Financial Services | Definition, Objectives, Scope,

Types, Nature, Importance & Limitations

Contents [hide]
1. What Is Financial Services ?
1. Definition Of Financial Services
2.Objectives Of Financial Services
3.Scope Of Financial Services
4.Nature Of Financial Services
5. Types Of Financial Services
1. Traditional Activities
1. Fund/Asset Based Financial Services
2.Fee/Non-Fund Based Financial
Services
2.Modern Activities
6.Regulatory Framework Of Finan7777cial
Services
 1. Reasons For Regulation Of Financial
Services
7. Importance Of Financial Services
8.Limitations Of Financial Services
9.Growth Of Financial Services In India

What is Financial Services?

Financial services are the services which are

offered by the financial companies. The financial
companies comprise of both Asset Management
Companies and Liability Management Companies.
In Asset Management Companies, the leasing
companies, mutual funds, merchant bankers and
issue/portfolio managers while
Liability Management Companies has the bill
discounting and acceptance houses.

In other words, the financial service is referred to

as the products and services which are offered by
the banks as they provide various kinds of facilities
of financial transactions and other financial
activities loans, insurance, credit cards,
investment opportunities and money management
and also give information on the stock market and
other issues like market ups and downs.
The basic aim of this sector is to act as
intermediary between individual and institutional
investors which will help in financial transactions.

Definition of Financial Services

The financial service industry is defined as, "The

collection of organisations which intermediate and
facilitate financial transactions of individual and
institutional investors from their resource
allocation activities through time".
Thus, the financial services comprise of various
works related to change of savings into investment.

Objectives of Financial Services

The various objectives of financial services are as
follows:

1) Fund Raising :
The required funds can be raised by the help of
financial services from the host of investors,
individuals, institutions and corporate. There are
various instruments of finance being used for
raising funds. These kinds of funds are required by
the corporate houses, individuals, etc.
2) Funds Deployment:
There are various kinds of financial services
present in the financial markets which help the
company in proper deployment of funds. It also
helps in decision-making of financial mix. The
financial service provide various types of services
like bill discounting, factoring of debtors,
shifting of short-term funds in the money
market, credit rating, e-commerce and
securitisation of debts for effective funds
management.

3) Specialized Services :
The various specialized services are being provided
by financial service except banking and insurance
like credit rating, venture capital financing, lease
financing, factoring, mutual funds, merchant
banking, stock lending, depository, credit cards,
housing finance, book-building, etc. These services
are provided by various kinds of institutions and
agencies like stock exchanges, specialized and
general financial institutions and non-banking
finance companies, subsidiaries of financial
institutions, banks and insurance companies. etc.

4) Regulation :
There are various kinds of regulatory bodies
present in India like Securities and Exchange
Board of India (SEBI), Reserve Bank of India
(RBI) and the Department of Banking and
Insurance of the Government of India which have
different types of legislation's and also help in
providing various kinds of functions of financial
services institutions.

5) Economic Growth :
The financial services help in increasing the
economic growth and development of country. It is
done by the help of mobilizing the saving of the
public by investing in productive investments. Due
to this reason, the various developed and
developing countries which are engaged in the
effective financial market has increased the savings
and investments.

Scope of Financial Services

The scope / functions of financial service is as

follows :

1) Gross Domestic Product (GDP) :

The gross domestic product refers to the financial
value of all the finished goods and services
manufactured inside the country in a specific time
period. The financial service contributes to the
GDP of the country.
2) Employment:
The financial service requires various kinds of
financial institutions which need different kinds of
skilled manpower which indirectly lead to increase
in the employment of the country.

3) Foreign Direct Investment (FDI) :

The financial service helps in increasing the
foreign direct investment in the country which
helps in increasing the growth of the country.

4) Mobilizing of Funds :
The financial service helps in increasing the
investment opportunity among the public leading
to mobilizing the funds of the public.

5) Long-Term Loan :
The long-term loan is basically required by the
industries. The financial service helps in providing
cheap and long-term loan to industries.

