Management of financial

institutions & services

By- Jaya Mishra

System
•  An Organized, purposeful structure regarded as
a ‘whole’ consisting of interrelated and
interdependent elements(components, entities, f
actors, members, parts etc.). These elements
continually influence one another (directly or
indirectly) to maintain their activity and the
existence of the system, in order to achieve the
common purpose the ‘goal’ of the system.
Financial system
• All those activities related to finance & organized
into a system may be called financial system.
• A system that aims at establishing & providing a
regular, smooth, efficient & cost effective linkage
between depositors & investors is known as
Financial System.
Features of Financial System

• It provides an ideal linkage between depositors

& investors, thus encouraging both savings &
investments.
• It facilitates expansion of financial markets over
space & time.
• It influences both the quality & the pace of
economic development.
Functions
• The main function of financial systems is the
collection of savings & their distribution for
industrial investment, thereby simulating the capital
formation involves three distinct although inter-
related activities:
1) savings: the ability by which claims to resources are
set aside & become available for other purposes.
2) Finance: the activity by which claims to resources
are either assembled from those released by
domestic savings, obtained from abroad, or specially
created usually as bank deposit or notes & then
placed in the hands of the investors.
3) Investments: the activity by which resources are
actually committed to production.
Transfer process

• The relationship between savings & investments

varies considerably among economic units.
Goldsmith has designated the various economic
units into 3 categories :
1) saving-surplus units: those units whose savings
are in excess of investments
2) Savings-deficit units: economic units whose
investment exceed their savings.
3) Neutral units: in whose units savings are equal to
investments.
Transfer process(contd.)
• If capital formation is to take place, the savings
of the saving-surplus units must be transferred
to the saving-deficit units. There is in so a need
for institutional arrangement to facilitate the
transfer of resources. This is actually what the
financial systems do by acting a link between the
savers & the investors.
Organization of Financial system
The organization of the financial system
consists of
1) Financial intermediaries
2) Financial markets
3) financial instruments
4) & Financial services
1.Financial intermediaries

• Financial intermediaries: An institution that acts

as the middleman between investors and firms
raising funds. Often referred to as financial
institutions.
• The borrower who borrows money from the
Financial Intermediaries/Institutions pays
higher amount of interest than that received by
the actual lender and the difference between the
Interest paid and Interest earned is the Financial
Intermediaries/Institutions profit.
Financial intermediaries

• FIs are basically two types:

1. BFIs (Central banks and Commercial banks) and
2. Non-Bank Financial Intermediaries, NBFIs
(insurance companies, mutual trust funds,
investment companies, pensions funds, discount
houses and bureaux de change).
• Financial Intermediaries are broadly classified
into two major categories:
1) Fee-based or Advisory Financial Intermediaries
2) Asset Based Financial Intermediaries.
Financial intermediaries
• Fee Based/Advisory Financial
Intermediaries: These Financial
Intermediaries/ Institutions offer advisory
financial services and charge a fee accordingly
for the services rendered. Their services include:
• i. Issue Management
ii. Underwriting
iii. Portfolio Management
iv. Corporate Counseling
v. Stock Broking
vi. Debenture Trusteeship
vii. Capital Restructuring
Financial intermediaries

• ASSET-BASED Financial Intermediaries:

These Financial Intermediaries/Institutions
finance the specific requirements of their client.
The required infra-structure, in the form of
required asset or finance is provided for rent or
interest respectively.
Role of Financial intermediaries

• FIs play a vital role in economic development via capital formation. Their
relevance to the flow of savings is derived from what is called the
transmutation effect; i.e. They transform funds in such a way as to
make them more attractive.
• intermediation improves social welfare by channeling resources to their
most effective use.
• Financial intermediaries reduce adverse selection and moral
hazard problems.
• promote efficiency by producing an efficient allocation of capital, which
increases production
• It mobilizes funds and converting the unproductive and liquid savings
into the productive investments.
• It provides convenience, expert management, economies of scale &
reduces risk for its investors & debtors.
Role of Financial intermediaries
2. Financial markets
Financial markets facilitate buying
& selling of financial claims,
assets, services & securities.
In financial markets, funds or
savings are transferred from
surplus units to deficit units.
A financial market is said to exist
whenever financial transactions
take place.
3. Financial instruments
• Financial claims such as financial assets & securities dealt in a
financial market are referred to as financial instruments.
• Important characteristics of financial instruments are:
1. Liquidity
2. Collateral value
3. Marketability
4. Transferability
5. Maturity period
6. Transaction cost
7. Risk & uncertainty
8. Provision of options
9. Tax status
10. ROI
11. Price fluctuations.
4. Financial services

