Nature and scope of financial services

MODERN ACTIVITES, PRESENT SCENARIO, AND ITS CHALLENGES AHEAD

Meaning of financial services

In general, all types of a t!"!t!es, #$! $ are of a f!nan !al nat%re o%l& 'e 'ro%g$t %n&er t$e ter( )f!nan !al ser"! es)* T$e ter( f!nan !al ser"! es) !n a 'roa&, sense (eans +(o'!l!,!ng an& allo at!ng sa"!ngs+* T$%s !t !n l%&es all a t!"!t!es !n"ol"e& !n t$e transfor(at!on of sa"!ngs !nto !n"est(ent*

 f!nan !al ser"! es an also 'e alle& )f!nan !al !nter (e&!at!on)* -!nan !al !nter(e&!at!on !s a pro ess 'y #$! $ f%n&s are (o'!l!,!ng fro( a large n%('er of sa"ers an& (a.e t$e( a"a!la'le to all t$ose #$o are !n nee& of !t an& part! %larly to , orporate %sto(ers* * t$%s, f!nan !al ser"! es se tor !s a .ey area an& !t !s "ery "!tal for !n&%str!al &e"elop(ents* A #ell &e"elope& f!nan !al ser"! es !n&%stry !s a'sol%tely ne essary to (o'!l!,e t$e sa"!ngs an& to allo ate t$e( to "ar!o%s !n"est a'le $annels an& t$ere'y to pro(ote !n&%str!al &e"elop(ent !n a o%ntry*

Classification of Financial Services Industry

T$e f!nan !al !nter(e&!ar!es !n In&!a an 'e tra&!t!onally * lass!f!e& !nto t#o / Cap!tal Mar.et !nter(e&!ar!es an& t !!* Money (ar.et !nter(e&!ar!es* T$e ap!tal (ar.et !nter(e&!ar!es ons!st of ter( len&!ng !nst!t%t!ons an& !n"est!ng !nst!t%t!ons #$! $ (a!nly pro"!&e l%ng ter( f%n&s* On t$e ot$er $an&, (oney (ar.et ons!sts of 0 o((er !al 'an.s, o1 operat!"e 'an.s an& ot$er agen !es #$! $ s%pply only s$ort ter( f%n&s* Hen e, t$e ter( )f!nan !al ser"! es !n&%stry) !n l%&es all .!n&s of organ!,at!ons #$! $ !nter(e&!ate *an& fa !l!tate f!nan !al transa t!ons of 'ot$ !n&!"!&%als an& orporate %sto(ers*

Scope of Finacial Services

-!nan !al ser"! es o"er a #!&e range of a t!"!t!es* T$ey an 'e 'roa&ly lass!f!e& !nto t#o, na(ely / !* Tra&!t!onal* A t!"!t!es !!* Mo&ern a t!"!t!es*

Traditional Activities
Tra&!t!onally, t$e f!nan !al !nter(e&!ar!es $a"e 'een ren&er!ng a #!&e range of ser"! es en o(pass!ng 'ot$ ap!tal an& (oney (ar.et a t!"!t!es* T$ey an 'e gro%pe& %n&er t#o $ea&s, "!,* a* -%n& 'ase& a t!"!t!es an& $* Non1f%n& 'ase& a t!"!t!es*

 -%n& 'ase& a t!"!t!es / T$e tra&!t!onal ser"! es #$! $ o(e %n&er f%n& 'ase& a t!"!t!es are t$e follo#!ng / !* 2n&er#r!t!ng or !n"est(ent !n s$ares, &e'ent%res, 'on&s, et * of ne# !ss%es 3pr!(ary (ar.et a t!"!t!es4*

 !!* Deal!ng !n se on&ary (ar.et a t!"!t!es* !!!* Part! !pat!ng !n (oney (ar.et !nstr%(ents l!.e o((er !al papers, ert!f! ate of &epos!ts, treas%ry '!lls, &!s o%nt!ng of '!lls et * In"ol"!ng !n e5%!p(ent leas!ng, $!re p%r $ase, "ent%re ap!tal, see& ap!tal, "* Deal!ng !n fore!gn e6 $ange (ar.et a t!"!t!es* Non f%n& 'ase& a t!"!t!es

