FINANCIAL SERVICES: MEANING AND SIGNIFICANCE

Financial services refers to services provided by the financial institutions in a financial system. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are Asset Management Companies like leasing companies, merchant bankers and Liability Management Companies like discounting houses and acceptance houses, and further general financial institutions like banks, credit card companies, insurance companies, consumer finance companies, stock exchanges, and some government sponsored enterprises. The term ‘Financial Services’ in a broad sense means “mobilising and allocating savings.” Thus, it includes all activities involved in the transformation of savings into investment.

Following are some of the examples of financial services:

1. Leasing, credit card services, factoring, portfolio management and financial consultancy services.
2. Underwriting, discounting and rediscounting of bills.
3. Acceptances, brokerage and stock holding.
4. Depository services, housing finance and book building
5. Hire purchases and installment credit.
6. Mutual Fund management.
7. Deposit insurance.
8. Financial and performance guarantees.
9. E -commerce and securatisation of debts.
10. Loan syndicating and credit rating.

The financial services can also be called ‘financial intermediation’. Financial intermediation is the process by which funds are mobilised from a large number of savers and make them available to all those who are in need of it.

Classification of Financial Services Industry

The financial intermediaries in India can be classified as:

1. Capital Market Intermediaries which constitutes Term Lending Institutions and Investing Institutions which mainly provide long term funds.
2. Money Market Intermediaries which consists of commercial banks, Cooperative Banks, and other financial agencies which supply only short term funds.

Scope of Financial Services

The objectives of financial services mainly includes Fund Raising, Funds Deployment which helps in decision making regarding financing mix, rendering Specialised Services like credit rating, underwriting, merchant banking, depository, mutual fund, book building etc., which provides for the speeding up of the process of economic growth and development.

Financial services cover wide range of activities which can be broadly classified as:

1.Traditional Activities
2.Modern Activities

1. Traditional Activities

It includes services rendered for both money and capital market, which can be grouped under two heads:

a. Fund Based Activities
b. Non Fund Based or Fee Based Activities

a. Fund Based Activities

Fund based activities are the activities which come under the following:

1.Primary Market Activities
2. Secondary Market Activities
3. Foreign Exchange Market Activities
4. Specialised Financial Services Activities
5. Financial Engineering Activities.

The important fund based services include:

1.  Equipment Leasing / Finance
2. Hire Purchase and Consumer Credit
3. Bill Discounting
4. Venture Capital
5. Housing Finance
6. Insurance Services
7. Factoring etc.

b. Non Fund Based or Fee Based Activities

Today, customers whether individual or corporates are not satisfied with the mere provision of finance. They expect more sophisticated financial services and wide range in it which usually includes the following fee based activities:

1. Managing Capital Issues according to SEBI guidelines
2. Making arrangements of funds from financial institutions to meet the project cost and working capital.
3. Making arrangements for the placement of capital and debt instruments with investment institutions.
4. Assisting in the process of getting all government and legislative clearances.
5. Managing the portfolio

The fee based / advisory services include:

1. Issue Management
2. Portfolio Management
3. Corporate Counselling
4. Loan Syndication
5. Merger and Acquisition
6. Capital Restructuring
7. Credit Rating
8. Stock Broking etc.

2. Modern Activities

Besides the new financial services includes innumerable activities like

a. Rendering project advisory services.
b. Planning for mergers and acquisitions.
c. Guiding corporate customers in capital restructuring.
d. Acting as Trustees to Debenture holders.
e. Recommending suitable changes in financial structure.
f. Structuring the financial collaboration through joint ventures
g. Rehabilitating and reconstructing sick companies through reconstruction.
h. Hedging of risks through derivative trading.
i. Managing portfolio of public sector corporations.
j. Asset liability management.
k. Undertaking risk management services through insurance.
l. Advising clients for selecting the best source of funds.
m. Guiding clients for determining the optimum debt-equity mix.
n. Undertaking specialized services like credit rating, underwriting, registration and 

o. transfers, clearing services, custodian services etc.

The forces that influence financial services are as follows:

1. Employment and Unemployment
2. inflation and Deflation
3. Trade Cycles
4. Stagflation
5. Economic Growth
6. The exchange rate and Balance of Payment
7. Deregulatory Measures.
8. Technological Changes.
9. Globalisation Impact and Competition

10. Global Portfolio Preferences.