The present scenario of financial service sector is :
(i) Conservatism to dynamism
At present, the financial system in India is in a process of rapid transformation, particularly after the introduction of reforms in the financial sector. The main objective of the financial sector reforms is to promote an efficient, competitive and diversified financial system in the country. This is very essential to raise the allocative efficiency of available savings, increase the return on investment and thus to promote the accelerated growth of the economy as a whole. As a result, we have recently witnessed phenomenal changes in the money market, securities market, capital market, debt market and the foreign exchange market. In this changed context, the role of financial services has assumed greater significance in our county. At present, numerous new financial intermediaries have started functioning with a view to extending multifarious services to the investing public in the area of financial services. The emergence of various financial institutions and regulatory bodies have transformed the financial services sector from being a conservative industry to a very dynamic one.
(ii) Emergence of Primary Equity Market
Now, we are also witnessing the emergence of many private sector financial services. The capital markets which were very sluggish, have become a popular source of raising finance. The number of stock exchanges in the country has gone up from 9 in 1980 to 24 in 2004. The aggregate funds raised by the industries in the primary markets have gone from up. The number of companies listed on the stock exchange have also gone up from 2265 in 1980 to over 10000 in 2004. Thus, the primary equity market has emerged as an important vehicle to channelise the savings of the individuals and corporates for productive purposes and thus to promote the industrial and economic growth of our nation.
(iii) Concept of Credit Rating
There is every possibility of introducing equity grading. Hitherto, the investment decisions of the investors have been based on factors like name recognition of the company, operations of the group, market sentiments, reputation of the promoters etc. Now, grading from an independent agency would help the investor in his portfolio management and thus, equity grading is going to play a significant role in investment decision-making. From the company point of view, equity grading would help to broaden the market for their public offer, to replace the name recognition by objective opinion and to have a wider investor base. Thus, grading would give further fillip to the primary market. Moreover, the concept of credit rating would play a significant role in identifying the risk level of the corporate entity in which the investor wants to take part.
Now it is mandatory for the non-banking financial companies to get credit rating for their debt instruments.
The three major credit rating agencies functioning in India are:
(i) Credit Rating Information Services of India Ltd. (CRISIL)
(ii) Credit Analysis and Research ltd. (CARE) and
(iii) Investment Information and Credit Rating Agency (ICRA)
(iv) Duff Phelps Credit Rating Pvt. Ltd. (DCR India)
Their activities have been mainly confined to debt instruments only.
(iv) Process of Globalization
Again, the process of globalization has paved the way for the entry of innovative and sophisticated financial products into our country. Since the Government is very keen in removing all obstacles that stand in the way of inflow of foreign capital, the potentialities for the introduction of innovative international financial products in India are very great. Moreover, India is likely to enter the full convertibility era soon. Hence, there is every possibility of introduction of more and more innovative and sophisticated financial services in our country.
(v) Process of Liberalisation
Realizing all these factors, the Government of India has initiated many steps to reform the financial services industry. The Government has already switched over to free pricing of issues from pricing issues. The interest rates have been deregulated. The private sector has been permitted to participate in banking and mutual funds and the public sector undertakings are being privatized. The Securities Exchange Board of India has liberalized many stringent conditions so as to boost the capital and money markets. In this changed context, the financial service industry in India has to play a very position and dynamic role in the years to come by offering many innovative products to suit to the varied requirements of the millions of prospective investors spread throughout the country.
Financial services constitute an important component of the financial system. Financial services serve the needs of individuals, institutions and corporate through a network of elements. Prior to economic liberalization, the Indian Financial Service Sector was charaterized by so many factors which retarded its growth. Financial services covers a wide range of activities and they can be broadly classified into traditional activities and modern activities. In the changed economic scenario, many financial intermediaries have started expanding their activities in the financial services sector by offering a variety of new products. The financial service sector has thus emerged as the fastest growing sunrise industry. However, the financial service sector has to face many challenges in its attempt to fulfill the ever growing financial demands of the economy.