6) Insurance :
There are various types of financial services.
Among them the most important is insurance. The
insurance financial protection to the consumers.
Nature of Financial Services

The nature of financial services are given below :

1) Intangibility :
The financial services are intangible in nature. The
companies need to build goodwill and confidence
in the clients for producing better and efficient
financial services. The quality and innovations
plays an important role for building reliability
among the customers.

2) Customer Orientation :
The financial institution selling financial services
needs to study the demand of the customers. By
the help of various studies, the financial
institutions
makes different strategies relating to the costs,
liquidity and maturity consideration of the
financial products. Hence, financial services are
customer-oriented.

3) Inseparability :
The financial institutions and its customers cannot
be separated from each other while producing and
supplying of financial services as both the
functions of financial service is done at the same
time.

4) Perishability :
Financial services cannot be stored as they need to
be created and delivered to the target customers as
per their requirements. So, it is important for
financial institutions to assure that there is match
of demand and supply of financial services.

5) Dynamism :
The financial service should be dynamic so that
they can be changed according to the socio-
economics changes in the economy like disposable
income, standard of living, level of education, etc.
The financial services should be efficient so that
the new services can be made by studying the
future wants of the marker.

6) Derivatives and Catalysts :

The financial services are derivatives of financial
market. So, they also act as a catalyst in the market
operation. It starts the market operations and help
in increasing the investment by increasing the
saving for a high rate of capital formation. They
help in various financial products which are
derived from various financial transactions.

7) Act as Link :
The financial services bridge the gap between
investors and borrowers. They give profit bearing
investment to the investors by which they can also
minimize the risk. The investors have the options
of high risk and high profits, low risk and low
profit or get a regular income on acceptable risk.
The borrowers are also given many financial
services for fulfilling the financial needs by
lowering the cost of funds and also making the
repayments according to the income pattern.

8) Distribution of Risks :
The financial services distribute the funds in the
profitable manner so that the investors can
diversify their risk in different financial services
for getting maximum rate of return. The various
experts in the market help the investors for proper
selection of the portfolio for getting maximum
return.

Types of Financial Services

The financial services are divided into wholesale
financial service and retail financial services
according to the profile of users.
The wholesale financial services are the services
which are used for converting into final retail
products. It is used by industry and business
people. The retail financial services are given to the
individual for direct consumption. The
Classification of Financial Services are as follows :

Traditional Activities

The financial intermediaries from the past are

providing various services including the money
and capital market activity. The traditional
activities are classified into fund based activities
and non-fund based activities. These are also
known as assets based financial services and fee
based financial services respectively.

Fund/Asset Based Financial Services

In this, the financial services are used for making
assets or are backed by assets in which the funds
are changed to assets which are known as asset
based financial services. It consists of the following
:

1) Lease Financing :
A lease is known as the agreement between two
parties known as lessor and lessee. The lessor is
the owner of the asset and lessee is the user of the
asset. In this agreement, there is transfer of asset
from lessor to lesser for certain time period, in
return the lessor receives the regular rent. As the
lease period gets over, the asset is returned back to
lessor until there is renewal of the contract.

2) Hire Purchase :
The hire purchase refers to the hiring of an asset
for certain time period and when the time period
gets over, there is purchase of same asset. At the
time of sharing of asset, the person hiring the asset
gets the ownership and is allowed in use it. It is
being used for financing of capital goods
like industrial finance, financing of consumer
goods and for selling consumer good on hire
purchase as it is a legal advice.
3) Factoring :
Factoring is done when the company requires
immediate money. It is done by selling the account
receivable like invoices to a third party known as
factor at certain discount for immediate cash. This
cash is required for continuous working of the
business.

4) Forfeiting :
Forfeiting is the way of financing of receivable
related to international trade. It represents to the
purchase done by bank and financial institutions
of trade bills/promissory notes instead of recourse
to the seller. The purchase is done by discounting
the documents including the overall risk of non-
payment in collection. The various problems
related to collection are accountability of the
purchaser who pays cash to seller after discounting
the bills and notes.

