and services which in turn promote the
well being and standard of living of the people of the country.
Financial system is a broader term which brings under its fold the
financial markets (long term & short term)and the financial institutions
which support the system
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3. Major assets in the Financial System
The major assets traded in the financial system is to mobilize the
savings in the form of money and monetary assets and invest them to
productive ventures.
An efficient functioning of the financial system facilitates the free flow
of funds to more productive activities and thus promotes investments.
Thus the financial system provided the intermediation between savers
and investors and promotes faster economic development.
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4. Functions of Financial System
• Provision of Liquidity.
• Mobilization of Savings.
• Financial Concepts: Financial Assets Financial
Intermediaries Financial Markets Financial rates and return
Financial instruments
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5. Financial Assets
A Financial asset is one which is used for production or consumption
or for future creation of assets. Types of Financial assets Marketable
assets Non marketable assets
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6. Financial intermediaries
Financial intermediaries includes all kinds of organizations which
intermediate and facilitate financial transactions of both the Indivuals
and Corporate customers.
It refers to all financial institutions and investing institutions which
facilitate financial transactions in financial markets.
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7. Financial intermediaries
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In India Organized Sector and Unorganized Sector Organized
Sector consists of Capital Markets & Money Markets
intermediaries.
Capital Market intermediaries consists of –
• Development Banks
• Insurance Co’s
• UTI
• Govt. (PF, NSC)
• Exim Bank
• NBFC (Leasing co, H.P Co, Investment Co)

8. Financial intermediaries
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In India Money Market intermediaries are
• RBI
• Commercial banks
• Co operative Banks
• Post Office
• Govt. (Treasury bills)
Unorganized Sector consists of
• Money Lenders
• Indigenous bankers
• Pawn Brokers
• Traders
• Land lords

9. Financial Markets
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Financial markets can be referred to as those centers and
arrangements which facilitate buying and selling of financial assets,
claims and services
Classification of Financial Markets.
• Organized market
• Unorganized market

10. Organized markets
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Organized markets consists of Capital markets and Money markets.
Capital market consists of Industrial securities markets, Govt Securities
markets and Long term markets.
Industrial Securities markets consists of Primary markets and
Secondary Markets.
Long term market consists of Term Loan market, Market for Mortgage
and market for financial guarantees.

11. Money market
Money market consists of
• Call money Market
• Commercial Bill Market
• Treasury Bill Market
• Short term Loan Market
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12. Financial Risk and Returns
Financial Risk and returns is guided by the risk return trade off. Interest
rate plays a important role
Financial Instruments - It refers to the documents that which represent
financial claims on assets. It refers to a claim on to the repayment of a
certain sum at the end of a specified period together with interest or
dividend.
Example - Bill of exchange, Share, debenture, government bond,
treasury bill, etc.
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13. Features of Financial Instruments
Features of Financial Instruments:
• They are easily transferable
• They have a ready market They posses liquidity
• They can be used as a security for raising loans
• Some of them have tax savings
• They have specified maturity period
• They facilitate futures trading to cover risk (forex)
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14. History and Growth of Financial
System in India
Nationalization of Financial institutions – formation of SBI, LIC and
Nationaliasation of commercial banks. Starting up of UTI
Establishment of development banks like – IFCI, ICICI, IDBI,SIDBI.
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15. Institution for Financing agriculture
Institution for Financing agriculture – NABARD Institution of Foreign
trade – (Exim Bank) Institution for housing finance – NHB Mutual Fund
Industry. Venture capital Institutions. Credit Rating Agencies.
Legislative Support – MRTP Act , New Economic Policy, Negotiable
instrument Act, Banking Regulation Act and The Stamp Act
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16. Weaknesses of Indian Financial
System
Weaknesses of Indian Financial System:
• Lack of Co-ordination between different Financial institutions.
• Monopolistic Market Structure
• Dominance of development Banks in Industrial Financing Inactive
• Erratic Capital Market
• Imprudent Financial Practices
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17. Meaning of Financial Services
In general all types of activities which are of financial nature could be
brought under the term financial services.
Classification of Financial Services Industry.
• Capital Market intermediaries
• Money Market intermediaries.
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18. Scope of Financial Services
It is categorized into
• Traditional activities - The traditional activities are Fund based and
non fund based activities. Fund Based – activities are -
Underwriting activities Dealing in secondary markets
• Modern activities.
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19. Money Market Instruments
Participating in money market instruments Involving in equipment
leasing, H.P , venture capital and seed capital. Dealing in forex
markets. Non fund based activities are…, Managing the Capital
issues. Making arrangements for private placements. Making
arrangement of funds for project finance and working capital
requirements.
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20. Modern activities
Modern activities are
• Providing project advisory / consultancy
• Planning for Merger and Acquisition
• Guiding Corporate in capital restructuring
• Managing portfolio of large PSU
• Assisting in establishing the right debt-equity mix
• Restructuring the sick companies
• Hedging of risk due to forex / interest rates variations
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21. Causes of Financial Innovation
Causes of Financial Innovation
• Low profitability
• Keen Competition
• Economic liberalization
• Improved Communication technology
• Customer Service / delight
• Global impact Investor awareness
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22. New Financial Services and
Products
New Financial Services and Products
• Merchant Banking
• Loan Syndication
• Leasing Mutual Funds Factoring
• Forfeiting
• Venture Capital
• Corporate advisory services
• Securitization
• Forwards, Futures, Swaps, Options
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23. Challenges facing financial sector
Challenges facing financial sector:
• Lack of Qualified personnel
• Lack of investor awareness
• Lack of transparency
• Lack of specialization
• Lack of recent data
• Lack of efficient risk management system
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24. Present Scenario of financial sector
Present Scenario of financial sector:
• Conservatism to dynamism
• Emergence of primary Equity Market
• Concept of Credit rating
• Process of globalization
• Process of liberalization
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