. Non fund based activities

-!nan !al !nter(e&!ar!es pro"!&e ser"! es on t$e 'as!s of non1f%n& a t!"!t!es also* T$!s an 'e alle& )fee 'ase&) a t!"!ty* To&ay %sto(ers, #$et$er !n&!"!&%al or orporate, are not sat!sf!e& #!t$ (ere pro"!s!ons of f!nan e* T$ey e6pe t (ore fro( f!nan !al ser"! es o(pan!es* Hen e a #!&e "ar!ety of ser"! es, are 'e!ng pro"!&e& %n&er t$!s $ea&* T$ey !n l%&e /

 !* Manag!ng &!e ap!tal !ss%e 7 !*e* (anage(ent of pre1!ss%e an& post1!ss%e a t!"!t!es relat!ng to t$e ap!tal !ss%e !n a or&an e #!t$ t$e SE8I g%!&el!nes an& t$%s ena'l!ng t$e pro(oters to (ar.et t$e!r !ss%e* !!* Ma.!ng arrange(ents for t$e pla e(ent of ap!tal an& &e't !nstr%(ents #!t$ !n"est(ent !nst!t%t!ons* !!!* Arrange(ent of f%n&s fro( f!nan !al !nst!t%t!ons for t$e l!ents) pro9e t ost or $!s #or.!ng ap!tal re5%!re(ents* !", Ass!st!ng !n t$e pro ess of gett!ng all Go"ern(ent an& 0) ot$er learan es*

Modern Activities
8es!&e t$e a'o"e tra&!t!onal ser"! es, t$e f!nan !al !nter(e&!ar!es ren&er !nn%(era'le ser"! es !n re ent t!(es* Most of t$e( are !n t$e nat%re of non1f%n& 'ase& a t!"!ty* In "!e# of t$e !(portan e, t$ese a t!"!t!es $a"e 'een !n 'r!ef %n&er t$e $ea& )Ne# f!nan !al pro&% ts an& ser"! es)* Ho#e"er, so(e of t$e (o&ern ser"! es pro"!&e& 'y t$e( are g!"en !n 'r!ef $ere%n&er*

 !* Ren&er!ng pro9e t a&"!sory ser"! es r!g$t fro( t$e preparat!on of t$e pro9e t report r!ll t$e ra!s!ng of f%n&s for start!ng t$e pro9e t #!t$ ne essary Go"ern(ent appro"als* !!* Plann!ng for M:A an& ass!st!ng for t$e!r s(oot$ arry o%t* !!!* G%!&!ng orporate %sto(ers !n ap!tal restr% t%r!ng

 !"* A t!ng as tr%stees to t$e &e'ent%re $ol&ers* "* Re o((en&!ng s%!ta'le $anges !n t$e (anage(ent str% t%re an& (anage(ent style #!t$ a "!e# to a $!e"!ng 'etter res%lts* "!* Str% t%r!ng t$e f!nan !al olla'orat!ons ; 9o!nt "ent%res 'y !&ent!fy!ng s%!ta'le 9o!nt "ent%re partners an& prepar!ng 9o!nt "ent%re agree(ents, Re$a'!l!tat!ng an& restr% t%r!ng s! . o(pan!es t$ro%g$ appropr!ate s $e(e of re onstr% t!on an& fa !l!tat!ng t$e !(ple(entat!on of t$e s $e(e*

 "!!!* He&g!ng of r!s.s &%e to e6 $ange rate r!s., !nterest rate r!s., e ono(! r!s., an& pol!t! al r!s. 'y %s!ng s#aps an& ot$er &er!"at!"e pro&% ts* Manag!ng <In1 portfol!o of large P%'l! Se tor Corporat!ons* 6* 2n&erta.!ng r!s. (anage(ent ser"! es l!.e !ns%ran e ser"! es, '%y1 $a . opt!ons et *

 * A&"!s!ng t$e l!ents on t$e 5%est!ons of sele t!ng t$e 'est so%r e of f%n&s ta.!ng !nto ons!&erat!on t$e 5%ant%( of f%n&s re5%!re&, t$e!r ost, len&!ng per!o& et * 6!!, g%!&!ng t$e l!ents !n t$e (!n!(!,at!on of t$e ost of &e't an& !n t$e &eter(!nat!on of t$e opt!(%( &e't1e5%!ty (!6* 2n&erta.!ng ser"! es relat!ng to t$e ap!tal (ar.et, s% $ as :-.. Clear!ng ser"! es '* Reg!strat!on an& transfers, * Safe %sto&y of se %r!t!es &* Colle t!on of !n o(e on se %r!t!es 6!"* Pro(ot!ng re&!t rat!ng agen !es for t$e p%rpose of rat!ng o(pan!es #$! $ #ant to go p%'l! 'y t$e !ss%e of &e't !nstr%(ent=>*