(i) Conservatism to dynamism
At present, the financial system in India is in a process of rapid transformation, particularly after the introduction of reforms in the financial sector. The main objective of the financial sector reforms is to promote an efficient, competitive and diversified financial system in the country. This is very essential to raise the allocative efficiency of available savings, increase the return on investment and thus to promote the accelerated growth of the economy as a whole. As a result, we have recently witnessed phenomenal changes in the money market, securities market, capital market, debt market and the foreign exchange market. In this changed context, the role of financial services has assumed greater significance in our county. At present, numerous new financial intermediaries have started functioning with a view to extending multifarious services to the investing public in the area of financial services. The emergence of various financial institutions and regulatory bodies have transformed the financial services sector from being a conservative industry to a very dynamic one.
(ii) Emergence of Primary Equity Market
Now, we are also witnessing the emergence of many private sector financial services. The capital markets which were very sluggish, have become a popular source of raising finance. The number of stock exchanges in the country has gone up from 9 in 1980 to 24 in 2004. The aggregate funds raised by the industries in the primary markets have gone from up. The number of companies listed on the stock exchange have also gone up from 2265 in 1980 to over 10000 in 2004. Thus, the primary equity market has emerged as an important vehicle to channelise the savings of the individuals and corporates for productive purposes and thus to promote the industrial and economic growth of our nation.
(iii) Concept of Credit Rating
There is every possibility of introducing equity grading. Hitherto, the investment decisions of the investors have been based on factors like name recognition of the company, operations of the group, market sentiments, reputation of the promoters etc. Now, grading from an independent agency would help the investor in his portfolio management and thus, equity grading is going to play a significant role in investment decision-making. From the company point of view, equity grading would help to broaden the market for their public offer, to replace the name recognition by objective opinion and to have a wider investor base. Thus, grading would give further fillip to the primary market. Moreover, the concept of credit rating would play a significant role in identifying the risk level of the corporate entity in which the investor wants to take part.
Now it is mandatory for the non-banking financial companies to get credit rating for their debt instruments.
The three major credit rating agencies functioning in India are:
(i) Credit Rating Information Services of India Ltd. (CRISIL)
(ii) Credit Analysis and Research ltd. (CARE) and
(iii) Investment Information and Credit Rating Agency (ICRA)
(iv) Duff Phelps Credit Rating Pvt. Ltd. (DCR India)
Their activities have been mainly confined to debt instruments only.
(iv) Process of Globalization
Again, the process of globalization has paved the way for the entry of innovative and sophisticated financial products into our country. Since the Government is very keen in removing all obstacles that stand in the way of inflow of foreign capital, the potentialities for the introduction of innovative international financial products in India are very great. Moreover, India is likely to enter the full convertibility era soon. Hence, there is every possibility of introduction of more and more innovative and sophisticated financial services in our country.
(v) Process of Liberalisation
Realizing all these factors, the Government of India has initiated many steps to reform the financial services industry. The Government has already switched over to free pricing of issues from pricing issues. The interest rates have been deregulated. The private sector has been permitted to participate in banking and mutual funds and the public sector undertakings are being privatized. The Securities Exchange Board of India has liberalized many stringent conditions so as to boost the capital and money markets. In this changed context, the financial service industry in India has to play a very position and dynamic role in the years to come by offering many innovative products to suit to the varied requirements of the millions of prospective investors spread throughout the country.
Financial services constitute an important component of the financial system. Financial services serve the needs of individuals, institutions and corporate through a network of elements. Prior to economic liberalization, the Indian Financial Service Sector was charaterized by so many factors which retarded its growth. Financial services covers a wide range of activities and they can be broadly classified into traditional activities and modern activities. In the changed economic scenario, many financial intermediaries have started expanding their activities in the financial services sector by offering a variety of new products. The financial service sector has thus emerged as the fastest growing sunrise industry. However, the financial service sector has to face many challenges in its attempt to fulfill the ever growing financial demands of the economy.
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