• Financial services refer to services provided

by the finance industry. The finance industry
encompasses a broad range of organizations that
deal with the management of money. Among
these organizations are banks, credit card
companies, insurance companies, consumer
finance companies, stock brokerages, investment
funds and some government sponsored
enterprises.
RBI:an introduction
RBI at a Glance
• Managed by Central Board of Directors
• India’s monetary authority
• Supervisor of financial system
• Issuer of currency
• Manager of foreign exchange reserves
• Banker and debt manager to government
• Supervisor of payment system
• Banker to banks
• Developmental functions
• Research, data and knowledge sharing
• India’s central bank
RBI
• The RBI, as the central bank of India, is the centre of the
Indian financial & monetary system.
• It started functioning from April 1,1935 on the terms of the
Reserve Bank of India Act,1934.
• The Central Office of the Reserve Bank was initially
established in Calcutta but was permanently moved to
Mumbai in 1937. The Central Office is where the Governor
sits and where policies are formulated.
• Though originally privately owned, since nationalisation in
1949, the Reserve Bank is fully owned by the Government of
India.
• RBI performs the four basic functions of management i.e.
planning, organising, directing & controlling in laying a
strong foundation for the functioning of commercial banks.
The origin of the RBI
First RBI Building 1935, Kolkata

• The origin of the Reserve Bank can be traced to 1926, when the
Royal Commission on Indian Currency and Finance—also known
as the Hilton-Young Commission—recommended the creation of
a central bank to separate the control of currency and credit from
the government and to augment banking facilities throughout the
country.
• The Reserve Bank of India Act of 1934 established the Reserve
Bank as the banker to the central government and set in motion a
series of actions culminating in the start of operations in 1935.
Since then, the Reserve Bank’s role and functions have undergone
numerous changes—as the nature of the Indian economy has
changed
Organisation
• The Reserve Bank is wholly owned by the Government of
India. The Central Board of Directors oversees the Reserve
Bank’s business.
Central Board of Directors by the Numbers
Official Directors
• 1 Governor
• 4 Deputy Governors, at a maximum
Non-Official Directors
• 4 directors—nominated by the Central Government to
represent each local board
• 10 directors nominated by the Central Government with
expertise in various segments of the economy
• 1 representative of the Central Government
• 6 meetings—at a minimum—each year
• 1 meeting—at a minimum—each quarter
The Governor is the Reserve Bank’s chief executive. The
Governor supervises and directs the affairs and business of the Reserve Bank. The management team also includes Deputy Governors and executive directors.

Deputy Deputy
Governo Governor
Governor
r Dr. K. C.
Dr. D.
Smt. Chakrabarty
Subbarao
Shyamala
Gopinath

