Financial Services by Renuka
Sharma and Kiran Mehta 1
This chapter will help the readers to:
◦ Define the Meaning of Financial Services
◦ Understand the Features of Financial Services
◦ Learn about the Challenges Faced by the Financial
Service Industry
◦ Illustrate the Types of Financial Services
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Sharma and Kiran Mehta 2
Because of innovation in finance, the financial
products and services have become one of
the significant contributors to economic
development.
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Sharma and Kiran Mehta 3
A precise definition of financial services is given
in section 65(10) of the Finance Act 1994. As per
the act, if a banking company or a financial
institution or a non-banking financial company
(NBFC) provides the following services, then
these services are financial services.
◦ Leasing and hire purchase
◦ Credit card services
◦ Asset management services (mutual funds, etc.)
◦ FOREX broking
◦ Portfolio management
◦ Venture capital and so on…
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Sharma and Kiran Mehta 4
Intangible
Short Life
Indivisibility
Importance of Information
Dynamic
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Sharma and Kiran Mehta 5
Lack of awareness
Lack of qualified personnel for financial
service industry
Specialized Services. vs diversified services
Lack of research skills and non-availability of
data
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Sharma and Kiran Mehta 6
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Fund-based services involves funds of financial institutions.
Under this category, the following types of financial services are
included:
a. Lease financing
b. Hire-purchase
c. Factoring
d. Forfaiting
e. Venture capital
f. Consumer credit
g. Insurance services
h. Housing finance
i. Mutual funds
j. Participating in money market
k. Underwriting
l. Bills discounting
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Sharma and Kiran Mehta 8
In such types of financial services, funds of
financial institutions are not involved, but some
fees/commission is paid on receiving such
services. Financial service providers receive
fees/commission for providing such services.
Under this category, the following types of financial
services are included:
a. Credit rating
b. Securitization
c. Loan syndication
d. Merger and acquisition
e. Merchant banking and issue management
f. Advisory/consultancy services
g. Loan syndication
h. Portfolio management
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Sharma and Kiran Mehta 9
The efficiency of financial service providers directly affects
the channelization of savings and investments in the country.
Majority of the financial institutions can be categorized into
banking and non-banking financial companies.
Financial services are known for their features like intangible,
short life, importance of information, and dynamic.
Most of the financial services are divided into fund based and
non-fund based services. The fund based services may
include, lease financing, hire-purchase, factoring, forfaiting,
venture capital, consumer credit, and insurance services, etc.
And non-fund based services may include, credit rating,
securitization, loan syndication, merger and acquisition and
other advisory and consultancy services.
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Sharma and Kiran Mehta 10
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Sharma and Kiran Mehta 11
