CASE: Financial Services in India

INTRODUCTION:
Financial services is a term used to refer to the services provided by the finance market.
Financial service is part of financial system that provides different types of finance through
various credit instruments, financial products and services.
In financial instruments, we come across cheques, bills, promissory notes, debt instruments,
letter of credit, etc. Financial services are generally not limited to the field of deposit- taking
,loan and investment services, but it is also present in the field of insurance, estate, trust, and
agency services, securities and all form of financial or market intermediation including the
distribution of financial products.

IMPORTANCE OF FINANCIAL SERVICES

It is the presence of financial services that enables a country to improve its economic condition

whereby there is more production in all the sectors leading to economic growth.

The benefit of economic growth is reflected on the people in the form of economic prosperity

wherein the individual enjoys higher standard of living. It is here the financial services enable

an individual to acquire or obtain various consumer products through hire purchase. In the

process, there are a number of financial institutions which also earn profits. The presence of

these financial institutions promote investment, production, saving etc.

Hence, we can bring out the importance of financial services in the following points:

Importance of Financial Services:

 Vibrant Capital Market.

 Expands activities of financial markets.

 Benefits of Government.

 Economic Development.

 Economic Growth.

 Ensures Greater Yield.

 Maximizes Returns.
  Minimizes Risks.

 Promotes Savings.

 Promotes Investments.

 Balanced Regional Development.

 Promotion of Domestic & Foreign Trade.

ANALYSIS OF THE CASE:
The case Financial Services in India talks all about the different phases of Indian financial
sectors, than about liberalisation, it also talks about the three main focused areas of Indian
financial sectors and many more things.
After reading the case I came to know about that since liberalisation, the Indian economy
changed drastically which has had a huge impact on the Indian financial services sector. The
economic liberalisation in India refers to the economic liberalisation of the country’s economic
policies, initiated in 1991 with the goal of making the economy more market and service
oriented, and expanding the role of private and foreign investment. This sector has been the
most dynamic part of the economy, leading GDP growth for the past two decades. India is
doing well in the retail sector and the financial sector, including Insurance. The country is now
eager to open up the pension sector to foreign investor. The economy has witnessed increased
private sector activity including an explosion of foreign Banks, Insurance companies, Mutual
funds, Venture funds, and Investments Institutions.
The reform in the Indian financial sector can be categorized into two phases:
1) 1985: The first started in 1985 and focused on Increasing productivity, new technology
impacts and the effective use of human resources.
The efforts were in line with the changes in international markets and production areas.
2) 1991: in 1991 when the second phase started the Indian government aimed at reducing
the Fiscal deficit (A fiscal deficit occurs when a government’s total expenditures exceed
the revenue that it generates, excluding money from borrowings) by modifying the
policy framework, improving the financial health of entities and creating a more
competitive environment.
These reforms focused on three main areas:
1. Strengthening the Banking System.
2. Upgrading resources development and
3. Making structural changes in the financial system.
The financial sector reforms in India have improved resources mobilization and allocations.
The liberalization of interest rates and the easing of cash reserves norms have helped makes
funds available to various sectors.
The financial services sector is now more customer centric, it has shifted towards those entities
that are able to offer products and services, in the most innovative and cost efficient manner.
In 2016 – India’s gross national savings (GNS) was estimated at 31.24%, as against other
developed nations, such as US GNS with 18.23% and Russia with23.35%.
The financial services in India have expanded into three areas:

 In the capital market, the asset management industry in India is the fastest growing in
the world, in September 2016: The assets under the mutual funds industry stood at us $
244.42 billion, showing 12% growth over the last quarter.
Within the capital market, the largest investors in mutual funds were leading assets
management companies(AMCs) in India, including ICICI prudential, HDFC AMC limited,
Reliance Nippon life AM limited, SBI AM and others.
Investment from these corporate investors stood at 46.6 % in 2016.The financial market has
also staidly increased because of the broking firms that have entered the stock market. The
number of companies listed on the National stock exchange rose from 135 listed companies in
1995 to 18111 in June 2016
The brokerage market has become more competitive with the entry of new players and the
increasing efforts of existing players to gain market share. In the capital market, the highest
demand is of wealth management services by high Net –Worth individuals, which requires
advisories on tax planning and financial planning.AS, a result financial services providers are
more customer centric.
 The insurance segments has grown significantly in recent years. Companies such as
ICICI prudential, HDFC life insurance, SBI life, Bajaj and various private limited firms
provide various life insurance and non-insurance policies. The life insurance sector has
launched various innovative products, such as unit linked insurance plans (ULIPs),
which are providing good returns to customers.
 Most general insurance public companies are planning to expand beyond Indian
markets, especially in the south East Asia and Middle East.
 NBFCs are another area of the financial market that aspires to emerge as one stop shop
for all financial services for customers. They rapidly gaining prominence as
intermediaries in the retail finance space. They serve unbanked customers by
pioneering into retail assets-backed lending, lending against securities and
microfinance. New reserve bank of India guidelines with reference to capital
requirements, provisioning norms, and enhanced disclosure requirements are expected
to benefits the sector in the long run.

Main Issues in the financial services in India:

These are few issues that financial services have to face.
1) Failure to Engage Customers
2) The Human Element of Cyber Risk
3) Operational Risk
4) Technology Risk
5) Reputational Risk
6) Credit and Investment Risk
7) Regulatory Pressure Forces Talent Out

Analysis of all the issues with the

solutions:
1) Failure to Engage Customers
Investors who put money into a CD or a savings account expect a return in the form
of accrued interest.

But it’s been a long time since money market accounts and certificates of deposit
offered anywhere near the return that they did prior to 2008. As the Fed continues to
raise interest rates, thoughtful investors have to be asking themselves why their bank
isn’t offering them a better rate of return. This raises the risk that investors will
increasingly choose other investment options, including online banking, over
depositing in brick-and-mortar savings and loan institutions.

Solutions: As customers expects the returns from their investments the,

financial services are providing maximum all the services to its customer
by on some points they should improve and give good returns to its
customers.

2) The Human Element of Cyber Risk

Efforts are underway to do more to make bank employees a more vital part of bank
cyber defences. Breaking down silos between human resources, the chief information
security officer, the CFO and operations management will be key to create a more
coordinated effort to better train bank employees in detecting phishing and spear-
phishing scams.
Optimists say banking employees are naturally compliance-oriented and will do well
at this sort of training. Others worry that cyber criminals continue to find new ways
to innovate and will always stay one step ahead of the corporate sector.

Solution: As we today cyber criminals are always creating problems for

the customers so the financial services should form such kind of
elements which will make customers feel that our money or our
investments are on the safe side.

3) Operational Risk
Operational risk is the risk that can turn into a reputational risk for a financial
institution in the span of one news cycle.

Any breakdown in internal processes, whether it be compliance, risk management’s

oversight of trades and investing, or the failure of a bank’s investment models falls
under this umbrella. In recent months there has been a consistent message
emanating from the banking industry that it cannot find enough risk management
talent. Some news stories say the shortage is so severe that banks are running a rising
risk of compliance failures.

Solution: Operational risk are within the organisation the financial

services should first focuses on its operational efficiency then only they
can handle their customers, proper functioning of all the steps in an
organization is very important which in future will help them to achieve
their goals.

4) Technology Risk
As we see in the commercial insurance business, mergers and acquisitions can result
in the combination or inheritance of outdated information technology systems.

The cost of getting legacy technology systems from different organizations to

function together can be prohibitive. A lack of coordinated information technology
systems can create a host of worries, including the fact that a cyber attack could go
undetected for months due to poor management visibility into information
technology functions.

Solution: In today world with technology you are incomplete and lack of
technology can create bog problem for any of the institutions so the
financial services should focuses on the technology
5 ) Reputational Risk
Hundreds of thousands of false accounts created for customers, selling people
unnecessary car insurance and on and on. Sceptics and critics wondered whether
executives at Wells Fargo should not simply lose their jobs and their bonuses but also
be sent to jail instead. Banking has a bad case of the reputational-risk flu and
continued outsized salaries and bonuses for bank executives, coupled with meagre
interest rates being offered to depositors don’t promise an effective or timely cure.

