FM302-MANAGEMENT OF
FINANCIAL SERVICES
FINANCE SPECILIZATION
COURSE CONTENTS
Module No.1
• Introduction to Indian Financial system
Reserve bank and financial system.
structure of banking and non-banking
companies.
Introduction to different markets- Capital,
Money, Primary, Secondary Markets.
Module No.2
• Asset/Fund based financial services
Leasing, hire purchase
Module No.3
Consumer credit, factoring and forfeiting , Bill
discounting, Housing finance, Insurance
services, venture capital financing, Mutual fund
services
Module No.4
Merchant banking services :
all services related to issue management
Module No.5
Credit rating, Stock broking, depositories,
custodial services and short selling and
securities lending and borrowing services,
Credit cards.
CHAPTER -1
INTRODUCTION TO INDIAN
FINANCIAL SYSTEM
INDIAN FINANCIAL SYSTEM
• The economic development of a nation is
reflected by the progress of the various economic
units, broadly classified into corporate sector,
government and household sector. While
performing their activities these units will be
placed in a surplus/deficit/balanced budgetary
situations.
Constituents of a Financial System
Financial System
• An institutional framework existing in a country to enable
financial transactions.
• Three main parts
– Financial assets (loans, deposits, bonds, equities, etc.)
– Financial institutions (banks, mutual funds, insurance
companies, etc.)
– Financial markets (money market, capital market, forex market,
etc.)
• Regulation is another aspect of the financial system (RBI,
SEBI, IRDA, FMC)
Financial assets/Instruments
• Enable channelizing funds from surplus units to deficit
units
• There are instruments for savers such as deposits,
equities, mutual fund units, etc.
• There are instruments for borrowers such as loans,
overdrafts, etc.
• Like businesses, governments too raise funds through
issuing of bonds, Treasury bills, etc.
• Instruments like PPF, KVP, etc. are available to savers who
wish to lend money to the government
Financial Institutions
• Includes institutions and mechanisms which
– Affect generation of savings by the community
– Mobilization of savings
– Effective distribution of savings
• Institutions are banks, insurance companies,
mutual funds- promote/ mobilize savings
• Individual investors, industrial and trading
companies- borrowers
Financial Markets
• Money Market- for short-term funds (less
than a year)
– Organised (Banks)
– Unorganised (money lenders, chit funds, etc.)
• Capital Market- for long-term funds
– Primary Issues Market
– Stock Market
– Bond Market
Function of the Financial System
• Prevision of liquidity
liquidity refers to cash or money and other assets
which can be converted into cash readily without loss
of value and time.
• Mobilization of savings
Weaknesses of India financial system
Lack of co-ordination between different
financial institutions.
Monopolistic market structures
-LIC in life insurance
-UTI in mutual fund
Dominance of development banks in industrial
financing
Inactive and erratic capital market
Imprudent financial practice
Reserve Bank of India
(RBI)
Establishment of RBI
The reserve bank of India was established
on April 1,1935 in accordance with the provisions of
the reserve bank of India Act, 1934.
The central office of the reserve bank was
initially in Calcutta but was permanently moved to
Mumbai in 1937. the central office is where the
governor sits and where policies are formulated.
Objectives of RBI
• To maintain the internal value of the nation’s
currency.
• To preserve the external value of the currency
• To secure reasonable price stability.
• To promote economic growth with rising
levels of employment, out and real income
Functions of a RBI
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Monetary policy functions
Currency issue and management
Maintaining value of currency
Anchor economic growth expectation
Monetary regulation and management
Regulation of interest rates
Financial sector regulation and supervision
Exchange management and control
Credit control
Liquidity management
Clearing and settlement
Development of financial market
Policy oriented research
Collection of data and publication of reports
Institution building
Role of the Reserve Bank of India
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Banker to the government
Banker to the banks
Bank’s supervision
Monetary regulation and management
Foreign exchange and management
Promotional functions
Supervisory/regulatory function of RBI
• Licensing of banks
• Approval of capital, reserves and liquid assets of
banks
• Branch licensing policy
• Inspection of banks
• Control over management
• Audit
• Credit information service
• Deposit insurance
• Training and banking education
RBI –ORGANISATION STRUCTURE