Sources of Revenue
T$ere ar t#o ategor!es of so%r es of !n o(e for a f!nan !al ser"! es o(pany, na(ely / 3!4 -%n& 'ase& an& 3!!4 -ee 7 'ase&*

Fund based income

-%n& 'ase& !n o(e o(es (a!nly fro( !nterest sprea& 3t$e &!fferen e 'et#een t$e !nterest earne& an& !nterest pa!&4, lease rentals, !n o(e fro( !n"est(ents !n ap!tal (ar.et an& real estate* On t$e ot$er $an&, fee 'ase& !n o(e $as !ts so%r es in (er $ant 'an.!ng, a&"!sory ser"! es, %sto&!al ser"! es, loan syn&! at!on, et * In fa t, a (a9or part of t$e !n o(e !s earne& t$ro%g$ f%n&1'ase& a t!"!t!es* At t$e sa(e t!(e, !t !n"ol"es a large s$are of e6pen&!t%re also !n t$e for( of !nterest an& 'ro.erage* In re ent t!(es, a n%('er of pr!"ate f!nan !al o(pan!es $a"e starte& a ept!ng &epos!ts 'y offer!ng a "ery $!g$ rate of !nterest* ?$en t$e ost of &epos!t reso%r es goes %p, t!n+ 3en&!ng rate s$o%l& also go %p* It (eans t$at s% $ o(pan!es $a"e to o(pro(!se t$e 5%al!ty of !ts !n"est(ents*

Fee based income

-ee 'ase& !n o(e, on t$e ot$er $an&, &oes not !n"ol"e (% $ r!s.* 8%t, !t re5%!res a lot of e6pert!se on t$e part of a f!nan !al o(pany to offer s% $ fee1'ase& ser"! es*

Causes For Financial services Innovation

-!nan !al !nter(e&!ar!es $a"e to perfor( t$e tas. of f!nan !al !nno"at!on to (eet t$e &yna(! ally $ang!ng needs of t$e e ono(y an& to $elp t$e !n"estors ope #!t$ t$e !n reas!ngly "olat!le an& %n erta!n (ar.et pla e* T$ere !s a &!re ne ess!ty for t$e f!nan !al !nter(e&!ar!es to go for !nno"at!on &%e to t$e follo#!ng reasons /

 Lo# prof!ta'!l!ty / T$e prof!ta'!l!ty of t$e (a9or -I, na(ely 3$e 'an.s $as 'een "ery (% $ affe te& !n re ent t!(es* T$ere !s a &e l!ne, !n t$e prof!ta'!l!ty of tra&!t!onal 'an.!ng pro&% ts* So, 3$ey $a"e 'een o(pelle& to see. o%t ne# pro&% ts #$! $ (ay fet $ $!g$ ret%rns* !!* @een o(pet!t!on / T$e entry of (any -Is !n t$e f!nan !al se tor $as le& to se"ere o(pet!t!on a(ong t$e(* T$!s .een o(pet!t!on $as pa"e& t$e #ay for t$e entry of "ar!e& nat%re of !nno"at!"e f!nan !al pro&% ts so ns to (eet t$e "ar!e& re5%!re(ents of t$e !n"estors*

 * E ono(! L!'eral!,at!on / Refor( of t$e -!nan !al se tor onst!t%tes t$e (ost !(portant o(ponent of In&!a)s progra((e to#ar&s e ono(! l!'eral!,at!on* T$e re ent e ono(! l!'eral!,at!on (eas%res $a"e opene& t$e &oor fore!gn o(pet!tors to enter !nto o%r &o(est! (ar.et* Dereg%lat!on !n t$e for( of el!(!nat!on of e6 $ange ontrols an& !nterest rate e!l!ngs $a"e (a&e t$e (ar.et (ore o(pet!t!"e* Inno"at!on $as 'e o(e a (%st for s%r"!"al* !"* I(pro"e& o((%n! at!on te $nology / T$e o((%n! at!on te $nology $as 'e o(e so a&"an e& t$at e"en t$e #orl&)s !ss%ers an 'e l!n.e& #!t$ t$e !n"estors ! t$e glo'al f!nan !al (ar.et #!t$o%t any &!ff! %lty 'y (ean of offer!ng so (any opt!ons an& opport%n!t!es*

