In the following years, industry and service sectors were opened up for foreign direct investment.

The
reforms ended the dominance of the public sector and reduced direct government control on industrial
investments.
Financial sector reforms in India have improved resource mobilisations and allocation. The liberalisation of
interest rates and the easing of cash reserve norms have helped make funds available to various sectors.
However, prudential norms have been tightened and transparency and regulation increased to avoid a
systemic collapse that other countries have suffered.
Indian owned private banks came into existence with the establishment of Allahabad Bank in 1865. This was
followed by the setup of Punjab National Bank in 1895 and Bank of India was set up in 1906. The Swadeshi
Movement of 1906 spurred the establishment of more Indian owned commercial banks including Central
Bank of India, Bank of Baroda, Canara Bank, Indian Bank and Bank of Mysore. However, most of these
banks catered mainly to the industrial sector and the individual borrowers had to rely on moneylenders who
charged extortionate rates of interest. This spurred the growth of co-operative credit movement with the set-
up of several urban cooperative banks. Given the critical role played by co-operative credit societies in
addressing the needs of lower income population, a new regulation giving legal recognition to credit
societies was passed in 1912.

❖ What do you mean by financial services?

The term “financial services” in a broad sense mean “mobilizing and allocating saving”. Thus, it includes
all activities involved in the transformation of saving into investment

• Companies usually have two distinct approaches to this new type of business. One approach would
be a bank which simply buys an insurance company or an investment bank, keeps the
original brands of the acquired firm, and adds the acquisition to its holding company simply to
diversify its earnings. Outside the U.S. (e.g. Japan), non-financial services companies are permitted
within the holding company. In this scenario, each company still looks independent, and has its own
customers, etc. In the other style, a bank would simply create its own brokerage division or insurance
division and attempt to sell those products to its own existing customers, with incentives for
combining all things with one company.

• Companies in the financial services industry are in the business of managing money. Globally, the
financial services industry leads the world in terms of earnings and equity market capitalization.
Large conglomerates dominate this sector, but it also includes a diverse range of smaller companies.

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 • Commercial banking services are the foundation of the financial services group. The operations of
a commercial bank include the safekeeping of deposits, issuance of credit and debit cards, and the
lending of money.

• An investment bank typically only works with deal makers and high-net-worth clients, not the
general public. These banks underwrite deals, secure access to capital markets, offer wealth
management and tax advice, advise companies on mergers and acquisitions, and facilitate the buying
and selling of stocks and bonds. Financial advisors and discount brokerages also occupy this niche.
• Hedge funds, mutual funds and investment partnerships invest money in the financial markets and
• collect management fees in the process. These organizations require custody services for trading and
servicing their portfolios, as well as legal, compliance and marketing advice. There are also software
vendors that cater to the investment fund community by developing software applications
for portfolio management, client reporting and other back office services.
• Private equity funds, venture capital providers and angel investors supply investment capital to
• companies in exchange for ownership stakes or profit participation. Venture capital was especially
important to tech firms in the 1990s. Much of what goes on behind the scenes in the making of big
deals is attributed to this group.
• Insurance is another important subsector of the financial services industry. In the United States, an
insurance agent differs from a broker. The former is a representative of the insurance carrier, while
the latter represents the insured and shops around for insurance policies. This is also the realm of the
underwriter, who assesses the risk of insuring clients and also advises investment bankers on loan
risk. Finally, reinsurers are in the business of selling insurance to the insurers themselves to help
protect them from catastrophic losses.
• The vast financial services sector also includes accountants and tax filing services, currency
exchange and wire transfer services, and credit card machine services and networks. It also includes
debt resolution services and global payment providers such as Visa and Mastercard, as well as
exchanges that facilitate stock, derivatives and commodity trades.

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