5) Mutual Fund :
Mutual fund is the type of investment in which the
pool of funds is sourced from various investors for
investing in various securities like stocks, bonds,
money market instruments and similar assets. It is
managed by the money managers who invest the
fund capital and tries to get capital gains and
income for the investors of the fund. The portfolio
of mutual fund is organised and is according to the
investment objective given in the prospectus.

6) Exchange Traded Funds (ETFs) :

It is traded same like stocks in the stock exchange.
It has the following assets like stocks, commodities
or bonds. They trade near to the net asset value
according to the working of the trading day. The
ETFs also has a role to monitor various index like
stock index or bond index. Exchange traded
funds is useful for investments as there are low
costs, tax efficiency and stock-like features. They
are very famous among exchange-traded product.

7) Consumer Credit/Consumer Finance :

The term consumer credit means the activities
related to giving credit to the consumers for
empowering them to acquire their own goods
required for daily use. It is also known as credit
merchandising, deferred payments, instalment
buying, hire purchase, pay-out-of income scheme,
pay-as-you earn scheme, easy payment, credit
buying, instalment credit plan, etc.

8) Bill Discounting :
The bill discounting or a bill of exchange is known
as the short-term, negotiable and can easily
liquidates money market instrument. It is used for
financing a transaction in goods which is trade
related instrument.

9) Housing Finance :
The housing finance refers to the collection of all
the financial arrangements which are offered by
the Housing Finance Companies (HFCs) for
fulfilling the need of housing.

10) Venture Capital :

Venture capital includes two words i.e. venture
and capital Venture refers to the way of doing
something whose result is not known as it is
present with various kinds of loss while capital
refers to human and non-human resources
required for starting the business.

Fee/Non-Fund Based Financial Services

The fee based financial does not provide instant

fund but instead it allows for the creation of funds
by the fee charged service. It consists of the
following :
1) Merchant Banking :
The merchant banker can be individual or
institutions like an underwriter or agent for the
companies and municipalities allocating securities.
They are also involved in broker or dealer
functions, maintain the market for previously
issued securities and also gives suggestion to the
investors on the advisory services. It plays
important part in mergers and acquisitions,
private equity placements and corporate
restructuring.

2) Credit Rating :
The credit rating is the process in which the
symbol is assigned to the instrument for some
special work which is referred to as benchmark of
present knowledge on related capacity on the
issuer to service its debt obligation on particular
time. The symbols used in credit rating are
basically alphabetical or alphanumeric. The
comparison of different instruments is easy by the
help of credit rating. The basic objective of credit
rating is to inform the investors about the relative
ranking of the default-loss probability for required
fixed income investment in comparison to other
rated instruments.
3) Stock Broking :
The stock broking refers to the method of bringing
together the buyers and sellers of stock at the stock
exchange. It is the function of financial service
intermediary. It is done by brokers, both main
brokers and sub brokers who are allowed by the
SEBI. The stock broker can be individual broker, a
firm of brokers or a corporatized broker.

4) Securitisation :
The change of present or future cash inflow of an
individual into tradable security which can be sold
in the market is known as securitisation. These
cash inflows can be from financial assets like
mortgage loans, automobile loans, trade
receivables, credit card receivables, fare collections
will be security according to which borrowing can
be raised. Though an individual can take the
assistance of securitisation instruments for
efficient economic growth.

5) Letters of Credit (LC) :

A letter of credit is issued by the bank of the buyer
to the seller which has a written undertaking for
repaying the cost of goods and services given by
the seller to the buyer in place of producing
documents required within the precise time, place
and to prescribed bank as stated in the documents
which is submitted according to the terms and
conditions of the LC.

6) Bank Guarantees :
The guarantee is the contract between the issuing
bank and the client in which the bank attempt to
take the claims presented by the client on the
customer on behalf of which the bank had
guarantee. The payment of default can be taken
from the bank by the client in case the customers
do not fill the obligation. The bank is only liable for
the amount declared in the contract if the amount
of default is more than the bank will have to give
the whole amount.