 C%sto(er Ser"! e / No# a &ays, t$e %sto(er)s e6pe tat!ons are "ery great* T$ey #ant ne#er pro&% ts at lo#er ost or at lo#er re&!t r!s. to repla e t$e e6!st!ng one To (eet t$!s !n rease& %sto(er sop$!st! at!on, t$e f!nan !al !nter(e&!ar!es are onstantly %n&erta.!ng resear $ !n or&er to !n"ent a ne# pro&% t #$! $ (ay s%!t to t$e re5%!re(ent of t$e !n"est!ng p%'l! * "!* Glo'al !(pa t / Many of t$e pro"!&ers an& %sers of ap!tal $a"e $ange& t$e!r roles all o"er t$e #orl&* -I $a"e o(e o%t of t$e!r tra&!t!onal approa $ an& t$ey ar rea&y to ass%(e (ore re&!t r!s.s*

 *In"estor A#areness = ?!t$ a gro#!ng a#areness a(ongst t$e !n"est!ng p%'l! , t$ere $as 'een a &!st!n t s$!ft fro( !n"est!ng t$e sa"!ngs !n p$ys! al assets l!.e gol&, s!l"er, lan& et * to f!nan !al assets l!.e s$ares, &e'ent%res, (%t%al f%n&s, et * Aga!n, #!t$!n t$e f!nan !al assets, t$ey go fro( )r!s. free 'an. &epos!ts to r!s.y !n"est(ents !n s$ares* To (eet t$e gro#!ng a#areness of t$e p%'l! , !nno"at!ons $as 'e o(e t$e nee& of t$e $o%r*

New Financial roducts and Services

In t$ese &ays of o(ple6 f!nan es, people e6pe t a f!nan !al ser"! e o(pany to play a "ery &yna(! role not only as a pro"!&er of f!nan e '%t also as a &epart(ental store of f!nan e* ?!t$ t$e open!ng of t$e e ono(y to (%lt!nat!onals, t$e free (ar.et on ept $as ass%(e& (% $ s!gn!f! an e* As a res%lt, t$e l!ents 'ot$ orporate an& !n&!"!&%als are e6pose& to t$e p$eno(ena of "olat!l!ty an& %n erta!nty an& $en e t$e4) e6pe t t$e f!nan !al ser"! es o(pany to !nno"ate ne# pro&% ts an& ser"! es so as to (eet t$e!r "ar!e& re5%!re(ents* As a res%lt of !nno"at!ons, ne# !nstr%(ents an& ne# pro&% ts are e(erg!ng !n t$e ap!tal (ar.et* T$e ap!tal (ar.et an& t$e (oney (ar.et are gett!ng #!&ene& an& &eepene&* Moreo"er, t$ere $as 'een a str% t%re& $ange !n t$e !nternat!onal ap!tal (ar.et #!t$ t$e e(ergen e of ne# pro&% ts an& !nno"at!"e te $n!5%es of operat!on !n t$e ap!tal (ar.et*

 Many f!nan !al !nter(e&!ar!es !n l%&!ng 'an.s $a"e alrea&y Starte& e6pan&!ng <$e!r a t!"!t!es !n t$e f!nan !al ser"! es se tor 'y offer!ng a "ar!ety ne# pro&% ts* As /t res%lt, sop$!st! at!on an& !nno"at!ons $a"e appeare& !n t$e arena of f!nan !al !nter(e&!at!ons* So(e of t$e( are 'r!efly e6pla!ne& $ere%n&er /

Merc!ant "an#ing
/ A (er $ant $an.er !s a f!nan !al !nter(e&!ary ! #$o $elps to transfer ap!tal fro( t$ose #$o possess !t to t$ose #$o nee& !t* Mer $ant 'an.!ng !n l%&es a #!&e range of a t!"!t!es s% $ as (anage(ent of %sto(er se %r!t!es, portfol!o (anage(ent, pro9e t o%nsel!ng an& appra!sal, %n&er#r!t!ng of s$ares an& &e'ent%res, loan syn&! at!on, a t!ng as 'an.er for t$e ref%n& or&ers, $an&l!ng !nterest an& &!"!&en& #arrants et * T$%s, a (er $ant $an.er ren&ers a $ost of ser"! es lo orporate, an& t$%s pro(ote !n&%str!al &e"elop(ent !n t$e o%ntry*