Deputy
Deputy
Governo
Governo
r
r
Dr. Subir
Smt. Usha
Gokarn
Thorat
Objectives of central bank
• To maintain the internal value of the nation’s
currency.
• To preserve the external value of the currency;
• To secure reasonable price stability
• To assist the planned process of development of
the Indian economy &
• To promote economic growth with rising levels
of employment, output & real income.
Functions of RBI
• The basic functions of the Reserve Bank of India are
to regulate the issue of Bank notes and the keeping
of reserves with a view to securing monetary stability
in India and generally to operate the currency and
credit system of the country to its advantage.
- From the Preamble of
the Reserve Bank of India Act, 1934
• For simplification the functions of central bank can
be broadly categorised into traditional functions,
developmental functions & supervisory functions.
1. Traditional functions
• Traditional functions are those functions which every
central bank of each nation performs all over the world.
Basically these functions are in line with the objectives
with which the bank is set up. It includes fundamental
functions of the Central Bank. They comprise the following
tasks:
• Issue of Currency Notes
• Banker to other Banks
• Banker to the Government
• Exchange Rate Management
• Regulator of Money & Credit
• Supervisory Function
2. Developmental or Promotional
Functions of RBI
• Along with the routine traditional functions, central banks
especially in the developing country like India have to perform
numerous functions. These functions are country specific
functions and can change according to the requirements of
that country. The RBI has been performing as a promoter of
the financial system since its inception.
Developmental or Promotional Functions
of RBI
• Development of the Financial System
• Development of Agriculture
• Provision of Industrial Finance
• Provisions of Training
• Collection of Data
• Publication of the Reports
• Promotion of Banking Habits
• Promotion of Export through Refinance
3. Supervisory Functions of RBI
The reserve bank also performs many supervisory functions. It
has authority to regulate and administer the entire banking
and financial system. Some of its supervisory functions are
given below:
• Granting license to banks
• Bank Inspection
• Control over NBFIs
• Implementation of the Deposit Insurance Scheme
1.Issue of Currency Notes:
Some facts
note Printing Press at Mysore
• Denominations of coins and notes in circulation:
• Coins in circulation: 25 paise, 50 paise, 1, 2, 5 and 10 Rupee.
• Notes in circulation: Rs. 5, 10, 20, 50,100, 500 and 1000
• Bank notes are legal tender at any place in India for payment
without limit.
As per Indian Coinage Act-
• Rupee coin (1 and above) can be used to pay /settle for any
sum
• Paise 50 can be used to pay /settle any sum not exceeding Ten
Rupees
• In case of smaller coins below 50 paise, any sum not exceeding
One Rupee
Issue of Currency Notes
• Four printing presses actively print notes: Dewas in Madhya
Pradesh, Nasik in Maharashtra, Mysore in Karnataka, and
Salboni in West Bengal.
• Coins are minted by the Government of India. RBI is the agent
of the Government for distribution, issue and handling of
coins. Four mints are in operation: Mumbai, Noida in Uttar
Pradesh, Kolkata, and Hyderabad.
• The Reserve Bank is the nation’s sole note issuing authority.
Along with the Government of India, RBI is responsible for
the design and production and overall management of the
nation’s currency, with the goal of ensuring an adequate
supply of clean and genuine notes. The RBI also makes sure
there is an adequate supply of coins, produced by the
government.
• In consultation with the government, RBI routinely address
security issues and target ways to enhance security features to
reduce the risk of counterfeiting or forgery.
2. Banker to other Banks

• Like individual consumers, businesses and organisations of all

kinds, banks need their own mechanism to transfer funds and
settle inter-bank transactions—such as borrowing from and
lending to other banks—and customer transactions. As the
banker to banks, the Reserve Bank fulfills this role. In effect,
all banks operating in the country have accounts with the
Reserve Bank, just as individuals and businesses have
accounts with their banks.
Contd.
RBI's Tools
• Non-interest earning current accounts
• Lender of the last resort
• Loans and advances
3.Banker to the Government

• Managing the government’s banking transactions is

a key RBI role. Like individuals, businesses and
banks, governments need a banker to carry out
their financial transactions in an efficient and
effective manner, including the raising of resources
from the public. As a banker to the central
government, the Reserve Bank maintains its
accounts, receives money into and makes payments
out of these accounts and facilitates the transfer of
government funds. It also act as the banker to those
state governments that have entered into an
agreement with it.
Contd.
RBI’s Approach
The role as banker and debt manager to government
includes several distinct functions:
• Undertaking banking transactions for the central and state
governments to facilitate receipts and payments and
maintaining their accounts.
• Managing the governments’ domestic debt with the
objective of raising the required amount of public debt in a
cost-effective and timely manner.
• Developing the market for government securities to enable
the government to raise debt at a reasonable cost, provide
benchmarks for raising resources by other entities and
facilitate transmission of monetary policy actions.
Contd.
Its Tools
• At the end of each day, its electronic system
automatically consolidates all of the
government’s transactions to determine the net
final position. If the balance in the
government’s account shows a negative
position, we extend a short-term, interest-
bearing advance, called a Ways and Means
Advance—WMA—the limit or amount for
which is set at the beginning of each financial
year in April.
4. Exchange Rate Management

