Subject – FINANCIAL SERVICES

Class –B.B.A./M.B.A.

Topic – Financial Services and Economic

Environment

• Key-Words – Nationalization, Globalization, liberalization, Stock

Exchange, OTCI
Dr. Dileep Kumar Singh
Institute of Management Studies
Faculty of Commerce and Management Studies
Mahatma Gandhi Kashi Vidyapith Varanasi – 221002
e-mail : singh96906238@gmail.com
Financial Services and Economic
Environment

Dr. Dileep Kumar Singh

Assistant Professor
Institute of Management Studies
Mahatma Gandhi Kashi Vidyapith
Varanasi

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 FINANCIAL SERVICES AND
ECONOMIC ENVIRONMENT
The changes in financial system can be studied into three
stages :

1. Before independence
2. After independence till 1990
3. After 1990
 STAGE 1: BEFORE
INDEPENDENCE
1. The system was unorganized .
2. Capital stock exchanges had very few industrial
security being traded in secuirities market
3. There was no separate issuing institution
4. Industry access to outside saving was also restricted
 STAGE: II AFTER INDEPENDENCE
(1948 – 90)
• Post independence period stressed on planned economic
development under the directive principles of state policy a
scheme of planned economic development was evolved in
1951 with a view to achieve the broad economic and social
objectives of the sale
• The main objective was to retain govt. control over
distribution of credit and finance
 NO OF DEVELOPMENTS TOOK PLACE IN THE FINANCIAL SYSTEM LISTED
BELOW

1. TRANSFER OF OWNERSHIP FROM PRIVATE TO PUBLIC SECTOR

2. NATIONALIZATION OF RBI
3. SETTING UP OF STATE BANK OF INDIA
4. NATIONALIZATION OF LIFE INSURANCE BUSINESS
5. NATIONALIZATION OF COMMERCIAL BANKS
6. NATIONALIZATION OF OF GENRAL INSURANCE BUSINESS
7. SETTING UP OF FINACIAL INSTITUIONS
8. DEVEPOMNET FINANCE INSTITUIONS
• INVESTING INSTITUIONS
• OTHER INSTITUTIONS
 STAGE III: AFTER 1990’s

1.Indian financial system has undergone massive

changes since the announcement of new
economic policy in 1991.

2. Liberalization Globalization has transformed

Indian economy from closed to open economy.

3. Financial system is focusing more attention

towards the development of capital market.
MAJOR DEVELOPMENTS OF INDIAN FINANCIAL
SYSTEM
Entry of private sector :

1.Financial institutions have been converted into

companies, allowing them to issue equity\bonds to the
public.

2. Govt. has allowed private sector to enter into banking

and insurance sector.
CHANGING ROLE OF DEVELOPMENT FINANCE
INSTITUTIONS [DFIs]

1. DFIs performed the role of term-lending institutions

extending loans for project finance,underwriting,direct
subscription etc.
2. They receives funds from the govt. and RBI
There is remarkable shift in the activities of DFIs
3. DFIs are engaged in non-fund based financial activities.
4.DFIs raise funds through issue of bonds carrying floating
rate of interest or bonds without govt. guarantee.
5. DFIs sponsored infrastructural institutions .
EMERGENCE OF NON-BANKING FINANCIAL
COMPANIES[NBFCs]
In the unorganized non banking sector , number of non banking
financial companies have emerged providing financial services partly
fee based and partly asset /fund based.

GROWTH OF MUTUAL FUNDS INDUSTRY

UTI was the single organisation issuing the mutual fund units. But
presently , the mutual funds are sponsored not only by UTI but also by
banks , insurance organisation,private sector.
Securities and Exchange Board of India (SEBI )

The Securities and Exchange board of India was

established under the SEBI act, 1992 with
following purposes:

1.to protect the interest of investors in securities;

2. to promote the development of the securities

market;

3. to regulate the securities market

DEVELOPMENTS IN SECONDARY MARKET/STOCK MARKET

Capital market has undergone tremendous change over the

years. Number of developments have taken place. It
includes:
1. issuance of regulations by SEBI in respect of
brokers/sub brokers
2. more transparency in trading and settlement practices.
3. Regulation of badla trading
4. setting up of National stock exchange (NSE) and over
The counter exchange of India (OCTEI).
SIGNIFICANT CHANGES IN FINANCIAL SYSTEM

1.The Unit Trust of India , the leading mutual fund organization

has been split into two parts as a consequence of the repeal of
the UTI Act.

2.Private sector has been allowed in the insurance sector thus

breaking the monopoly of Life insurance Corporation[ LIC] and
General Insurance Corporation[GIC].

3.The merger of the ICICI Ltd. And IDBI into ICICI Bank and
IDBI Bank respectively and the proposed merger of Industrial
Finance Corporation of India [IFCI] into Punjab National Bank.
PLAYERS IN FINANCIAL SERVICES SECTOR

BANKING INSTITUTIONS
The Indian banking institutions can be broadly
classified into two categories:

1.Organised sector

2. Unorganised sector

Organised sector :- The organised banking sector

consist of
commercial banks, cooperative banks and the
regional rural banks.
 Commercial Banks
The commercial banks may be
scheduled banks or non-scheduled
banks.
At present only one bank is a non-
scheduled bank. All other banks
are scheduled banks.
The commercial banks consist of
27 public sectors banks, private
sector banks and foreign banks.
Function of Commercial Banks
Primary Functions
1. ACCEPTING DEPOSITS
2.LENDING OR ADVACING LOANS
(a) Money at call.
(b) Overdraft.
(c) Cash credit.
(d) Discounting of bills.
(e) Term loans.
(F) Credit to govt
3.CREDIT CREATION
4.CHEQUE SYSTEM OF PAYMENT AND FUNDS
Short Answer Question:-
1. Bring out the salient features of Indian capital market.
2. Explain the players in Indian Capital market.

Long Answer Question:-

1. Discuss the evolution of financial services in india. What are the
problems faced by financial service industry in India
2. Why do you think financial markets are required? What are your views on
proper regulation of these markets?
3. Discuss the evolution of financial services in India. What are the problems
faced by financial services industry in India?

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 References
• Bagchi, A. K. (1985). Transition from Indian to British Indian Systems of Money
and Banking 1800–1850. Modern Asian Studies, 19(03), 501-519.
• Nachiket Mor and Bindu Ananth, (2007); Inclusive Financial Systems: Some
design Principles and a Case Study; Economic and Political Weekly, Vol. 42, No.
13, Money, Banking and Finance (Mar. 31 - Apr. 6, 2007), pp. 1121+1123+1125-
1126
• Financial Services by M Y Khan, McGraw Hill Education (India) Pvt Ltd, 2013
• Seibel, H. D. (2005). SHG Banking in India: The evolution of a rural financial
innovation No. 2005, 9.
• Reserve Bank of India (2005b): (History of) Reserve Bank of India (3 volumes),
Mumbai: Reserve Bank of India.
• Reserve Bank of India. All India Debt and Investment Survey, 1981-82. New
Delhi: Reserve Bank of India.
• V.Avadhani, Indian capital market, First Edition, Himalaya publishing Home.
• H.R.Machiraju, Merchant banking, third Edition, New age international
publishers.
• Ruddar Datt & K.P.M.Sundharam, Indian Economy, Fortieth Revised Edition,
S.Chand & Co.Ltd.,
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