$oan Syndication
T$!s !s (ore or less s!(!lar to onsort!%( f!nan !ng* 8%t t$!s #or. !s ta.en %p 'y t$e (er $ant 'an.er as a lea& (anager* It refers to a loan arrange& 'y a 'an. alle& lea& (anager for a 'orro#er #$o !s %s%ally a large orporate %sto(er or a go"ern(ent &epart(ent* It also ena'les t$e (e('ers of t$e syn&! ate to s$are t$e re&!t r!s. asso !ate& #!t$ a part! %lar loan a(ong t$e(sel"es*

. $easing %
= A lease !s an agree(ent %n&er #$! $ a o(pany or a f!r( a 5%!res a r!g$t to (a.e %se of a ap!tal asset l!.e (a $!nery, on pay(ent of a pres r!'e& fee alle& )rental $arges)* In o%ntr!es l!.e 2SA, t$e 2@ an& Aapan, e5%!p(ent leas!ng !s "ery pop%lar an& nearly BCD of plant an& e5%!p(ent !s 'e!ng f!nan e& 'y leas!ng o(pan!es* In In&!a also, (any f!nan !al o(pan!es $a"e starte& e5%!p(ent leas!ng '%s!ness*

Mutual Funds &

A (%t%al f%n& refers to a f%n& ra!se& 'y a f!nan !al ser"! e o(pany 'y pool!ng t$e sa"!ngs of t$e p%'l! * It !s !n"este& !n a &!"ers!f!e& portfol!o #!t$ a "!e# to sprea&!ng an& (!n!(!,!ng t$e r!s. T$e f%n& pro"!&es !n"est(ent a"en%es for s(all !n"estors #$o annot part! !pate !n t$e e5%!t!es of '!g o(pan!es* It ens%res lo#1r!s., stea&y ret%rns, $!g$ l!5%!&!ty1 an& 'etter ap!tal!,at!on !n t$e long r%n*

Factoring
-a tor!ng refers to t$e pro ess of (anag!ng t$e sales reg!ster of a l!ent 'y a f!nan !al ser"! es o(pany* T$e ent!re respons!'!l!ty of olle t!ng t$e 'oo. &e'ts passes on to t$e fa tor*

Forfeiting
-orfe!t!ng !s a te $n!5%e 'y #$! $ a forfe!ter 3f!nan !ng agen y4 &!s o%nts an e6port '!ll an& pays rea&y as$ to t$e e6porter #$o an on entrate on t$e e6port front #!t$o%t 'ot$er!ng a'o%t olle t!on of e6port '!lls

'enture Capital
A "ent%re ap!tal !s anot$er (et$o& of f!nan !ng !n for( of e5%!ty part! !pat!on*

Custodial Services
2n&er t$!s a f!nan !al !nter(e&!ary (a!nly pro"!&es ser"! es to l!ents, for a pres r!'e& fee, l!.e safe .eep!ng of f!nan !al se %r!t!es an& olle t!on of !nterest an& &!"!&en&s*

Corporate advisory services

/ -!nan !al !nter(e&!ar!es part! %larly $an.s $a"e set%p spe !al!,e& 'ran $es for t$!s* As ne# a"en%es of f!nan e l!.e E%ro loans, GDRs et * ar a"a!la'le to orporate %sto(ers, t$!s ser"! e !s of !((ense $elp to t$e %sto(ers*

Securiti(ation

Se %r!t!,at!on !s a te $n!5%e #$ere'y a f!nan !al o(pany on"erts !ts !ll1 l!5%!&, non1negot!a'le an& $!g$ "al%e f!nan !al assets !nto se %r!t!es of s(all "al%e #$! $ are (a&e tra&a'le an& transfera'le*

. )erivative Security
A &er!"at!"e se %r!ty !s a se %r!ty #$ose "al%e &epen&s %pon t$e "al%es of ot$er 'as! "ar!a'le 'a .!ng t$e se %r!ty* In (ost ases, t$ese "ar!a'les are not$!ng '%t t$e pr! es of tra&e& se %r!t!es*