• With the transition to a market-based system for

determining the external value of the Indian rupee,
the foreign exchange market in India gained
importance in the early reform period. In recent
years, with increasing integration of the Indian
economy with the global economy arising from
greater trade and capital flows, the foreign
exchange market has evolved as a key segment of
the Indian financial market.
• The Reserve Bank is responsible for administration
of the Foreign Exchange Management Act,1999
Contd.
• The Reserve Bank plays a key role in the
regulation and development of the foreign
exchange market and assumes three broad
roles relating to foreign exchange:
1. Regulating transactions related to the
external sector and facilitating the
development of the foreign exchange market
2. Ensuring smooth conduct and orderly
conditions in the domestic foreign exchange
market
3. Managing the foreign currency assets and
gold reserves of the country
5. Regulator of Money & Credit
• Monetary policy refers to the use of instruments
under the control of the central bank to regulate
the availability, cost and use of money and credit.
• The goal: achieving specific economic objectives,
such as low and stable inflation and promoting
growth.
The main objectives of monetary policy in
India are:
• Maintaining price stability
• Ensuring adequate flow of credit to the productive
sectors of the economy to support economic
growth
• Financial stability
Contd.
Direct Instruments
• Cash Reserve Ratio (CRR): The Reserve Bank requires banks
to maintain a certain amount of cash in reserve as a
percentage of their deposits to ensure that banks have
sufficient cash to cover customer withdrawals.
• Statutory Liquidity Ratio (SLR): The share of net demand and
time liabilities that banks must maintain in safe and liquid
assets, such as, government securities, cash and gold.
• Refinance facilities: Sector-specific refinance facilities (e.g.,
against lending to export sector) provided to banks.
Contd.
Indirect Instruments
• Liquidity Adjustment Facility (LAF):Consists of daily
infusion or absorption of liquidity on a repurchase basis.
• Open Market Operations (OMO):Outright sales/purchases
of government securities, in addition to LAF, as a tool to
determine the level of liquidity over the medium term.
• Market Stabilisation Scheme (MSS):Liquidity of a more
enduring nature arising from large capital flows is
absorbed through sale of short-dated government
securities and treasury bills.
• Repo/reverse repo rate: These rates under the Liquidity
Adjustment Facility (LAF) determine the corridor for
short-term money market interest rates.
• Bank rate: It is the rate at which the Reserve Bank is ready
to buy or rediscount bills of exchange or other commercial
papers.
6. Supervisory Function

• Regulator and Supervisor of Payment and Settlement

Systems: Payment and settlement systems play an important
role in improving overall economic efficiency. They consist of
all the diverse arrangements that we use to systematically
transfer money—currency, paper instruments such as
cheques, and various electronic channels.
• Efficient funds clearing was first initiated in the ‘80s through
Magnetic Ink Character Recognition (MICR) technology.
7. Developmental Role
This includes ensuring that credit is available to the productive
sectors of the economy, establishing institutions designed to
build the country’s financial infrastructure, expanding access to
affordable financial services and promoting financial education
and literacy. the tools used for this purpose by RBI are
• Directed credit for lending to priority sector and weaker
sections
• Lead Bank Scheme
• Sector specific refinance
• Strengthening and supporting small local banks
• Financial inclusion
Contd.
Some of the institutions established by the RBI for this purpose
include:
• Deposit Insurance and Credit Guarantee Corporation
(1962),
• Unit Trust of India (1964),
• Industrial Development Bank of India (1964),
• National Bank of Agriculture and Rural Development
(1982),
• Discount and Finance House of India (1988)
• National Housing Bank (1989),
• Securities and Trading Corporation of India (1994),
 Other functions:
1. Research, Data and Knowledge-Sharing
This important work is designed to:
• Educate the public
• Provide reliable, data-driven information for policy and
decision-making
• Supply accurate and timely data for academic research as well
as the general public
2. Communicating with the Public
• The Reserve Bank’s web site posts relevant information for
citizens in 13 local languages.
• Publications produced on a regular basis ( Annual, Quarterly,
Monthly & Weekly).
Contd.

