COLLEGE SADHANA – Journal for Bloomers of Research,
Vol. 2,
No. 2,
FEBRUARY 2010
Recent Trends in Indian Financial Services Industry R.Neelamegam Emeritus Professor- AICTE, Department of Management Studies, V.H.N.S.N. College, Virudhunagar
Abstract - 'Finance is the life blood of business' and 'Finance is the wheel of industry' go the rhetoric emphasizing the key role of finance. In fact, finance pervades into other areas of business like production and marketing to keep the business going: such is the importance of finance. Amid this backdrop, the present paper brings to focus recent trends in financial services sector in India.
1. INTRODUCTION
In India, the onset of globalization in July1991, changed the financial scenes in the realms of banking, insurance and Mutual fund. 1.1 Commercial banks
A landmark was registered in the Indian banking sector when the major banks were nationalized nationalize d in 1969.Though nationalization was enforced as a flashy political gimmickry by the then government at the centre, its real gain was reaped by the citizens of India only in 2009-w hen the banks of developed nations tumbled down, the Indian banks stood strong- there was no public panic at all at the time of global financial crisis which shook the world during 2008-2009. 1.2 Banks' technology driven services
Marketing is an essential economic factor not only for production but also for research and development. Peter Drucker has aptly remarked a business firm has really two functions only, namely, marketing and innovation. It is very relevant for banking industry, ind ustry, which in India has undergone sea changes, thanks to the advent of technology, competition brought through foreign banks, emergence of new private banks and changes in regulation regulations. s. With more and more players expected in the field, banks have to adapt to the new trend. Concerted efforts have been made by banks to improve customer service. The most important
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ones relate to the advent of technology ATMS, telebanking, internet banking- banks have adopted latest information informati on technology to cater to the needs of customers. For example, in a shared payment network system (SPNS), a customer of one bank can use u se his ATM ATM card at another an other bank's bank' s ATM, both being in the same network. Banks have opened specialized branches like industrial finance, MSME and NRI branches in order to provide personalized services. Besides, they have set up grievance redressal cells at major centers to redress customers' grievances. grievances . 1.3 Cross Selling
Recently, in retail banking business, the concept of cross selling has been introd uced. If a bank sells an asset product (housing/car/ educational loan) loan ) to its account holder, it is cross selling. The cross selling enhances customer's loyalty. Banks have entered into the field of housing loan. Housing loan rates are being slashed. The aggression by the banks in this field is noticeable. The rate war triggered by SBI has prompted other banks to lower their rates.SBI, UBI, PSB along with LIC and HFC have special offer of loan at 8% to 8.5% 1.4 Educational Loan
A salient feature featur e in recent trend in bank finance is education loan. Education loans amounting to Rs24,000 crore had been disbursed to 16 lakh students across the country til l march, 2009; and it is expected that the education loan may touch Rs50,000 crore by 2015. The Centra l Government has decided not to charge interest on education loan granted to those whose family income is less than Rs4.5 lakh per annum. This will come into force during the current academic year.
R.Neelamegam - Recent Trends in Indian Financial Service s Industry
2. REGIONAL RURAL BANKS (RRBS)
3.1 Detariffing
Ours is an agricultural economy .The Father of the Nation rightly said that India lives in villages. Still there are lakhs of villages where 60 crore people live. Against this backdrop, the establishment of Regional Rural Bank in India is a landmark in the Indian Banking History. The main objective of RRB is to provide credit especially to small and marginal farmers, agricultural labourers, small entrepreneurs and artisans in rural areas who need funds. At the beginning, in 1975, five RRBS were setup. Today, we have 104 RRBS Sponsored by 29 banks. These RRBS function in 484 districts wit h more than 14,400 branches and employing about 70,200 persons. Realizing the importance of the RRBS, Government of India has recently said that it intends to strengthen the financial resources of RRBS.
Recently, the IRDA has requested the general insurance companies to initiate steps to ensure transition from tariff regime to detariff regime from January, 2007; accordingly, there is full detariffing of the general insurance business from April 1, 2008. Tariff means rigidity. It means that not only rates are fixed, but also the terms and conditions of policies are to be laid down in tariff. Detariffing makes insur ers free to decide the premium rates based on their own guidelines of pricing.
