Chapter 14

Financial Services
Dr. Krishna Murari
Understanding the Concept

Financial services are an inseparable and essential part of financial

system.

financial services refer to the various kinds of services provided by the

financial institutions.

Financial services may also be defined as the products and services offered
by financial institutions for the facilitation of various financial transactions
and meeting the needs of the customers.
 Facilitate transactions

Mobilise savings

Intangibility
Features of Perishability
Financial
Variability
Services
Dominance of human element

Information based

Customer Orientation
 Scope for Financial Services Industry
Procurement of Fund
Risk management Consultancy Financial Market Research Based
Funds related Management
Services Services based Services Services
Services Services
• (a) Venture • (a) Portfolio • (a) Project • (a) Project • (a) Stock market • (a) Equity and
capital management preparatory preparatory operations market research
• (b) Banking • (b) Merchant services services • (b) Money • (b) Investor
services banking • (b) Insurance • (b) Project market education
• (c) Asset • (c) Mutual and Services report operations • (c) Training of
financing pension funds • (c) Export credit preparation • (c) Asset personnel
• (d) Trade guarantee • (c) Project management • (d) Financial
financing appraisal • (d) Registrar and information
• (e) Credit cards • (d) share transfer services
• (f) Factoring and Rehabilitation of agencies
forfaiting projects • (e) Trusteeship
• (e) Business • (f) Retail market
advisory services operation
• (f) Valuation of • (g) Trading in
investments Futures, options
• (g) Credit rating and derivatives
• (h) Corporate
Restructuring
 Types of Financial Services

Fund Based Financial Services Fee Based Financial Services

• Equipment leasing or lease financing • Merchant banking

• Hire purchase • Securitisation
• Venture capital • Credit rating
• Bill discounting • Loan syndication
• Insurance services • Project advisory services
• Factoring • Services to foreign companies and NRIs.
• Forfaiting • Portfolio management
• Housing finance • Corporate Restructuring, Merger & Acqusition
• Mutual fund • Custodial Services
• Insurance Services • Depositories Services
Fund Based Financial Services

funds are arranged for the customers and the financial intermediary charges interest for the amount of the
funds utilised by the customer.

The fund is provided in the form of credit facility to the borrower.

The income to the financial institutions under this category of financial services mainly comes from the
interest spread (difference between the interest paid and earned), lease rentals, income from investments in
capital market and real estate.

Examples- Equipment leasing or lease financing; Hire purchase; Venture capital; Bill discounting; Insurance
services; Factoring; Forfaiting;;Housing finance; Mutual fund;;Insurance Services
Non-Fund/ Fee based financial services

These services are basically the advisory/ancillary services against which the financial institutions charge
some commission or brokerage for rendering the services.

Fee-based service does not involve much risk.

it requires a lot of expertise on the part of a financial company to offer such services.

Examples-Merchant banking; Securitisation; Credit rating; Loan syndication; Project advisory services;
Services to foreign companies and NRIs; Portfolio management’ Corporate Restructuring, Merger &
Acquisition; Custodial Services; Depositories Services
Importance of Financial Services

Economic Promotion of Capital

growth savings formation

Creation of
Contribution Provision of
employment
to GNP liquidity
opportunities
 Low profitability

Cut throat competition

Need of Economic liberalization

Innovation in Improved communication technology
Financial
Services Customer services

Global impact

Investor awareness
 Lack of qualified personnel

Challenges Lack of investor awareness

to the Lack of transparency
Financial Lack of specialization
Services
Lack of recent data
Sector
Lack of efficient risk management system