. New products in Fore* Mar#ets

/ Ne# pro&% ts $a"e also e(erge& !n t$e fore6 (ar.ets of &e"elope& o%ntr!es* So(e of t$ese pro&% ts are yet to (a.e f%ll entry !n In&!an (ar.ets* A(ong t$e( are / a* -or#ar& ontra t / A for#ar& transa t!on !s one #$ere t$e &el!"ery of fore!gn %rren y ta.es pla e at a spe !f!e& f%t%re &ate for a spe !f!e& pr! e* It (ay $a"e a f!6e& or fle6!'le (at%r!ty &ate* '* Opt!ons / As t$e "ery na(e !(pl!es, !t !s a ontra t #$ere !n t$e '%yer of opt!on)s $as a r!g$t to '%y or sell a f!6e& a(o%nt of %rren y aga!nst anot$er %rren y at a f!6e& rate on a f%t%re &ate a or&!ng to $!s opt!ons* -%t%res / It !s a ontra t #$ere!n t$ere !s an agree(ent to '%y or sell a state& 5%ant!ty of fore!gn %rren y at a f%t%re &ate at a pr! e agree& to 'et#een t$e part!es on t$e state& e6 $ange* &* S#aps = A s#ap refers to a transa t!on #$ere!n a f!nan !al !nter(e&!ary '%ys an& sells a spe !f!e& fore!gn %rren y s!(%ltaneo%sly for &!fferent (at%r!ty &ates*

. $ines of Credit
It !s an !nno"at!"e f%n&!ng (e $an!s( for t$e !(port of goo&s an& ser"! es on &eferre& pay(ents ter(s* LOC !s an arrange(ent of a f!nan !ng !nst!t%t!on of one o%ntry #!t$ anot$er to s%pport t$e e6port of goo&s an& ser"! es to as to ena'le t$e !(porter to !(port on &eferre& pay(ent ter(s*

C!allenges Facing t!e Financial Services Sector

T$o%g$ f!nan !al ser"! es se tor !s gro#!ng "ery fast, !t $as !ts o#n set of pro'le(s an& $allenges* T$e f!nan !al se tor $as to fa e (any $allenges !n !ts atte(pt to f%lf!ll t$e e"er gro#!ng f!nan !al &e(an&s of t$e e ono(y* So(e of t$e !(portant $allenges are 'r!efly e6pla!ne& $ere%n&er

La . of 5%al!f!e& personnel / T$e f!nan !al ser"! es * se tor !s f%lly geare& to t$e tas. of )f!nan !al reat!"!ty)* Ho#e"er, t$!s se tor $as to fa e (any $allenges* T$e &eart$ of 5%al!f!e& an& tra!ne& personnel !s an !(portant !(pe&!(ent !n !ts gro#t$, !!* La . of !n"estor a#areness / T$e !ntro&% t!on of ne# f!nan !al pro&% ts an& !nstr%(ents #!ll 'e of no %se %nless t$e !n"estor !s a#are of t$e a&"antages an& %ses of t$e ne# an& !nno"at!"e pro&% ts an& !nstr%(ents,

 La . of transparen y / T$e #$ole f!nan !al syste( !s %n&ergo!ng a p$eno(enal $ange !n a or&an e #!t$ t$e re5%!re(ents of t$e nat!onal glo'al en"!ron(ents* It !s $!g$ t!(e t$at t$!s se tor ga"e %p t$e!r ort$o&o6 att!t%&e of .eep!ng a o%nts !n a $!g$ly se ret (anner* La . of spe !al!,at!on/ !n t$e In&!an sense, ea $ f!nan !al !nter(e&!ary see(s to &eal !n a &!fferent f!nan !al ser"! e l!nes #!t$o%t spe !al!,!ng !n one or t#o areas* In ot$er o%ntr!es , -I spe !al!,e !n one or t#o areas only an& pro"!&e e6pert ser"! e*

 La . of re ent &ata/ (ost of t$e f! &o not spen& (ore on resear $* It !s "ery "!tal t$at one s$o%l& '%!l& %p a proper &ata 'ase on t$e 'as!s of #$! $ one o%l& e('ar. %pon f!nan !al reat!"!ty* La . of eff! !ent r!s. (anage(ent syste(/ #!t$ t$e open!ng of t$e e ono(y to (%lt!nat!onals an& e6pos%re of In&!an o(pan!es to !nternat!onal o(pet!t!on, (% $ !(portan e !s g!"en to fore!gn portfol!o flo#s* It !n"ol"es t$e %t!l!,at!on of (%lt! %rren y transa t!ons #$! $ e6poses t$e l!ent to e6 $ange rate r!s., !nterest rate r!s. an& e ono(! an& pol!t! al r!s.*