3. Financial Inclusion and Literacy:

• Credit counseling: The Reserve Bank encourages
commercial banks to set up financial literacy and credit
counseling centers, to help people develop better financial
planning skills.
• Information and knowledge-sharing: User-friendly
website includes easy-to understand tips and guidance in
multiple languages; brochures, advertisements and other
marketing materials educate the public about banking
services.
Foreign exchange market
• The market where foreign exchange transactions take place is called
a foreign exchange market. It consists of dealers, banks, & brokers
engaged in the business of buying & selling foreign exchange.
• The market in which participants are able to buy, sell, exchange and
speculate on currencies.  Foreign exchange markets are made up of
banks, commercial companies, central banks, investment
management firms, hedge funds, and retail forex brokers and
investors. The forex market is considered to be the largest financial
market in the world.
• The RBI is the regulator of the market . The players in this market
are controlled by the Foreign Exchange Maintenance Act(FEMA).
Before this act was introduced, the market was regulated by the
FERA or Foreign Exchange Regulation Act ,1947.
• Because the currency markets are large and liquid, they are believed
to be the most efficient financial markets. It is important to realize
that the foreign exchange market is not a single exchange, but is
constructed of a global network of computers that connects
participants from all parts of the world.
Nature of forex market
The nature of the FX trade can be summed up into
pointer as mentioned below:
• Volatility and Margin of Profit:
• Competitive
• Time independent
• Strategy Oriented
• Environment Dependent
• Liquidity and Leverage
• Minimum Investment
• User Friendly
• Minimum Third Party Involvement
• Volatility and Margin of Profit
Contd.
• The Foreign Exchange Market is an over-the-counter (OTC)
market, which means that there is no central exchange and
clearing house where orders are matched.
• The Inter-bank Market - Large commercial banks trade with
each other through the Electronic Brokerage System (EBS).
Banks will make their quotes available in this market only to
those banks with which they trade. This market is not directly
accessible to retail traders.
• Market Hours: Forex is a market that trades actively as long
as there are banks open in one of the major financial centers
of the world. This is effectively from the beginning of Monday
morning in Tokyo until the afternoon of Friday in New York.
In terms of GMT, the trading week occurs from Sunday night
until Friday night, or roughly 5 days, 24 hours per day.
Contd.
• Price Reporting Trading Volume : Unlike many other
markets, there is no consolidated tape in Forex, and trading
prices and volume are not reported. It is, indeed, possible for
trades to occur simultaneously at different prices between
different parties in the market. The main difference between
Forex and other markets is that there is no data on the volume
that has been traded in any given time frame or at any given
price.
• The Online Market Maker - Retail traders can access the FX
market through online market makers. These market makers
typically have a relationship with several banks on EBS; the
larger the trading volume of the market maker, the more
relationships it likely has.
Indian foreign exchange market
• The Indian foreign exchange market consists of the
buyers, sellers, market intermediaries and the monetary
authority of India. The main center of foreign exchange
transactions in India is Mumbai, the commercial capital of the
country. There are several other centers for foreign exchange
transactions in the country including Kolkata, New Delhi,
Chennai, Bangalore, Pondicherry and Cochin. In past, due to
lack of communication facilities all these markets were not
linked. But with the development of technologies, all the
foreign exchange markets of India are working collectively.
• The foreign exchange market India is regulated by the
reserve bank of India through the Exchange Control
Department.
Exchange rate
Definition
• Rate at which one currency may be converted into another.
The exchange rate is used when simply converting one
currency to another (such as for the purposes of travel to
another country), or for engaging in speculation or trading in
the foreign exchange market. There are a wide variety of
factors which influence the exchange rate, such as interest
rates, inflation, and the state of politics and the economy in
each country. It is also called rate of exchange or foreign
exchange rate or currency exchange rate.
Types of exchange rate
• There are two types of exchange rates:
1) Nominal exchange rate
2) Real exchange rate
Types of Exchange Rate Trading Systems

• Flexible exchange rate systems (also known as

floating exchange rate systems.)
• Managed floating rate systems.
• Fixed exchange rate systems (also known as
pegged exchange rate systems).
Financial sector reforms in India; different phases
Three distinct periods: 1947-68, 1969-91, 1991 onward
• 1947-68: relatively liberal environment - the role of RBI was
to supervise and control the banks.
• 1969-91: Bank nationalization and Financial repression –
banking policies re-oriented to meet social objectives such as
the reduction in inequalities and the concentration of
economic power – interest rate controls and directed credit
programs.
• 1991 onward: financial sector liberalization
Indian Financial Sector: Pre-Nationalization

• RBI Act: scheduled commercial banks are required to

maintain a minimum cash reserve of 7% of their demand
and time liabilities - SLR was 20% (cash, gold, govt.
securities).
• LIC formed in 1959 by nationalizing the existing
insurance companies.
• 1962: RBI was empowered to vary the CRR between 3%
and 15% - empowered to stipulate minimum lending
rates and ceilings rates on various types of advances.
• Problem of bank failures and compulsory merger of weak
banks with relatively stronger ones (no. of banks fell
from 566 in 1951 to 85 in 1969 due to mergers).
Indian Financial Sector: Pre-Nationalization

• 1962: Deposit insurance scheme with the establishment

of the Deposit Insurance Corporation.
• 1964: RBI directly regulated the interest on deposits
(prior to this, interest rates were governed by a voluntary
agreement among the important banks).
• Certain disquieting features: (i) banking business was
largely confined to the urban areas (neglect of rural and
semi-urban areas) (ii) agriculture sector got only a very
small share of total bank credit (iii) within industry, the
large borrowers got the greatest share of credit.
• The pattern of credit disbursement was inconsistent with
the goal of achieving an equitable allocation of credit and
the priorities set in the plans - bank nationalization in
1969
Indian Financial Sector: Bank nationalization

