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A CHANGING SCENARIOOFFINNCIAL SERVICES IN INDIA
ByProf. PUTTU GURU PRASADFACULTY MEMBER ICFAI National College,Guntur.
Introduction:
 
All types of activities which are of a financial nature could be brought under financialservice. It means mobilizing and allocating investments, includes all activities involved in thetransformation savings into investments. It is also called as a financial intermediation; it is the process by which funds are mobilized from a large number of savers and make them availableto all those who are who are in need of it and particularly to corporate customers. Thus,financial services sector is a key area for the Indian economy in developing industrialdevelopment.As India is a fastest growing economy most of the financial services organizations arestriving to achieve increasingly ambitious profit and growth targets against a background of heightened risk, regulation and market pressures. Customer needs and expectations areevolving in the face of increasing personal wealth, more private funding of pensions andhealthcare and the desire for ever more accessible and personalized financial products andservices. In turn, intense competition has squeezed industry margins and forced organizationsto cut costs while still seeking to enhance the quality of client choice and service. The battlefor talent is also heating up as companies seek to enhance innovation, customer loyalty andinvestment returns.The corollary of this market evolution is increasing risk as products become morecomplex, organizations more diffuse and the business environment ever more uncertain.Regulation is also tightening in the wake of public and government pressure for improvedgovernance, transparency and accountability. In this environment, the winners will becompanies that can turn the challenges into opportunities to build stronger and more enduringcustomer relationships; sharpen process efficiency; unlock talent and creativity; use improvedrisk management processes to deliver more sustainable returns; and use new regulatorydemands as a catalyst for strengthening the business and enhancing market confidence.Some of the major financial services offered by the most of the financial services companiesin India are:1.Capital markets (primary and Secondary)2.Securities and Exchange Board of India(SEBI)3.Merchant Banking4.Hire Purchase5.Leasing6.Factoring7.Venture Capital8.Mutual Funds9.Credit Rating10.Insurance ServicesSome of the innovative financial services offered by the most of the financial servicescompanies in India are:1.Carrot and Stick Bonds2.Flip-Flop Notes3.Loyalty Coupons4.Dual Currency Bonds5.Inter-bank Participants(IBPs)6.Cyclical and Non-Cyclical Shares7.Alpha Shares8.Index-Linked Guilt Bonds9.Secured Premium Notes10.Easy Exit Bonds11.ADR and GDR’s
Analysis:
 
India is one of the fastest growing economies in the world with a rapidly expandingfinancial services sector. After adjustments for purchasing power parity, India's economy isthe fourth largest in the world in terms of Gross Domestic Product (GDP). An efficientsecurities market provides the necessary channel for flow of resources from the providers of capital to the users of capital for economic development. The overall growth of the economyand economic activity are also important factors, which determine availability of resources. InIndia because of the Liberalization, Privatization and Globalization introduced by Mr.P.V.Narasimharao, the scenario has been changing in the financial services industry.
 Before LPG in 1991:
During the late time before the Indian economy LPG, the Indian financial servicesindustry was dominated by the commercial banks and other financial institutions which cater to the requirements of the Indian industry. Infact the capital market played a secondary roleonly. The economic liberalization has brought in a complete transformation in the Indianfinancial services industry.Prior to the economic liberalization, the Indian financial service sector wascharacterized by so many factors which retarded the growth of the financial services sector.Some of the significant factors were:1.Excessive controls in the form of regulations of interest rates, money rates etc.2.Too many controls over the prices of securities under the controller of thecapital issues.3.Non-availability of financial instruments on a large scale as well as ondifferent varieties.4.Absence of independent credit rating and credit research agencies.5.Lack of information about international developments in the financial sector.6.Absence of a developed government securities market and the existence of stagnant capital market without any reformation.7.Strict regulation of foreign exchange market with too many restrictions onforeign investment and foreign equity holding in Indian companies.8.Non-availability of debt and other instruments on a large scale.
 After LPG in 1991:
After the economic liberalization, the entire financial services sector has undergone arapid change and now we are witnessing the emergence of new financial products andservices almost everyday. The Indian financial services industry has experienced significantgrowth in the last few years. There has been a considerable broadening and deepening of theIndian financial markets due to various financial market reforms undertaken by the Indianregulators, the introduction of innovative financial instruments in recent years and the entry of sophisticated domestic and international financial services participants. Sectors such as banking, asset management and brokerage have been liberalized to allow private sector involvement, which has contributed to the development and modernization of the financialservices sector. This is particularly evident in the non-banking financial services sector, suchas brokerage, residential mortgage and insurance services, where new products and expandingdelivery channels have helped these sectors to achieve high growth rates recently. Financialservices accounted for approximately 14% of total GDP in Fiscal 2007.
 Regulatory Developments:
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