Solution: Customers are very important for any organization and we

should take proper care of them, the thousands of false accounts should
be deleted from the market so that the customers should feel safe to use
any on the services.
6) Credit and Investment Risk
Yes, it’s an interconnected global economy and 2008 taught us how a risk
management failure in one part of the economy (in that case, poor decision-making
around investing in collateralized debt obligations) can lead to global economic
turmoil.

History does repeat itself, but there are indications that the next trigger that results
in credit losses may come from political instability. It could be political developments
in Italy, the largest debtor nation in Europe, or it could be conflict in the Middle East.
Either way, whether banks have sufficiently girded themselves against these risks
won’t be known until the waters of turmoil recede.

Solution: In this the customers before using any kind of services should get all the
important knowledge about the product or the services, they should take care about
the market before any investment activity they take.

7) Regulatory Pressure Forces Talent Out

“Traditional” banking is subject to so much regulation that the pressure to comply
with it may force financial services talent out of an established institution toward, for
example, a fintech start-up. Take this risk in conjunction with the above risk that
banks are failing to engage customers and it doesn’t take too much effort to imagine
droves of customers and employees deserting banks in coming years.

Solution: As we know that traditional banking system or financial system was very
complicated but now we can do any kind of activity’s by using internet facilities so I
suggest that as our dynamic market is increasing day by day so we should take proper
care about our customers and provide then the best facilities.

Further Reading:
As this case evolved around the PESTEL analysis because for all political factors, economic
factors, social factors, technological factors, environmental factors, and legal factors financial
services are very important.

Political Factors

These are all about how and to what degree a government intervenes in the economy. This can
include – government policy, political stability or instability in overseas markets, foreign trade
policy, tax policy, labour law, environmental law, trade restrictions and so on.
It is clear from the list above that political factors often have an impact on organisations and
how they do business. Organisations need to be able to respond to the current and anticipated
future legislation, and adjust their marketing policy accordingly.
Economic Factors
Economic factors have a significant impact on how an organisation does business and also how
profitable they are. Factors include – economic growth, interest rates, exchange rates, inflation,
disposable income of consumers and businesses and so on.
These factors can be further broken down into macro-economic and micro-economic factors.
Macro-economic factors deal with the management of demand in any given economy.
Governments use interest rate control, taxation policy and government expenditure as their
main mechanisms they use for this.
Micro-economic factors are all about the way people spend their incomes. This has a large
impact on B2C organisations in particular.
Social Factors
Also known as socio-cultural factors, are the areas that involve the shared belief and attitudes
of the population. These factors include – population growth, age distribution, health
consciousness, and career attitudes and so on. These factors are of particular interest as they
have a direct effect on how marketers understand customers and what drives them, without
social factors financial services cannot perform.
Technological Factors
We all know how fast the technological landscape changes and how this impacts the way we
market our products. Technological factors affect marketing and the management thereof in
three distinct ways:
 New ways of producing goods and services
 New ways of distributing goods and services
 New ways of communicating with target markets
Environmental Factors
These factors have only really come to the forefront in the last fifteen years or so. They have
become important due to the increasing scarcity of raw materials, pollution targets, doing
business as an ethical and sustainable company, carbon footprint targets set by governments
(this is a good example were one factor could be classes as political and environmental at the
same time). These are just some of the issues marketers are facing within this factor. More and
more consumers are demanding that the products they buy are sourced ethically, and if possible
from a sustainable source.
Legal Factors
Legal factors include - health and safety, equal opportunities, advertising standards, consumer
rights and laws, product labelling and product safety. It is clear that companies need to know
what is and what is not legal in order to trade successfully. If an organisation trades globally
this becomes a very tricky area to get right as each country has its own set of rules and
regulations and without financial services they not able to do anything.