• 1969: 14 largest scheduled commercial banks

nationalized; 22 largest banks accounting for 86% of
deposits had become public sector banks; 6 more
banks nationalized in 1980 bringing the share of
public sector banks’ deposits to 92%.
• Rural branch expansion to mobilize deposits and
enhancement of agriculture credit.
• Priority sector lending (agriculture, small scale
industries, retail trade, transport operators etc);
requirement was 33%, raised to 40% in 1979.
• UTI and IDBI, IFCI and ICICI were set up with
specific objectives in mind.
Indian Financial Sector: 1980s

• Increasing reliance of the govt. on the banking sector for

financing its own deficits.
• The govt. used the banking sector as a captive source of
funds by means of SLR (the proportion of net demand
and time deposits that banks have to maintain in cash,
gold, and approved securities).
• SLR originally intended as an instrument of monetary
policy, but in effect served two other purposes: (i)
allocate banks’ resources to the govt (ii) allocate cheap
resources to development finance institutions.
• Steady increase of SLR: 28% (in 1970-1) to 38.5% (in
1989-90).
• Increased monetization of the deficit (budget deficit to
GDP ratio increased from 0.96% during the first half the
1970s to 2.09% during the second half of the 1980s).
Indian Financial Sector: 1980s

• To neutralize the effects of deficit financing on monetary

growth, CRR steadily increased from 7% (1973-4) to 15%
(1989-90).
• Larger portion of the bank funds locked into non interest
bearing bank reserves.
• Suppressed the govt. securities market to keep the cost of
borrowing low for the govt.; open market operations lost
its effectiveness as a tool of monetary policy.
• Problems:(i) heavy segmentation of markets, (ii) in-
efficient use of credit, (iii) poor bank profitability due to
restrictions on the use funds, (iv) rigidity due to the
imposition of branch licensing requirements (v) lack of
competition and efficiency due to entry restrictions and
public sector dominance.
Indian Financial Sector: Reforms
• Chakravarty Committee (1985): suggest measures
for improving the effectiveness of monetary policy.
• Main recommendations:
(i) develop treasury bills as a monetary instrument so
that open market operations could gradually become
the dominant instrument of monetary policy.
(ii) revise upwards the yield structure of govt.
securities so as to increase the demand for them and
limit the degree of monetization.
• Money markets were underdeveloped till the mid
80s: Few large lenders (LIC and UTI) and large no.
of borrowers (commercial banks) – ceiling of 10% on
the rate.
Narasimham Committee Recommendations

• Narasimham Committee (1991) to study the working of

the financial system.
• (i) bring down SLR in a phased manner to 25% over five
years;
• (ii) use CRR as an instrument of monetary policy rather
than using to neutralize the effect of monetization.
• (iii) phase out directed credit programs and reduce the
requirement to lend to the priority sectors down to 10%
of aggregate credit.
• (iv) bring the interest rate on govt. borrowing in line
with other market determined interest rates and phase
out concessional interest rates.
Narasimham Committee Recommendations

(v) allow the more profitable public sector banks to issue fresh
capital to the public through the capital market.
(vi) abolish branch licensing – closing and opening of branches
left to the judgment of individual banks.
(vii) liberalize policies towards foreign banks.
(viii) quasi-autonomous body under the aegis of the RBI to be
set up to supervise banks and financial institutions.
(ix) phase out the privileged access of development finance
institutions to concessional finance.
Financial services: meaning
• Services that are offered by financial companies connote
financial services.
• Financial services are offered by both asset management
companies & liability management companies.
• They are regulated by the SEBI, RBI & the Department of
Banking & Insurance, Government of India through a plethora
of legislations.
Objectives/functions of financial services
• Fund raising
• Funds deployment
• Specialised services
• Economic growth
Financial services-Characteristics
• Intangibility
• Customer orientation
• Inseparability
• Perishability
• dynamism
Financial services market-constituents

• Market players: the players include banks, financing

institutions, mutual funds, merchant bankers, stockbrokers,
consultants, underwriters etc.
• Instruments
• Specialised institutions: include acceptance house, discount
house, factors, depositories, credit rating agencies etc.
• Regulatory bodies