Basic of Indian Financial Service Secror

1. FINANCIAL
SERVICES

2. OVERVIEW
 Financial Institutions; Financial Markets; Financial Instruments &
Services
 Organized and unorganized sectors
 Major players like ICICI; IDBI; HDFC; L&T; Birla Sunlife;TATA Capital;
Reliance Capital
 Highly linked to the macro policy decisions
 Financial Services sector growing ~ 8.5%

3. FINANCIAL SERVICES
 Very loosely defined
 Generally means
“Services rendered by banking & non-banking finance companies
regulated by the RBI, insurance companies regulated by IRDA, and other
entities regulated by SEBI”

4. FINANCIAL SECTOR REFORMS
 Initiated in 1991
 Accelerate economic growth and eradicate poverty
 Addressed
 Dominance of public sector in industrial sector
 Discretionary controls on industrial investments
 Trade and exchange controls
 Limited foreign investments
 Public ownership & regulation of financial sector

5. KEY CONSTITUENTS
 RBI
 Commercial Banks – Public & Private
 Developmental Finance Institutions – IDFC; GSFC
 InsuranceCompanies – Life & General
 Public sector institutions – POSB; NABARD; NHB; SIDBI
 Mutual Funds – UTI & Others
 NBFCs – HDFC; Shriram Finance
 Asset ReconstructionCompanies
 Capital Market Intermediaries
 Credit Information Companies – ICRA; CARE

6. RBI
 The Apex (Central) Bank
 Regulates Monetary Policy
 Prints Money
 Lender of the last resort
 Government’s banker
 Regulatory authority for banks

7. COMMERCIAL BANKS
 Business under Companies Act, 1956
 Carry out business of ‘banking’ as per Banking Regulation Act.
 Segregation
 Nationalized Banks
 SBI & Associate Banks
 Regional Rural Banks
 Foreign Banks
 Other Indian Private Banks

8. DFI
 Financial Institutions with mixed ownership
 Long term financial needs of industrial sector
 Centrally or state controlled

9. INSURANCE COMPANIES
 Traditionally dominated by LIC & GIC
 GIC has 4 fully owned subsidiaries
 New entrants since liberalization
 IRDA is the regulating authority
 Current segmentation
 Life Insurance
 General Insurance
 Health Insurance
 Re-insurance

10. PUBLIC SECTOR INSTITUTIONS
 Post Office Savings Bank
 National Bank for Agriculture and Rural Development
 National Housing Bank
 Export Import Bank of India
 Small Industries Development Bank of India

11. MUTUAL FUNDS
 Originated with UTI in 1963
 Regulated and monitored by SEBI
 Private players involved since liberalization of 1990s
 Managed through trusts – sponsors; trustees; AMC and custodians

12. NBFC
 Registered under Companies Act
 Governed by RBI
 Regulations different from banks
 Classification
 Asset FinanceCompany
 Investment Company
 Loan Company

13. ARC
 Asset Reconstruction Companies
 Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (SARFAESI)
 ARCIL etc.
 Recreate stressed and doubtful assets

14. CAPITAL MARKET INTERMEDIARIES
 Custodian of Securities
 Depositories
 Merchant Bankers
 Portfolio Managers
 Collective Investment Schemes
 Stock Brokers
 Underwriters
 Other Intermediaries

15. CREDIT AGENCIES
 Registered with RBI
 Credit Information Companies (Regulation) Act, 2005
 Primarily rate credit/debt of companies and corporations
 National and International players

16. PROCESSING
1. Identify and list down various financial services that are illustrated in
the video. In your view what are the other services that can be
included here?
2. What were the key expectations of the ultimate investors from the
financial system?
3. What was the key role played by the investment bankers in triggering
the financial crisis in the first place?
4. What are CDOs? How is risk managed under these instruments?

17. MARKET BEGINNINGS…
 Financial markets are at work all around us
 Rupee reacting to the Chinese devaluation ofYuan
 The BSE Sensex struggling to regain highs
 Software firms loosing millions with derivatives
 Loans to get cheaper following rate cuts by RBI
 Markets have a long history and have been around for a long time
 Markets have come a long way in recent past in terms of variety and
complexity
 Slow face-to-face dealing replaced by fast networks

18. WHAT DO MARKETS DO??
 Financial markets take on various forms and operate in diverse ways.
 In essence all of them serve the same basic functions
 Price Setting
 AssetValuation
 Arbitrage
 RaisingCapital
 CommercialTransactions
 Investing
 Risk Management

19.  Price Setting
 The value of a commodity or stock / share or bond is what someone is willing
to pay for it. (MSP?)
 This is achieved through mechanism of price discovery
 Determines relative value of different items based upon prices

20.  AssetValuation
 Market prices determine value of a firm or assets owned by the firm
 Important to buyers and sellers and regulators as well
 e.g. Securities bought and held by an insurer against claims and payouts,
with a view to determine solvency

21.  Arbitrage
 Especially observed in underdeveloped markets
 In essence this the difference in prices of currencies, commodities or
securities at different locations; eg BSE & NSE
 Alternative viewpoint – manpower arbitrage in the software development
industry
 Ultimately prices move away from these divergences and make the economy
more efficient

22.  Raising Capital
 Achieved through a host of instruments – bonds; shares;
 Businesses are prime customers – for adding capacity; greenfield projects;
 Governments also access markets in order to raise capital
 Capital required by individuals is also sourced here