 T$e a'o"e $allenges are l!.ely to !n rease !n n%('er #!t$ t$e gro#!ng re5%!re(ents of t$e %sto(ers* T$e f!nan !al ser"! es se tor s$o%l& r!se %p to t$e o as!on to (eet t$ese $allenges 'y a&opt!ng ne# !nstr%(ents an& !nno"at!"e (eans of f!nan !ng so t$at !t o%l& play a "ery &yna(! role !n t$e e ono(y*

resent Scenario
T$e In&!an e ono(y !s !n t$e pro ess of rap!& transfor(at!on* Refor(s ate ta.!ng pla e !n e"ery f!el& ; part of e ono(y* Hen e f!nan !al ser"! es se tor !s also #!tness!ng $anges* T$e present s enar!o an 'e e6pla!ne& !n follo#!ng ter(s

Conservatism to dynamism
T$e (a!n o'9e t!"e of t$e f!nan !al se tor refor(s !s to pro(ote an eff! !ent, o(pet!t!"e an& &!"ers!f!e& f!nan !al syste( !n t$e o%ntry* T$!s !s "ery essent!al to ra!se t$e allo ate eff! !en y of a"a!la'le sa"!ngs, !n rease t$e ret%rn on !n"est(ent an& t$%s to pro(ote 3$e a elerate& gro#t$ of t$e e ono(y as a #$ole* At present n%(ero%s ne# -ls $a"e starte& f%n t!on!ng #!t$ a "!e# to e6ten&!ng (%lt!far!o%s ser"! es to t$e !n"est!ng p%'l! !n t$e area of f!nan !al ser"! es

+mergence of rimary +,uity Mar#et

T$e ap!tal (ar.ets, #$! $ #ere "ery sl%gg!s$, $a"e 'e o(e a "ery pop%lar so%r e of ra!s!ng f!nan e* T$e n%('er of sto . e6 $anges !n t$e o%ntry $as gone %p fro( E !n FEGH to BB !n FEEI* After t$e lo#er!ng of 'an. !nterest rates, ap!tal (ar.ets $a"e 'e o(e a "ery pop%lar (o&e of $annel!s!ng t$e sa"!ng of (e&!%( lass people*

Concept of credit rating

T$e !n"est(ent &e !s!ons of t$e !n"estors $a"e 'een 'ase& on fa tors l!.e na(e re ogn!t!on of t$e o(pany, operat!ons of t$e gro%p, (ar.et sent!(ents, rep%tat!on of t$e pro(oters et * no# gra&!ng fro( an !n&epen&ent agen y #o%l& $elp t$e !n"estors !n $!s portfol!o (anage(ent an& t$%s, e5%!ty gra&!ng !s go!ng to play a s!gn!f! ant role !n !n"est(ent &e !s!on (a.!ng*

rocess of globali(ation
T$e pro ess of glo'al!,at!on $as pa"e& t$e #ay for t$e entry of !nno"at!"e an& sop$!st! ate& pro&% ts !nto o%r o%ntry* S!n e t$e go"ern(ent !s "ery .een !n re(o"!ng all o'sta les t$at stan& !n t$e #ay of !nflo# of fore!gn ap!tal, t$e potent!al!t!es for t$e !ntro&% t!on of !nno"at!"e, !nternat!onal f!nan !al pro&% ts !n In&!a are "ery great* Moreo"er, o%r o%ntry !s l!.ely to enter t$e f%ll on"ert!l!'!l!ty era soon*

rocess of liberali(ation
O%r go"ern(ent $as !n!t!ate& (any steps to refor( t$e f!nan !al ser"! es !n&%stry* T$e go"ern(ent $as alrea&y s#!t $e& o"er to free pr! !ng of !ss%es *t$e !nterest $a"e 'een &ereg%late&* T$e pr!"ate se tor $as 'een per(!tte& to part! !pate !n 'an.!ng an& (%t%al f%n&s an& t$e p%'l! se tor %n&erta.!ngs are 'e!ng pr!"at!,e&* SE8I $as l!'eral!,e& (any str!ngent on&!t!ons so as to 'oost t$e ap!tal an& (oney (ar.ets*