various phases of Emergence and Development of Financial Services in India

Initial Phase

Innovative services like Merchant banking, Insurance and Lease Finance are introduced at the initial phase. The functions of Merchant bankers start from project appraisal and end at mobilization of funds. It includes underwriting of shares for public issues and listing of shares in the stock exchange. These functions are initiated by LIC, GIC, and UTI. In addition to this, leasing service is also initiated in the year 1970. Leasing service was started with equipment lease financing. Slowly, the leasing companies engaged in other types of lease such as, financial lease and operating lease.

Second Phase

Value added services like, over the counter share transfers, pledging of shares, mutual funds, factoring, discounting, venture capital and credit rating are introduced in the second phase. The major contribution to the industry is from mutual fund in the developed countries. Capital market malpractices have come down due to the introduction of credit rating services. Initially the rating was applied only to debt instruments and now-a-days, it is mandatory for the instruments, commercial papers and fixed deposits.

Third Phase

In the era of post liberalization, financial services sector introduced new financial instruments and set up new institutions. During this phase, the contemporary issues like depositories, online trading, paperless trading, dematerialization, stock lending schemes and book building method of stock issues are initiated. Book building method of stock issues has become popularized because it helps both investors and issuing companies. Foreign Institutional investors (FIIs) are allowed to enter into the Indian capital market.