3. INSURANCE SECTOR
The life insurance business has come a long way since independence, and Indian consumers till recently had been dealing with one life insurance player, i.e., the LIC in the public sector. After the liberalization of the insurance sector, a dozen companies have entered the insurance business. The insurance sector had the reforms with the passing of IRDA bill in December, 1999. The privatization process commenced by forming the Insurance Reforms Committee. The 12 private life insurers have already grabbed 9% of the market in terms of premium income. The insurance premiums of these 12 players have crossed Rs 1000 crore ove r the last year. Innovative products, smart marketing and aggressive distributition, that is, the triple whammy combination has enabled fledgling private insurers to sign up Indian consumers. While the state owned companies still dominate segments like endowment and money back policies, the private companies have a virtual monopoly in the unit linked insurance schemes.
3.2 Bancassurance
The concept bancassurance is French origin. It is an emerging concept in India .Life assurance companies need immense distribution strength. This distribution will undergo a vast change when the insurance policies are available from local bank branch through bancassurance .In India, the sign of initial success is already there and the success of the scheme depends on banks ensuring excellent customer relationship. 3.3 Micro Insurance
LIC launched its first micro insurance product, captioned “Jeevan Madhur” in September, 2006. It launched its second micro insurance product, under the caption “Jeevan Mangal” in September, 2009. The policy is targeted at factory workers, self help group members, domestic servants, rickshaw pullers and other low income people. The salient feature is a low minimum premium of Rs15 per week and the risk cover ranged from Rs 15, 000 to a Maximum of Rs 50, 000. 4. MUTUAL FUND
In India, mutual funds play a dominant role by mobilizing savings and investing them in the capital market, thus establishing a link between savings and capital market. The main objective of investing in mutual fund scheme is to diversify risk. Mutual funds made an opening in 1963 under the enactment of Unit Trust of India
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COLLEGE SADHANA – Journal for Bloomers of Research,
Vol. 2,
which launched its first scheme named US 1964, which is continuing even to-day. In1986, the Government amended the Banking Regulation Act and permitted public sector commercial banks like SBI, PNB, Canara bank and so forth to set up mutual funds. Government allowed insurance companies in the public sector- GIC in 1989 and LIC in 1991, to set up mutual funds. In 1993, under its New Economic policy of liberalization opened the gates to the private sector to set up mutual funds. In Marc h 1991, the government entrusted the function of regulating mutual funds to Securities and Exchange Board of India (SEBI) which issued guidelines in October, 1991 for regulating the Indian capital market. 4.1 Sectorwise Mobilization of Funds by Mutual Funds
Mutual funds have become an important segment of institutional investors. The total mobilization of funds by private sector MFs during 2007-2008 was Rs.37, 80,753 crores, followed by UTI MFs Rs.3, 46,126 crores, and public sector MFs Rs.3, 37 ,498 crores. As in the preceding years, the private sector MFs continued to dominate resource mobilization in 2007-2008 Now there is SIP (systematic investment plan) method of investing in the mutual fund. Before starting a SIP, an investor has to decide on which fund scheme he wants to invest in dividend or growth option? How much one wants to invest? How long one wants SIP to go on? and so
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No. 2,
FEBRUARY 2010
forth. Interest rate future was launched in National Stock Exchange on 31st August, 2009. It is a contract to buy or sell a debt security (10 year government bond bearing interest rate of 7% payable half yearly) at a price decided in advance for delivery at a future date .The cont ract helps to eliminate the interest rate risk. 5. CONCLUSION
It is clear that many aspects of financial services industry in India have changed since the 1990's. With the reforms of financial services industry, the economy has been opened up and several significant developments have been taking place in all the segments of the financial services sector. As per the survey of Central Statistical Organization, the Indian economy has grown at 6.1% in the first quarter of 2009-2010 against 5.8% growth in the previous quarter despite the global financial crisis impacting manufacturing and services sectors like trade, hotels and communication. It is heartening to note that finance, insurance and real estate expanded by 8.1% against 6.9% in the previous REFERENCES [1]
SEBI Annual report upto 2007- 2008
[2]
The Hindu, August 30, 2009, P.12
[3]
The Hindu, September 1, 2009, P.16
[4]
The Hindu, September 4, 2009, P.1