Modern Activities

The financial intermediaries also have other

services besides the traditional services. These are
of non fund based activity. These are classified
under New Financial products and services. The
different services are as follows :
1. It provides various project advisory services
starting from the preparation of the project
report until raising of funds along with the
various government approvals.
2.The planning and implementing the process
involved in for merger and acquisition.
3.It assists the corporate customers in capital
restructuring.
4.It acts the trustees to the debenture holders.
5. It helps in achieving the better outcome by
giving required changes in the management
structure and management style.
6.It help helps in finding the better joint venture
partners and also making the joint venture
agreements which directly help in structuring
the financial collaborations and joint ventures.
7. It also helps the sick companies by
rehabilitating and restructuring the proper
plans in the execution of the scheme.
8.It helps in reducing risk by the help of
exchange rate risk, interest rate risk, economic
risk and political risk by using swaps and other
derivative products.
9. It helps in controlling the portfolio of large
public sector company.
10. It is involved in risk management service
like insurance services, buy-back options etc.
11. It also gives suggestions to clients on the
way of choosing the better source of funds by
taking up the various funds, cost, lending time,
etc.
 12. It also helps the client in lowering the debt
cost and also for selecting the better optimum
debt equity ratio.
13. It also helps the companies which are
related in credit rating and want to go public
by the issue of debt instruments.
14. It takes the various services associated to
the capital market like :
 Clearing services
 Registration and transfers
 Sate custody of securities
 Collection of income on securities

Regulatory Framework of Financial Services

Usually, the regulatory framework has the

objective of establishing the efficient and effective
financial institutions and also assists in
maintaining the stability of the transmission
method and also safeguarding the consumers of
the financial services. The regulatory framework of
financial services in India is shown below :
1) Framework for Banking and Financing
Services :
The banks handle two functions which also
determine their growth. These functions are
savings and investments. The working of the
banking and financial institutions is controlled by
Central Government and RBI. The central
government and RBI help in maintaining the
growth of economy according to the requirement.
The RBI by the help of RBI Act and Banking
Regulation Act controls all the financial
institutions which are related to saving and capital
formation. There are various other laws for
institution which are involved in raising and
lending the capital. The various regulations for
banking institutions are as follows :

i) New Branch :
It gives permissions for establishing new bank or
new branch.
ii) Capital :
It suggests the minimum capital, reserves and
need of profit and reserves, dispersion of
dividends, the amount requirement for minimum
cash reserve and other liquid assets.

iii) Inspection :
The proper monitoring and maintenance on the
functioning of the banks.

iv) Appointment :
The various appointments of Chairman and Chief
Executive Officer of private banks and nominating
members to the Board of Directors done.

v) Monetary Policy :
The planning and implementation of monetary
and credit policy for effective regulation of credit
flows. Maintenance of certain amount by t
deciding Cash Reserve Ratio (CRR) and Statutory
Liquidity Ratio (SLR). The various treasury
operations are done by the regular issue of bonds
and repos.

vi) Credit Control :

The various qualitative and quantitative credit
control method are used for managing credit flow
to different industries.

vii) Other Services :

The various other services like regulating,
factoring, bill discounting and credit card services
are offered by the banks.

2) Framework for Insurance Services :

The Insurance Act, 1938 was made for managing
the insurers prior to the nationalization of life and
general insurance. The LIC formed in 1956 and
GIC was formed in 1973 are the big institutions in
insurance service. The nationalization of the
insurance companies has changed the working of
the Act. The regulatory functions came along with
LIC and GIC.

