Introduction to Financial System and Financial Services. : Introduction to Financial System and Financial Services. Slide 2: Meaning of Financial System:
It is the financial system that supplies the necessary financial inputs for the production of goods and services which in turn promote the well being and standard of living of the people of the country.
Financial system is a broader term which brings under its fold the financial markets (long term & short term)and the financial institutions which support the system Slide 3: The major assets traded in the financial system is to mobilize the savings in the form of money and monetary assets and invest them to productive ventures.
An efficient functioning of the financial system facilitates the free flow of funds to more productive activities and thus promotes investments.
Thus the financial system provided the intermediation between savers and investors and promotes faster economic development. Slide 4: Functions of Financial System:
Provision of Liquidity.
Mobilization of Savings.
Financial rates and return
Financial instruments Slide 5: Financial Assets
A Financial asset is one which is used for production or consumption or for future creation of assets.
Types of Financial assets
Non marketable assets Slide 9: Financial intermediaries
Financial intermediaries includes all kinds of organizations which intermediate and facilitate financial transactions of both the Indivuals and corporate customers.
It refers to all financial institutions and investing institutions which facilitate financial transactions in financial markets. Slide 10: Financial intermediaries in India
Organized Sector and Unorganized Sector
Organized Sector consists of Capital Markets & Money Markets intermediaries.
Capital Market intermediaries consists of ---- Development banks, Insurance Cos, UTI, Govt (PF, NSC), Exim Bank, NBFC (Leasing co, H.P Co, Investment Co) Slide 11: Financial intermediaries in India
Money Market intermediaries are RBI, Commercial banks, Co operative Banks, Post Office, Govt (Treasury bills)
Unorganized Sector consists of Money Lenders, Indigenous bankers, Pawn Brokers, Traders and Land lords Slide 12: Financial Markets
Financial markets can be referred to as those centers and arrangements which facilitate buying and selling of financial assets, claims and services
Classification of Financial Markets.
Financial markets are classified into Organized market and Unorganized market Slide 13: Organized markets consists of Capital markets and Money markets.
Capital market consists of Industrial securities markets, Govt Securities markets and Long term markets.
Industrial Securities markets consists of Primary markets and Secondary Markets. Long term market consists of Term Loan market, Market for Mortgage and market for financial guarantees. Slide 14: Money market consists of ….,
Call money Market.
Commercial Bill Market
Treasury Bill Market
Short term Loan Market. Slide 15: Financial Risk and returns is guided by the risk return trade off. Interest rate plays a important role
It refers to the documents that which represent financial claims on assets.
It refers to a claim on to the repayment of a certain sum at the end of a specified period together with interest or dividend. Example --- Bill of exchange, Share, debenture, government bond, treasury bill,etc…, Slide 16: Features of Financial Instruments:
They are easily transferable.
They have a ready market
They posses liquidity
They can be used as a security for raising loans.
Some of them have tax savings.
They have specified maturity period.
They facilitate futures trading to cover risk (forex). Slide 17: History and Growth of Financial System in India:
Nationalization of Financial institutions – formation of SBI, LIC and nationaliasation of commercial banks.
Starting up of UTI
Establishment of development banks like – IFCI, ICICI, IDBI,SIDBI. Slide 18: Institution for Financing agriculture – NABARD
Institution of Foreign trade – (Exim Bank)
Institution for housing finance – NHB
Mutual Fund Industry.
Venture capital Institutions.
Credit Rating Agencies.
Legislative Support – MRTP Act , New Economic Policy, Negotiable instrument Act,Banking Regulation Act and The Stamp Act Slide 19: Weaknesses of Indian Financial System:
Lack of Co-ordination between different Financial institutions.
Monopolistic Market Structure
Dominance of development Banks in Industrial Financing
Inactive and erractic capital market
Imprudent Financial Practices Slide 20: Meaning of Financial Services:
In general all types of activities which are of financial nature could be brought under the term financial services.
Classification of Financial Services Industry.
Capital Market intermediaries
Money Market intermediaries. Slide 21: Scope of Financial Services:
It is categorized into Traditional activities and Modern activities.
The traditional activities are Fund based and non fund based activities.
Fund Based – activities are….,
Dealing in secondary markets. Slide 22: Participating in money market instruments
Involving in equipment leasing, H.P , venture capital and seed capital.
Dealing in forex markets.
Non fund based activities are…,
Managing the Capital issues.
Making arrangements for private placements.
Making arrangement of funds for project finance and working capital requirements. Slide 23: Modern activities are…,
Providing project advisory / consultancy.
Planning for Merger and Acquisition.
Guiding Corporates in capital restructuring.
Managing portfolio of large PSU.
Assisting in establishing the right debt-equity mix.
Restructuring the sick companies.
Hedging of risk due to forex / interest rates variations Slide 24: Causes of Financial Innovation:
Improved Communication technology.
Customer Service / delight.
Investor awareness. Slide 25: New Financial Services and Products:
Corporate advisory services.
Forwards, Futures, Swaps, Options. Slide 26: Challenges facing financial sector:
Lack of Qualified personnel.
Lack of investor awareness.
Lack of transparency.
Lack of specialization
Lack of recent data
Lack of efficient risk management system. Slide 27: Present Scenario of financial sector:
Conservatism to dynamism
Emergence of primary Equity Market
Concept of Credit rating
Process of globalization
Process of liberalization