The RBI appointed the Malhotra Committee in

1993 for providing ways to enhance the
functioning of various insurance services present
in India so the Insurance Regulatory Authority
(IRA) was framed in 1996. The IRA performs the
following works for both public and private
insurance company :
i) Orderly Growth :
The regulation and promotion of the insurance
business leads to the orderly growth.

ii) Exercise of Powers :

The various powers and functions of the controller
of Insurance under the Insurance Act, 1938, LIC
Act, 1956 and the General Insurance Business
(Nationalization) Act, 1972 or any other law
relating to insurance in force at the time it is
exercised and performed.

iii) Protecting Policy-Holders :

The various interest of policy-holders like
assigning of policy nomination by policy-holders,
insurable interest, settlement of insurance claims,
surrender value of policy and other terms and
conditions of contract insurance, besides
controlling and regulating the rates. Advantageous
terms and conditions that are offered should be
protected by the insurer.

iv) Professionalization :
The professional organisation related to the
insurance business should be controlled and
promoted.
v) Information :
The various information of the inspection,
inquiries and investigation including audit of the
insurers, insurance intermediaries and other
organizations related to the insurance business can
be called by the governing body.

vi) Books Maintenance :

The way of maintaining the books of accounts with
all the statements of accounts is prescribed to the
insurers and other insurance intermediaries.

3) Framework for Investment Services :

The various fund-based activities like mutual
funds and venture capital is related to the
investment services. In the same way, the stock
exchange and stock broking institution is also
related with the investment activities. The
regulations followed by them can be discussed
with other investment activities. The Securities
Contracts (Regulations) Act (SCRA), 1956. SEBI
Regulations and Reserve Bank of India comprises
of the regulatory is defined.

4) Framework for Merchant Banking and Other

Services :
 The working of different types of intermediaries
related to the management of public and right
issue of capital, like merchant bankers,
underwriters, brokers, market-makers, registrars,
advisors, collection bankers, advertisement
consultant, debenture trustees, credit rating
agencies etc., are controlled by various guidelines
of SEBI which are explained as follows :
 SEBI (Merchant Banker) Regulation, 1992
 SEBI Rules for Underwriters
 SEBI (Brokers and Sub-brokers) Regulation, 1992
 SEBI Rules for Registrars to an Issue and Share
Transfer Agents, 1993
 SEBI (Bankers to an Issue) Regulations, 1994
The regulations for merchant bankers and other
intermediaries are as follows :
 The business should be registered with SEBI prior
to the commencement of business according the
related rules and to regulations.
 The various rules and certification relating to the
net-worth, capital adequacy and code of conduct
should be followed.
 The proper monitoring of the books and records
should be done and also various investigations
should be done on the working of intermediaries.
The accurate measure should be suggested
wherever required.
 All the guidelines of SEBI should he followed and
the "due-diligence certificate" should also be
issued.
 The SEBI guidelines for Disclosure and Investor
Protection, 1992 related to the issue of capital and
SEBI (Substantial Acquisition of Shares and
Takeover) Regulations, 1994 related to the method
to be followed by the acquirer and the merchant
banker for such acquisition of shares should be
followed.

Reasons for Regulation of Financial Services

The reasons for the regulation of financial services

are as follows :
1. The market efficiency can be improved.
2.It helps in removing the illegal trade practices.
3.It helps in maintaining the transparency in the
operation and avoiding the case of
manipulation.
4.It helps in increasing equality and correctness.
5. It also helps in safeguarding the small
investors, depositors, insurance policy holders
and securities investors.
6.It helps in avoiding the misconduct in the
market.
 7. It helps in maintaining the stability of the
financial system.
8.It helps in taking decisions regarding the plans
and policy of financial system.
9.It helps in representing the international
platform which helps in increasing the
coordination with the international financial
administration policy.
10. It checks that the working is done
according to the rules concerned with the
financial markets.
11. It manages the financial regulation by
issuing orders of cancellation or termination of
licenses forcing disciplinary sanctions,
instructing corrective methods, etc.
12. Establishing the capability of financial
service providers.
13. It helps in providing confidence in the
financial system.
14. It reduces the breaching of laws.

Importance of Financial Services

The advantages of financial services are as follows :

1) Economic Growth and Development :

The financial service is very important for
economic growth and development. The banking,
saving and investment, insurance and debt and
equity provides help both to the private citizens
and business. The private citizens get help in
saving money, getting protection against some
causalities while helps the business in their
formation, increasing the efficiency and also for
expanding the business both nationally and
internationally. It also helps the poor section of
societies as these services helps in lowering the
vulnerability and helping people to control the
availability of assets for making the income and
options which leads to poverty in the society.

2) Contribution in GDP :
The financial service sector has the largest earning
which consists of various type of business like
merchant banks, credit card companies, stock
brokerages and insurance companies. It is largest
in the world. The financial services contribute a
larger part of GDP.

3) Promotion of Liquidity :
The basic feature of the financial service is to use
the money and monetary assets for producing the
goods and services so for this process there the
requirement of regular flow of money. The money
and monetary assets are referred to as the liquidity
in finance. While liquidity can also be known as
the money and other assets which can be changed
into cash and reduce the risk of loss.

4) Generate Employment :
The financial service also helps in generating
employment in the country as it is in the growth
stage. It is helpful for the developing country like
India. It also helps in expanding the financial
market. It helps in increasing the FDI flow in the
country which is required for the growth of the
country.

5) Link between Savers and Investors :

The financial service helps in bridging the gap
between the depositors and investors which helps
in increasing the savings and investments. It helps
in doing proper allocation of resources which help
in mobilizing the saving of the public. It also
contributes in the continuous up-gradation of the
technology. These all factors have increased the
growth of the country on the sustainable basis.

6) Reduce Cost of Transaction and Borrowing :

The financial services has helped in making such
financial structure which has the lower cost of
transactions. It has increased the profit on the
return to the savers and it also lowers the cost of
borrowing which increases the rate of saving
among the people. The financial services also help
in providing the cheap and long-term loans to
different industries.

7) Minimizes Situations of Asymmetric

Information :
The various financial services like insurance,
pension and portfolio adjustment helps in
providing the financial protection and reducing the
conditions in which the information is not regular
and may also affects the performance of the
operators or when one party has the details while
the other does not have.

8) Financial Deepening and Broadening :

The financial services helps in developing the
process of financial deepening and broadening.
Financial deepening means increasing the
financial assets according to the percentage of
Gross Domestic Product (GDP). Financial
broadening means in increasing the number of
financial assets and also the variety of participants
and instruments.

9) Helps in Projects Selection :

The financial services also help in improving the
performance of the investment. It also helps in
providing the way for exchanging the goods and
services and also transferring the economic
resources by time and also geographic region and
industries.

10) Allocation of Risk :

The financial service works in doing optimum
allocation of risk bearing. It reduces, merges and
trade various kind of risks which is used in
mobilizing the saving and assigning the credit. The
financial services work to make the risk within the
limits and also reduces the gathering cost and
examining the information to help the operators in
decision making.

Limitations of Financial Services

The growth rate of financial service is very fast but

they also face some issues and problems. These
financial services face various challenges for
accomplishing the financial demand of the
economy. The various disadvantages of financial
services are as follows :
1) Lack of Qualified Personnel :
The financial services sector requires the financial
creativity. There is lack of qualified and trained
employees to do so. It also reduces the growth of
the economy.

2) Lack of Investor Awareness :

The investors do not have knowledge about the
new financial products and instruments which
makes it of no use and the investors also does not
get the advantages of innovative products and
instruments.

3) Lack of Transparency :
As the financial system is expanding in various
forms both national and international wise but do
you the lack of transparency in keeping the
accounts the growth of financial system is very
slow.

4) Lack of Specialization :
There is lack of specialization in India as each
financial intermediary trade in different financial
service without having knowledge in one or two
area While in other countries the financial
intermediaries work only in those area in which
they are specialized.
5) Lack of Recent Data :
The financial intermediaries are not involved in
research work so they do not get any updated
information which is important for doing any new
innovation in the financial service.

6) Lack of Efficient Risk Management System :

Due to globalization of the economy the various
multinational companies are entering the Indian
market and importance is given to the foreign
portfolio flows. There is flow of various kinds of
currencies which increase the various kind of risk
like exchange rate risk, interest rate risk, economic
and political risk.

Growth of Financial Services in India

The various stages of growth/Evolution of

financial services in India are as follows :

1) Merchant Banking Era :

The merchant banking era consisted of the period
between 1960 and 1980. In this period, there was
growth in various kinds financial services like
 merchant banking, insurance and leasing services.
The functions of merchant banking are as follows :
 The project should be identified, the feasibility
reports should be prepared and the detail project
reports should be prepared.
 The various marketing, managerial, financial and
technical analysis should be done on behalf of the
customers.
 The accurate capital structure can be made by the
help of merchant banking.
 It acts as the link between the capital market and
the fund-seeing institutions.
 It helps in underwriting.
 It helps the companies in listing the issues on the
stock exchange.
 It also suggests various ways of doing mergers
and and acquisitions.
 It helps in giving technical suggestions on
leveraged buyouts and takeovers.
 It helps in providing syndication ability by
providing project finance.
 It helps in providing working capital loans.

2) Investment Companies Era :

In this era, there was introduction of various
investment institutions and banks. These
investment institutions comprise of the Unit Trust
of India (UTI). Life Insurance Corporation of India
(LIC) and the General Insurance Corporations.
(GIC). The UTI is the largest public sector mutual
fund in the world. The LIC is related with the life
insurance business. It is a public monopoly. The
various private insurance companies was
nationalized in 1970. After the nationalization, the
insurance company was made as the holding
company which had four subsidiaries for
managing the general insurance business in the
public sector. At the end of 1970, the leasing
business has come up. Earlier these companies
were working on the equipment lease financing but
now the leasing of various operations like
financial, operating and wet leasing was done.

3) Modern Services Era :

During 1980, there was the introduction of
financial products and services. The financial
service consists of over the-counter services, share
transfers, pledging of shares, mutual funds,
factoring, discounting. venture capital and credit
rating. The mutual fund industries for increasing
the savings habit among the people introduced
various innovative schemes for mobilization of
savings. The mutual funds have the transparent
asset and liability. management which help the
investors in getting increased and constant return
on the investment done by them.
The credit rating was the important financial
service introduced by Indian financial sector. The
introduction of the credit rating system was done
for increasing the confidence of investors and also
for increasing the participation in the capital
market operations and also encouraging the better
and effective financial discipline in the system.
Another important advancement took place by
preparing the structure of venture capital funds.
The short-term financing for domestic and
international trade was factoring. The introduction
of commercial banks in financial service leads to
the change in the financial system in India.

4) Depository Era :
There was the introduction' of depositories in this
era for combining the Indian financial sector
industry with the global financial service industry
and for encouraging the paperless trading by the
help of dematerialisation of shares and bonds. The
trading in "Gilts" was permitted by Central
Government in 1997-98 by introducing the Stock-
Lending Scheme. It prepared individual
department to deal with the trading of Gilts.
Another method for establishing effective financial
service sector in India is the introduction of book-
building with the help of both the investors and
fund users. The various online trading platforms
were brought up by Bombay Stock Exchange, the
Delhi Stock Exchange and the computerization of
the National Stock Exchange. It will help in
building the better financial service market in
India.

5) Legislative Era :
There were various legislation's framed in this era
for developing the financial service sector. The
FEMA was replaced by FERA. The change was
done by introducing the separate legislation for
internet trading. There were amendments done in
Indian Companies Act, Income Tax Act, etc., for
increasing safe and better trading and clearing of
transactions.

6) Foreign Institutional Investors Era :

The government introduced economic reform
which is very important for the various
participants. The disinvestment guidelines are
given by SEBI in which the Foreign Institutional
Investors (FIIs) are allowed to work in the Indian
capital market. It is done for giving entry to the
foreign investors in the Indian capital market and
en-chasing the growth and development.
Capital Market and Financial Services Financial
Systems of Markets & Services